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Based in Austin, Texas, Pacific Coast Oil Trust (NYSE:ROYT) scheduled a $350 million IPO with a market capitalization of $772 at a price range mid-point of $20 for Thursday, May 3, 2012. ROYT expects to sell 45% of the company on the IPO - that's a relatively high percentage and is not a plus. [S-1]

ROYT is one of six IPOs scheduled for the week of April 30th. (Full IPO calendar here).

Manager, Joint Managers: Barclays; Citigroup; BofA; J.P. Morgan; UBS; Wells Fargo.

SUMMARY
ROYT is a combination of two very old producing properties in California, with 98% oil in reserves. For example, one of the properties, The Los Angeles Basin, has produced more than nine billion Bbls of oil since its discovery in 1892.

EXPECTED PAYOUT
9% at the price range mid-point estimated for the 12 months ending May, 2013. But there is only a 17 year life left for proved reserves.

USE OF PROCEEDS
76% if the IPO funds are earmarked for distributions to shareholders. Shareholders probably want to pocket 34% ($266 million of $772 million) of the market capitalization - because there is only a 17 year life left for proved developed reserves.

CONCLUSION
There royalty trusts out that have a longer expected life for proved developed reserves than ROYT, and are less risky investments over time.

BUSINESS
"Pacific Coast Oil Trust is a Delaware statutory trust formed by PCEC in January 2012 to own interests in the Underlying Properties. " S-1, page 1

"PCEC is a privately held Delaware limited partnership formed on June 15, 2004 as BreitBurn Energy Company L.P. to engage in the production and development of oil and natural gas from properties located in California." S-1, page 14

The trust expects to receive

  • 80% of the net profits from the sale of oil and natural gas production from the Developed Properties.
  • Regarding the remaining properties the trust expects to receive 7.5% of the proceeds (free of any production or development costs but bearing the proportionate share of production and property taxes and post-production costs) attributable to the sale of all oil and natural gas production from the Remaining Properties located on PCEC's Orcutt properties and 25% of the net profits from the sale of oil and natural gas production from all of the Remaining Properties.

As of December 31, 2011, PCEC held interests in approximately 276 gross (215 net) producing wells, and had proved reserves of approximately 34.1 MBoe.

UNDERLYING PROPERTIES
The Underlying Properties are located in California in the Santa Maria and Los Angeles Basins, both of which are characterized by long producing histories. PCEC operated 98% of the average daily production from the Underlying Properties for the month ended December 31, 2011.

The Underlying Properties held 34.1 MMBoe in proved reserves as of December 31, 2011, which were 98% oil and 62% proved developed.

EXPECTED PAYOUT
9% at the price range mid-point estimated for the 12 months ending May, 2013. But there is only a 17 year life left for proved reserves.

All the initial payout comes from 80% net profits interest in the proved developed reserves.

But the proved developed reserves only have a 17 year life left

The estimated compound decline rate for proved developed reserves is 3.7% year for the next five years.

OMISSIONS

  • The S-1 filing omits further cash payout targets, which are normally included in a royalty trust IPO filing.
  • Using the standard measure of discounted cash flows, the present value is estimated to be $1.1 billion, page 63, but the discount rate is not disclosed, making the estimate virtually meaningless.

USE OF PROCEEDS
PCEC expects to net $322 million from its IPO from sale of 17.5 million units. $54 is allocated to repay debt. $266 million is earmarked for distributions to shareholders.

Disclaimer: This ROYT IPO report is based on a reading and analysis of ROYT's S-1 filing which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Pacific Coast Oil Trust