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The units of small-cap Cross Timbers Royalty Trust (CRT) offer high income from clean, low-cost, debt-free natural gas production with commodity price upside. Having none of the carcinogens of coal or the diminished impurities of oil products, natural gas is half the price of its oil equivalent. Having no debt and no obligation for capital or operating cost on most of its production, the trust has super-prime financial quality.

Having no commodity hedge contracts, the trust participates fully in natural gas price gains. On the volume side, multi-billion dollar investment programs of operators,ConocoPhillips (COP) and BP plc (BP), keep production flowing in the San Juan Basin, the largest natural gas field in the U.S. where the trust holds most of its royalties.

Meanwhile, the stock has been trading in the low $40s when our long experience with CRT and peers tells us it should be in the mid $40s in today’s market. Finally, the seasonal timing looks good for investors to tap into a projected distribution of 9.9% for the next twelve months just before winter, the most likely period of year for an upside price surprise.

Originally published on November 23, 2007.

Source: Cross Timbers Royalty Trust: Super-Prime Financial Quality