TELOZ's Yield, Valuation Make It Worth a Good, Hard Look

Tel Offshore Trust (TELOZ) is an American based Oil & Gas Trust with Gulf of Mexico wells producing oil and natural gas. Over two years ago, two hurricanes knocked the socks off of TELOZ, its dividend was stopped, and it took more than a year for repairs to be completed. At this point, almost all repairs are done and the dividend is back!

Recent Dividend history on TELOZ -

• May 27 2007 - Quarterly Dividend of $0.245727 was paid out.
• June 29 2007 - Quarterly Dividend of $0.432 was paid out.
• Sept 27 2007 - Quarterly Dividend of $0.597051 was paid out.
• Dec 27 2007 - Quarterly Dividend of $0.684564 per share.
• March 27 2008 - Quarterly Dividend of $0.9410 per share. (12% Yield Now)

TELOZ is American based, therefore U.S. based share holders get 100% of the dividend, rather than 85% of the dividend in the Canadian Royals, which are also yielding 10% to 14% annually - such as Penn West Energy Trusts (PWE) or Pengrowth Energy Trust (PGH) or Harvest Energy Trust (HTE). Plus, you do not have to worry about the Canadian tax structure change on CanRoys.

CONSUMPTION GROWS IN EMERGING COUNTRIES

China, India, and many other emerging countries are like the US roaring 1920s - where our people enjoyed appliances, cars, and homes. Many Chinese and Indian people are now enjoying appliances, cars, and other conveniences. These economies are growing and will keep growing for five or more years. Therefore, it takes energy for Tata Motors (India car maker) to build those cars, it takes energy to construct new buildings, new applicances, drive those vehicles, ....

Energy prices will stay high and dividend paying Oil & Gas trusts are paying out handsomely rich dividends! US oil prices are directly impacted by the high demand that Chindia has created and oil prices will stay high due to Chindia, emerging markets, Iraq situation, and random interruptions of supply due to war or major refinery issues.

UPCOMING DIVIDEND

Assume a $1.14 dividend will be paid out (last quarter was $0.941) for the next year. Taking a $4.56 (4 x $1.14) annual yield at the current pirce ($31.00) gives us a 14.7% dividend.

Now, if the dividend increases to $1.25, it amounts to $5.00 / $31.00, which gives us an 16.1% dividend.

The $1.25 very well could occur, as this trust has a built in time delay of a quarter reporting its revenue and earnings. $140 oil has just appeared. Earnings will go up. Rumors of Eugene Island adding to revenues are now circulating as well. Realize that this is a trust... with fixed assets... partnerships with major oil companies.... risk of hurricane in the Gulf...

CALCULATED TARGET SHARE PRICE at 12% YIELD

Future Share Price - A reasonable dividend percentage yield for American based trusts, once the investor community is comfortable with TELOZ for long term investing, is a target 12%. We believe TELOZ should be trading at $37.00 to 40.00 a share based on higher crude prices:

$4.56 / $37.00 = 12.32% - Assume $1.14 quarterly dividend a $37.00 share price

$5.00 / $40.00 = 12.50% - Assume $1.25 quarterly dividend and $40.00 share price

In our opinion, TELOZ share price should be trading between $37 and $40 for a 12% yield (common in Oil & Gas Trusts). Some US based Oil & Gas Trusts yield only 8 to 10% yields, but TELOZ has the offshore risk, which will keep it more in the 10 to 12% yield range.

Disclosure: Long

Comments

[El Borak:]

One item of note for people interested in TELOZ is that it is highly volatile, far moreso than its peers. It moves up quickly, then just as suddenly down for reasons inexplicable. These are moves in the double-digit percentages which are liable to shake up (or shake out) nervous investors. It is not uncommon to see a 15% drop on no news (c.f. May 19, 2008).

I've been a shareholder in TELOZ for a long time; in fact, I am confident enough in it to keep a trailing buy about 15% behind the current price just in case someone wants to sell me shares on the cheap. But make no mistake, this is a stock for those who are either a) not concerned about day-to-day fluctuations at all, or b) love them and scale trade them to even better profits than the current impressive yield. It is not for widows or orphans.

2008 May 26 08:17 PM

[notsosmart:]

the hurricane factor is ever present year after year. sure i like the yield but you can do just as well in oil tankers & they can move from any storms.

2008 May 27 08:53 AM

[Philip Obal:]

It should be VERY INTERESTING to see what the TELOZ quarterly dividend will be in three weeks from now!

2008 May 29 10:07 AM

[Philip Obal:]

TELOZ should make their distribution announcement around June 26th. Will it be $1.14 ? We will find out!

2008 Jun 13 03:53 PM

[Philip Obal:]

TELOZ has reached $38.00 per share. We will begin to sell our shares at this point, as TELOZ is becoming fully value. It could go up to 39 - 41 a share during the next few days.

2008 Jun 23 12:31 PM

[freng:]

Well, you got your dividend announcement, Phil. $0.55/unit and 30% drop in stock price. What do you think of the latest news? Do they concern you or are you buying back?

2008 Jun 27 01:12 PM

[Philip Obal:]

It does concern me, that revenue is down. Need to let the dust settle and see exactly what happened here. There is both talk of (1) increased investment in one field with a major oil company, that will produce in quarters to come.... (2) production numbers that were announced needs analysis... as they are NOT proportional to the number of days that one field was out of service (due to repairs).

Overall - the announcement was too short - NOT enough details to access the future (as mentioned in #1 - the talk/rumors) - and what percentage was depletion versus shut-in for repairs. I would grade the press announcement level of detail as a F, as shareholders deserve better detail than that.

I sold out of my position on 6/23 as stated. I will stay on the sidelines and NOT go back into TELOZ for about 30 to 45 days. The dust needs to settle. I believe we will see the share price to slowly erode (go down), as it always does, after the dividend.

IN THIS SITUATION - I suspect that it will descend and hit a bottom around $17 to $23 a share.

So, I would start buying TELOZ again in the low 20's carefully, if you are like me (willing to take a good risk, to see it rise 40 to 50% in a few months). Would like more news and facts FIRST, which means calling Mike Ulrich (trustee of the Fund).

BTW - do not fall in love with any investment. Buy value at value prices, sell them when they are fully valued.

2008 Jun 27 02:46 PM

[Philip Obal:]

For those that have patience to buy....

It is very possible that TELOZ could go lower to the 15 to 18 range within 30 days.

2008 Jul 03 12:52 PM

[User 168670:]

now that teloz is crashing it would be good to get an update from mr obal

2008 Jul 04 12:23 PM

[Philip Obal:]

See my notes on 6/23, 6/27, and 7/3.

TELOZ is the one that is bringing the auditors in, to verify numbers from the working partners (Chevron...).

Eugene Island 339 is a key point of interest. It is a major oil & gas platform, that is key to earnings & revenue. Our 1/2 priced dividend is mainly due to Eugene. Keep focused on what is happening at Eugene ( a key major factor ) in order to guess the future of TELOZ.

From the 10-Q for quarter ending in March 2008 (see www.sec.gov/Archives/e... ) ... It says...

Liquidity and Capital Resources - 10-Q Qtr Ending March 2008

Chevron has informed the Trustee that Chevron had budgeted approximately $14.7 million, net to the Trust's interest, in capital expenditures during 2008 associated with Eugene Island 339 relating to side track drilling resulting from existing casing damage and a related delineation drilling project. Chevron has recently informed the Trustee that the start date for the side track drilling project is now in September 2008, with completion thereof expected in October 2008. The start date for the delineation project is now November 2008, with completion thereof expected in December 2008.

Have not heard of new dates for this delineation project.

STRATEGY

IMHO, let the dust settle, now have 2.5 months before the next quarterly dividend. I plan on sitting on the sideline, waiting for TELOZ to bottom out. If it hits $15 per share, I will start buying at it. which is a 14.66% dividend at the current 55 cents per quarter. If it goes lower than 15, I will be buying more.

It "possibly" could be end of 2008 or early 2009 before we see the dividend increase close to $1.00, if there is much work done on Eugene Island. This is the item to research and analyze.

I suspect that we will continue to see the high fluctation in the stock price, near each quarterly dividend, to continue that pattern, but adjusted to the new dividend and respective percentages.

Hope this helps!! If you have insights on Eugene Island or other TELOZ issues - feel free to share them.

2008 Jul 05 10:30 AM