Hugoton Offers Long Term Natural Gas Income

Buy-recommended Hugoton Royalty Trust (HGT), with estimated net present value [NPV] of $42 a unit, offers natural gas resource value with income. On May 13, we raised NPV from $34 on the basis of a long-term natural gas price assumption of $14 a million btu, up from $11.

The natural gas benchmark index price set at the beginning of the month was $13 in July. Taking account of the two-month lag in declaring distributions, the July index price indicates a record payment of $0.42 a unit to be declared in September. Alas, natural gas price declined sharply to a $9 index for August, which points to $0.26 a unit distribution in October. Futures prices on August 18 are the basis for our estimate of distributions in the first half of next year. With the U.S. in a continuing credit crisis, investors in a strong financial position can be the winners buying units of a sound trust, like HGT, sold by weak, highly leveraged investors.

Weekly Income Stock Valuation
The freshly declared distribution for August rockets monthly income for oil-oriented Permian Basin Royalty Trust (PBT) to new heights. Thirteen income stocks have a median McDep Ratio of 0.84 that indicates attractive value. The median unlevered market cash flow multiple (EV/Ebitda) is 8.6 times, a low valuation for a median adjusted reserve life of 10.6 years. Median estimated distribution yield is a high 10.5%.

Originally published on August 22, 2008.

Comments

[einstein p ...:]

I own PBT and bought more today. Yield helps in this horrible market.

After listening to all the presidential and vice-presidential debates --- trying desperately not to fall asleep ---- I noticed that both sides are talking about an energy policy, including drilling, clean burning coal, solar, wind, and nuclear. I have yet to hear either side specifically mention natural gas, which is odd. Drilling is a non issue, at least for the moment, as all available rigs are in use and new rigs will not be available for a few years. Clean burning coal is not a reality, although we can certainly have cleaner burning coal. I'm not sure that America is ready for nuclear, but I hope we do. Wind and solar are also part of the equation. Truthfully, we need all of the above. A sound energy policy will keep us from exporting billions of dollars a year offshore and creates hundreds of thousands of jobs. It may also reinvent the car business. Cars that run on natural gas are already made by American companies, but we ship them to foreign countries and a couple of hundred guys in Utah. Convert the whole country to cars that run on natural gas, along with every filling station.

We have enough lawyers and investment bankers. What we need now is miners, oil drillers, and engineers.

2008 Oct 08 02:51 PM

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If this russia iran partnership in natural gas goes through this stock would be a looker.

2008 Oct 25 10:27 PM