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Anthony Donato

 
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  • Computing MV Oil Trust's Q4 Distribution: Solid Returns [View article]
    Alright -- you guys made me pull out the financial calculator -- something I should have done before.

    PV=-25 (current share price)
    PMT=3 (distribution)
    FV=0
    Periods=13
    Compute Rate

    Rate=7.05%

    Assuming -- constant $3 annual distribution, $25 share price, $0 value at the end of 13 years. (rate would be slightly higher if you compute with quarterly distributions instead of annual... but you get the idea)
    Dec 10 11:35 AM | 3 Likes Like |Link to Comment
  • Computing MV Oil Trust's Q4 Distribution: Solid Returns [View article]
    I paid a high price too before fully understanding the trust. I am adding to the position at these levels to bring down my average cost per share. A 60% return over 13 years is not bad given that there is a solid likelihood of that money being returned -- you also have a call option on the price of oil and the possibility that the proved reserves of the wells increase (as they have in past years) increasing the longevity of the investment. Or as @dsr70 said -- the trust gets bid up and gives you a chance to get out. Anything near 35 and I would sell. At this point the opposite is true.

    Adjusting the numbers listed in the 10k for this years results:
    The trust currently has ~7.2M barrels of proved reserves and an expected production and development costs of ~$220M, the future cash flows have the following values given the price of oil

    oil price -- cash flow -- per share CF -- % return
    $70 -- $284M -- $24.69 -- 0%
    $80 -- $356M -- $30.95 -- 24%
    $90 -- $428M -- $37.21 -- 49%
    $100 -- $500M -- $43.48 -- 75%
    $110 -- $572 -- $49.73 -- 100%

    So as an investor, you need to decide the return you demand and your estimate price for oil over the next decade -- the rest of the math is pretty simple.
    Dec 9 09:46 AM | 3 Likes Like |Link to Comment
  • Understanding SandRidge Permian Trust [View article]
    Once the trust terminates, the unit holders retain no rights.
    Dec 13 04:12 PM | 2 Likes Like |Link to Comment
  • Understanding SandRidge Permian Trust [View article]
    PV10 is mandated by FASB -- my point is from an investors point of view, a lower discount rate would be a more helpful tool in evaluating these trusts.
    Dec 11 08:57 PM | 2 Likes Like |Link to Comment
  • Computing MV Oil Trust's Q4 Distribution: Solid Returns [View article]
    Yes and no -- You cannot compute yield as you just did because of the return of capital side -- it is not a bond that pays you 3.7% then returns your capital at the end. Your invested basis decreases each year. If we assume the $25 in depletion is constant over 12 years ($2.08) and the yield side ($15) is constant over 12 years ($1.25) you have the following returns:
    Year / cost basis / return
    1 / 25 / 5%
    2 / 22.92 / 5.54%
    3 / 20.84 / 5.99%
    4 / 18.76 / 6.66%
    5 / 16.68 / 7.5%
    6 / 14.60 / 8.6%
    7 / 12.52 / 9.98%
    8 / 10.44 / 11.97%
    9 / 8.36 / 14.95%
    10 / 6.28 / 19.9%
    11 / 4.20 / 29.7%
    12 / 2.12 / 58.9%

    Those are the returns on your adjusted basis.

    That is an oversimplification of the returns... depletion is not constant, production will not be constant. Most importantly... the unit price is determined by supply and demand (market), so the actual price depreciation is uncontrollable. But your comment about a 3.7% return is incorrect.
    Dec 10 09:45 AM | 2 Likes Like |Link to Comment
  • Seadrill: A Deeper Look At Its Dividend Ability [View article]
    Seadrill's pipeline and future distributions are what is important to valuation.

    I would reference my article:
    http://seekingalpha.co...
    In order to understand the impact of the Tender Rig sale to SapuraKencana and the increase to revenue and EBITDA as its rigs under construction come online.

    You cannot evaluate this company based on past distributions.
    Dec 7 11:44 AM | 2 Likes Like |Link to Comment
  • Understanding SandRidge Permian Trust [View article]
    I have read multiple comments and articles with the concern that SD will not drill the wells. That does not make economic sense. First off, the subordinated units do not get paid if SD does not fulfill its obligations so even if they stopped drilling, the trust holders would get paid. Secondly, the wells do not create the oil... they just allow us to get to it. The proved reserves are there, so if SD stops drilling wells, it will take longer to get the reserves out using only the existing wells (so they lose some value based on time value of money) but the cash flows do keep coming, just not as quickly. Thirdly, SD needs to finish the wells so the subordinated units covert and they can sell them to continue financing the production side of their operations. The third point is the reason they are ahead of schedule.
    Dec 13 04:10 PM | 1 Like Like |Link to Comment
  • Understanding SandRidge Permian Trust [View article]
    I had also recently completed an analysis of SDT, that was a typo that I should have caught but did not --- all the information is correct and relative to PER.
    Dec 13 04:06 PM | 1 Like Like |Link to Comment
  • Understanding SandRidge Permian Trust [View article]
    We estimate what the trust will pay based on the proved reserves. (developed and undeveloped) -- SD drilling the wells is essential for getting to the oil, but the proved reserves are accurate figures -- normally conservative estmates. Notice last year they increased their reserves by over 500M barrels (almost equal to production).

    I agree that PV 10 is no logner a valid tool for analysis ... PV5 or PV7 do make more sense, 500 basis point above the 10yr treasury.
    Dec 11 07:37 PM | 1 Like Like |Link to Comment
  • Understanding Seadrill And Future Dividends [View article]
    You are 100% correct. That information was in a news article on November 16 -- Seadrill will take possession of the Songa Eclipse in December 2012 -- It does not list the day rate, but a safe assumption is $500,000.

    This will increase 1Q2013 and all future quarters revenue by $45.5M and EBITDA by 27.7M. EBITDA per share will increase by $.059 per quarter from my calculations.

    Thank you for bringing it to our attention!
    Dec 7 05:31 PM | 1 Like Like |Link to Comment
  • Understanding Seadrill And Future Dividends [View article]
    My goal with the analysis was to be as conservative as possible.

    They retain a 24.3% stake is SDLP, 13% of SapuraKencana (post sale) ~66% of Asia Offshore, 28.5% of Sevan Drilling, 49% of Varia Perdana. Note in Q3 they did not add significantly earnings, in fact they were a net loss of ~$40M. (mostly due to a 1 time charge from Archer). My goal was to estimate revenue and EBITDA for the core company.

    My opinion (based on what I read in the quarterly reports) is that utilization rates will improve in the fourth quarter. Also note the Tender Rig sale will not occur in this quarter, so 4Q2012 Revenue and EBITDA will be higher than my estimations (by $100M).

    You can use my calculations as a base, then add in the projected cash flows you mentioned. The above tables are a conservative estimation of future cash flows. And once those rigs come online and revenue/EBITDA increase, I expect a higher share price.
    Dec 7 12:11 PM | 1 Like Like |Link to Comment
  • Computing MV Oil Trust's Q4 Distribution: Solid Returns [View article]
    I disagree with a worldwide economic downturn. Slower growth, possibly stagnation. Oil prices around $85 a barrel is more realistic. Note that a 2016 globex future on WTI is around $85 today. The trust expires in 2026, so 13 years of distributions commands a higher price than 25. If they went out and hedged production... they would get $85/barrel.
    Dec 6 04:23 PM | 1 Like Like |Link to Comment
  • Understanding SandRidge Trust I [View article]
    Analysis of SandRidge Permian Trust is now complete. You can see the article here:

    http://seekingalpha.co...
    Dec 11 06:11 PM | Likes Like |Link to Comment
  • Understanding SandRidge Trust I [View article]
    I have looked into a few of the other SandRidge trusts, have an article in the works on PER. I rely on the 10-k for the reserve information and to form the basis for my analysis. I have yet to locate a 10k on SDR -- so I will be glad to review the company once they file their report for this year.
    Dec 11 02:14 PM | Likes Like |Link to Comment
  • Computing MV Oil Trust's Q4 Distribution: Solid Returns [View article]
    The trust is currently set to expire in 2026. At which point the share price will be $0. Note in my final paragraph, given a stable oil price, you will receive roughly $40 in distributions over that time period. You are paying $25 for that right, so your return is $15, roughly 60%. In a near 0% interest rate environment, that is a good return for a commodity play.
    Dec 8 08:49 AM | Likes Like |Link to Comment
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