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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]
    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
  • 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
  • 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
  • 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
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