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WHZ - Whiting Petroleum Trust II - High 2012 Return?

|Includes:Whiting USA Trust II (WHZT)

WHZ, Whiting USA Trust II, just made the first "quarterly" payment which exceeded their prospectus estimate even though the realized price of oil was lower than estimated. This first payment, according to Whiting documents, was only 2+ months of oil and 1+ months of NG. There is also a note on the announcement explaining that the realized price for NG was larger than expected due to the "liquids rich" content of a portion of the NG produced.

My estimate says that if they average $70.00 oil for the 3rd and 4th quarters and $90.00 per barrel for the 2nd quarter, at today's, 5/31/2012, price for WHZ, the return for the year would be about 16%.

My calculations used some facts, according to published reports, and many estimates and assumptions. That is, there are no guarantees.

The projected distributions below are estimated 2012 full year payouts at the given oil prices for the 3rd and 4th quarters. $90.00 is used for the 2nd quarter oil price and the actual 1st quarter payment is included in the total.

3rd and 4th Qtr........................................... Total Estimated

Oil Price per Barrel...................................... 2012 Distribution

$100.00.......................................................$4.05

$95.00.........................................................$3.88

$93.00........................................................ $3.82

$90.00........................................................ $3.72

$85.00........................................................ $3.56

$80.00........................................................ $3.39

$75.00........................................................ $3.23

$70.00........................................................ $3.07

These estimates are based on:

· Their prospectus estimates of future payments

· Their first "quarterly" payment

· Estimated prices per barrel for oil for every quarter of 2012

· Estimated NG prices for each quarter calculated using ratios of historical prices from the Energy Information Administration and the estimated and realized prices of NG for the 1st payment

· Assuming the NG/NGL mix will remain about the same as the actual 1st quarter for the remainder of 2012

· Assuming they will meet their projected development costs objectives

· Adjusted NG price adder for NGLs using ratios of base NG price and realized NG prices, which apparently include the NGLs, from their prospectus

· Their projected production numbers for each quarter altered using ratios of the first quarter estimated and realized production

· A base NG price for the 2nd quarter of $2.27 per mcf and a 3rd and 4th quarter NG base price of $2.62 per mcf

· Assuming that the 2+ months of oil production and 1+ months of gas production was 55 days of gas production and 84 days of oil production for the 1st quarter. Just a guess.

According to the WHZ prospectus they have approximately 50% of the oil hedged until 12/31/2014. My calculations/assumptions are without regard to what their hedging might do but I am assuming it can only improve the result.

WHZ is an oil and gas trust so anyone contemplating an investment in WHZ should understand that oil and gas trusts set up as this one is with a defined production total attributable to the trust are a depleting asset even though the underlying oil and gas production may not be depleting.

Disclosure: I am long WHZ.

Stocks: WHZT