Bobco23

American Express to the Sell Block - Cramer's Mad Money (10/2/08)

Oil and gas royalty trusts are not just a liquidation of assets play where the only upside is price. The stocks sell on a discounted cash flow model of price times estimated or proven reserves. As price rises, the pool of reserves increases. This is the result of price now justifying bringing on-line, previously "unprofitable reserves" (higher cost to develop into producing wells) excluded in the prior cash flow model into the "useable reserves" catagory and a new cash flow model. In a rising oil and gas market the trusts shares move up on yield (distributions) and reserve increases.

When oil and gas prices decline, you have a great opportunity to buy cash flow and appreciation. Check out CRT, BPT, SJT, as well as PBT.

Amazingly price increases supply. I think I have heard that somewhere before.