Mr. Kamm
I recently came across an article from Smart Money that ran something last July on own of my holdings, BP Prudhoe Bay Royalty Trust (NYSE:BPT). Your name was mentioned as a broker that followed this issue, forecasting the distribution amounts paid quarterly. Having read the trust documents extensively, I feel I have got a handle on how royalty income is generated and distributed, as well as the associated tax intricacies of selling BPT after claiming depletion deductions on the royalty income.
I await release of the CPI-All Urban Consumers report from Dept. of Labor, Bureau of Labor Statistics due out 8:30 am EST on Wed. Mar. 21, 2001, for the month of February 2001. Then I will have the actual Cost Adjustment Factor, to determine both Adjusted Costs and Field Value. Through Mar 5, I have average afternoon closing price of West Texas Intermediate crude delivered at 40 degrees API to Cushing, OK at $26.41 for January 2001 and $26.73 for February 2001.
On Feb 16, I did a preliminary forecast using a estimated cost adjustment
factor of 174.3/121.1. At $27 avg WTI price, I calculated Production Taxes at
$3.1124682080 per Barrel and Adjusted Costs per Barrel at $15.47254335250.
Again, assuming $27 WTI less Costs and Taxes leaves a daily Net Price per Barrel
of $8.42. Calculating the Royalty Interest in the first 90,000 daily barrels for the quarter, then subtracting Trustee expenses, and then splitting the result among the 21.4 million outstanding units equals a per unit distribution for the first qtr 2001 at $0.52042.
With January CPI-U at 175.1, and lower WTI pricing sub 26 for early March, my early estimate needs to be revised downward. Barring a recovery in WTI above 28 for the remainder of March, and assuming no reduction in CPI-U from January to February, my revised estimate is $0.493684 per unit.
WTI $26.57
CAF 175.1/121.1 = 1.44591246903
ADJCOSTS: $15.54
PRODTAX: $3.04 15%(26.57 less 6.506606) = 3.0095091 + 0.034
$7.99 x 1,330,392.6 barrels =10,629,836.87
less Trustee 65,000 =10,564,836.87
10,564,836.87/21.4 million units
$0.493684 per unit
With such a steep decline from the previous distribution, I expect BPT to retreat a few points on the announcement. Are most of the buyers in the $14 range expecting a 92 cent payout? If so, they are in for a big surprise. I think BPT would be fairly priced at $10 if it paid $2.60 a year in distributions.
Most other estimates I have seen on BPT for the upcoming qtr are in the 62 to 76 cent range. Chargeable Costs are 10.75 for all of 2001. Are these other estimates not figuring the high inflation multiplier in the cost adjustment and production tax equations? Are they using higher avg WTI numbers? Are my WTI numbers low?
What is your estimate for 1-Q-2001?
AI
