Raise Present Value of Cross Timbers Royalty Trust on Higher Volume

Except for low distributions currently that reflect low natural gas prices a few months ago, most of the news for royalty trusts has been positive for several weeks.  Slightly higher natural gas price for the next twelve months boosts estimated distributions for the same period. 

More important the present value of the royalty trusts we cover increased on the week.  First, a decline in real interest rates that made the price of U.S. Treasury Inflation Protected Securities go up last week makes the present value of royalty trusts higher.

Second, higher futures prices for natural gas and in later years for oil mean higher distributions for the next five years that are covered by market quotes.  Thereafter we escalate natural gas price with the rate of inflation, which actually declined slightly during the past week.  Expected inflation is the difference between the real interest rate on TIPS and the nominal interest rate on regular U.S. Treasury Notes.  As a result of the combination of the action in bond prices and oil and gas futures, the calculation of present value for three royalty trusts is higher again on the week by a median 2%. 

Third, an upward revision in our volume estimate for Cross Timbers Royalty Trust enhanced the positive trend in bonds and futures.  Natural gas production in the quarter ended September 30 was 8.6 million cubic feet daily compared to our estimate of 7.8.   

Lower interest rates, higher natural gas prices and higher volume combine to increase our estimated present value of CRT to $18.90 a unit from $16.90.  Considering the stock's high quality, investors can feel comfortable owning CRT at the current McDep Ratio of 0.96.  During the past two years of our weekly coverage the range was 0.56 to 1.31. We detail the calculation every week in regular editions of Meter Reader Tables archived on www.mcdep.com under MR Tables.