January 14, 2002; Natural Gas Resource Value Declines Less Than Daily Commodity Price

Daily price is the most volatile natural gas commodity price while the six-year quote, now publicly available from the New York Mercantile Exchange prices, post Enron, is least volatile.  When interest rates remain steady and operational measures are unchanged, the 72-month average, or six-year "strip", is a close indicator of change in present value of future cash flow from natural gas production.  Though six-year quotes have been available for only a few weeks we have been calculating present value on a weekly basis for two years.  The full record is on www.mcdep.com.  While present value peaked about the same time as daily price, it has not declined to the level of two years ago, as has daily price (see Chart).

Parenthetically, the flatter trend for Cross Timbers Royalty Trust probably reflects the fact that most of CRT's value is in a net revenue interest while the other two trusts have net profits interests in natural gas production.  The net revenue interest is particularly advantageous at a time when the operator of the properties is spending on new development.