Distribution Estimate Turns Up for San Juan Basin Royalty Trust

The short-term news in natural gas may also have turned more favorable.  For the first time in a month natural gas spot prices and futures were strong enough to trigger a higher number in our weekly calculation of cash distributions for royalty trusts in the Next Twelve Months (see Chart).  A whiff of lower temperatures hinting at the cold weather ahead seems to have helped the price trend. 

The wide swing in estimates over the past two years reflects the markets, not our judgment.  Our judgment now is that current expectations are low.  Yet ample inventories will keep prices from appreciating as strongly this winter as they did last winter.  If the weather is unusually warm or the economy weaker than expected, there may be downside price risk temporarily.

There also are subtle differences in the performance of estimates for each of the three royalty trusts.  SJT has gained a little on Hugoton Royalty Trust (HGT) as a result of higher than expected production volume.  The distribution estimates for Cross Timbers Royalty Trust (CRT) show less volatility because payments are tied to a fixed percentage of revenue from natural gas production rather than to a fixed percentage of profits.  A higher McDep Ratio currently for CRT than for SJT or HGT may reflect investor's recognition of more downside protection in CRT.