Greatly appreciate your update on the royalty trusts. Are you still long PBT? The 9/21 news release showed another high in production so I am still holding. Do you think the return on CAPEX in 2023 has been reasonable and do you think 2023 will be the end of the massive CAPEX. Have you revised your peak production since your 2022 articles? Your 2022 articles on PBT were fantastic and I bought more when the price dropped to $20-21. I sold all my SJT and VOC. I just started a position in SBR because of the recent oil uptrend. Looking at PVL, but production has not increased with increased CAPEX so something is not right with PVL. Thanks for all your articles!
We are still long PBT and have added to our position since earlier in the year.
CAPEX seems a bit over extended currently but also carries a little extra weight due to the horizontal wells being drilled in the area. The completion tests showed some very promising production but this hasn't been fully represented in the monthly production reports to date. Currently all indicators, including current gather report discrepancies outlined in the recent update, show that we haven't reached the peak production for this area to date. We currently have not revised the production target net to trust of at or near 300K BPM but there still are a lot of questions for the operator on the production gaps.
Excellent breakdown of these royalty trusts, Broncho. You truly are THE preeminent expert in this sector of the market.
Some notes on SJT:
SJT's geographic proximity to California and Arizona make it the first supplier to the southern half of PADD5. Office of Natural Resource Revenue shows that San Juan Basin (SJB) gas regularly carries a premium due - at least in some part - to the West Coast's energy isolation. When gas was between $2 - 3 at henry hub last January, ONRR reported price for gas was $43.20, which resulted in the $0.42 distribution to unit holders. That being said, gas prices on the west coast have fallen in tandem with the national price as CA took advantage of a cool summer to refill its storage capacity. Also, rising water levels in reservoirs caused most utilities to switch back to hydropower to meet renewable power generation requirements.
Full disclosure. I am a unit holder (bought in the low to mid $4s so I'm fairly insensitive to declining price). I'm not shilling it - betting solely on natural gas in the shale era is a good way to turn a large fortune into a smaller one - but SJT is uniquely positioned to benefit from volitility created by California's politically induced constant energy crises.
For the foreseeable future, CA will be gas starved:
CA hasn't built interstate gas pipelines to take advantage of the shale revolution.
CalGEM hasn't issued new permits for hydraulic fractured wells since 2021, and will ban the practice completely Jan 1, 2024.
The offshore rigs in Santa Barbara are in the process of being shut down. I don't remember how much gas they provide but it's a significant amount of the state's gas needs.
CA residents voted to ban reworking and drilling new wells within 3000 feet of schools, homes, hospitals, etc.
All of these make CA increasingly dependent on natural gas imported from other states.
SJT does have issues going forward. Low gas prices deter the operator, Hilcorp, from investing in refurbishing the wells. New Mexico's government is increasingly hostile to new drilling. State and Federal regulations may ultimately prevent Hilcorp from extending the life of the property.
Just some notes for your enjoyment. I welcome any of your thoughts/insights/feedback/insults.
Thank you for your thoughts and insight on SJT. There is definitely a huge disconnect across the US natural gas pricing due to pipe limitations and geographic needs. I was heavily tracking the West Coast prices most of the year looking at the differential between those and the spot price of Henry Hub pricing.
California relies heavily on electric imports to help stabilize their grid with more demand for electricity and retirement of nuclear. It will be interesting to see over the next 3-5 years how imports are impacted along with the baseload needs from natural gas to keep the grid stable. Currently I am seeing US oil production stabilizing here near the 2019 highs and its hard to see a large amount of supply being added without significant investment but natural gas supply, depending on region, can be added in significant quantities. I still very much see natural gas as the most important transition fuel for the next 20-30 years.
You raised a good point about electricity imports. I see California's reliance on imports as a disaster in waiting. 5 major cities sit ontop of the pipelines that feed california. Phoenix, Salt Lake City, St. George, Las Vegas and Reno. As these areas expand outwards and (to a limited extent) upwards, their demand for natural gas for electricity, residential, and industrial use will increase. With these centers siphoning gas out of the pipeline system, CA's supply will be constricted. Meeting peak power in the golden state is a problem because nothing can scale the walls of the "canyon curve" like gas can.
I recall you tweeted about CALISO's power mix a while ago, but don't recall if you also tweeted out the generation mix as well. Coal burned in the eastern half of Montana and Utah provides CA with a lot of power, but this comes with significant line losses.
As the southwest continues to expand, its energy needs will grow in kind. California being at the end of the line will need to figure out how to fend for itself and solve its energy crisis internally.
The monthly news release indicates the net CAPEX will be 106.11 million. Obviously this is not close to 75% of 301 million which is still listed as the gross CAPEX in the news release. Is 301 million for all of Blackbeard's leases and not just the PBT property. What is going on with these numbers? Thanks.
Waddell Ranch Properties: The net profits/overriding royalty interest in the Waddell Ranch properties is the largest asset of the Trust. The mineral interests in the Waddell Ranch, from which such net royalty interests are carved, vary from 37.5% (Trust net interest) to 50% (Trust net interest) in 78,715 gross (34,205 net) producing acres.
The gross budget for all of Waddell Ranch is $301M but only $106.11M is net to trust. In the past the trustee has announced the Net budget in the January cash distribution announcement and not the Gross amount. I questioned how it was stated with the trustee and was under the impression that the budget had increased by 3x originally but it is essentially a 12.9% decrease from 2023.
The 2023 budget was originally revised down twice in early 2023 but Blackbeard ended up spending the full original budget of $135M instead of the revised $96.8M expected.
The annual report was just released and Blackbeard indicates they plan to spend $301,000,000 on CAPEX in 2024. This is almost 3X the 2023 CAPEX and almost all will be on horizontal wells. Also do you have any thoughts on the trustee lawsuit?
The $301M most likely was proposed in late October to the trustee around the same time where communication between Argent and Blackbeard would of broken down based on the timing of the lawsuit filling. Given the allegations of double billing of materials/services, misallocated purchase of equipment to other properties not part of PBT, and even employee benefits; it's safe to assume Blackbeard felt they could continue to overcharge the trust and slap a huge CAPEX onto 2024 at the expense of unit holders.
'Blackbeard has advised the Trustee that the capital expenditures budget for 2024 has not been finalized'
I suspect the budget has not been finalized for this reason and the allocation towards horizontal wells, when those results have left little to be enthusiastic about, is absurd. We typically got yearly budget in the January 8K and not the 10k in the past. Currently there is a March 11th date for parties to answer according to a recent joint filling with the court and I am expecting Argent to expand on their findings since they mention this is $15M or more and will need to outline the additional amounts. The judge assigned to this case seems extremely tough and doesn't like cases to sit on his docket so expect responses to be swift and timely. There's plenty of areas that need to come under scrutiny here based on current allegations including possibly adding production reporting discrepancies as needing a clear full audit of Blackbeard activities.
Thank you for sharing your work on PBT. I'm curious why the production isn't even higher given the new work. Have you had a chance to look at any of the 37.5 wells scheduled for P&A this year? I'm curious if some were decent producers but had unfixable well issues or if they were all low volume strippers whose time had come.
Thanks for the quick reply.
Greatly appreciate your update on the royalty trusts. Are you still long PBT? The 9/21 news release showed another high in production so I am still holding. Do you think the return on CAPEX in 2023 has been reasonable and do you think 2023 will be the end of the massive CAPEX. Have you revised your peak production since your 2022 articles? Your 2022 articles on PBT were fantastic and I bought more when the price dropped to $20-21. I sold all my SJT and VOC. I just started a position in SBR because of the recent oil uptrend. Looking at PVL, but production has not increased with increased CAPEX so something is not right with PVL. Thanks for all your articles!
We are still long PBT and have added to our position since earlier in the year.
CAPEX seems a bit over extended currently but also carries a little extra weight due to the horizontal wells being drilled in the area. The completion tests showed some very promising production but this hasn't been fully represented in the monthly production reports to date. Currently all indicators, including current gather report discrepancies outlined in the recent update, show that we haven't reached the peak production for this area to date. We currently have not revised the production target net to trust of at or near 300K BPM but there still are a lot of questions for the operator on the production gaps.
Excellent breakdown of these royalty trusts, Broncho. You truly are THE preeminent expert in this sector of the market.
Some notes on SJT:
SJT's geographic proximity to California and Arizona make it the first supplier to the southern half of PADD5. Office of Natural Resource Revenue shows that San Juan Basin (SJB) gas regularly carries a premium due - at least in some part - to the West Coast's energy isolation. When gas was between $2 - 3 at henry hub last January, ONRR reported price for gas was $43.20, which resulted in the $0.42 distribution to unit holders. That being said, gas prices on the west coast have fallen in tandem with the national price as CA took advantage of a cool summer to refill its storage capacity. Also, rising water levels in reservoirs caused most utilities to switch back to hydropower to meet renewable power generation requirements.
Full disclosure. I am a unit holder (bought in the low to mid $4s so I'm fairly insensitive to declining price). I'm not shilling it - betting solely on natural gas in the shale era is a good way to turn a large fortune into a smaller one - but SJT is uniquely positioned to benefit from volitility created by California's politically induced constant energy crises.
For the foreseeable future, CA will be gas starved:
CA hasn't built interstate gas pipelines to take advantage of the shale revolution.
CalGEM hasn't issued new permits for hydraulic fractured wells since 2021, and will ban the practice completely Jan 1, 2024.
The offshore rigs in Santa Barbara are in the process of being shut down. I don't remember how much gas they provide but it's a significant amount of the state's gas needs.
CA residents voted to ban reworking and drilling new wells within 3000 feet of schools, homes, hospitals, etc.
All of these make CA increasingly dependent on natural gas imported from other states.
SJT does have issues going forward. Low gas prices deter the operator, Hilcorp, from investing in refurbishing the wells. New Mexico's government is increasingly hostile to new drilling. State and Federal regulations may ultimately prevent Hilcorp from extending the life of the property.
Just some notes for your enjoyment. I welcome any of your thoughts/insights/feedback/insults.
All the best.
Thank you for your thoughts and insight on SJT. There is definitely a huge disconnect across the US natural gas pricing due to pipe limitations and geographic needs. I was heavily tracking the West Coast prices most of the year looking at the differential between those and the spot price of Henry Hub pricing.
California relies heavily on electric imports to help stabilize their grid with more demand for electricity and retirement of nuclear. It will be interesting to see over the next 3-5 years how imports are impacted along with the baseload needs from natural gas to keep the grid stable. Currently I am seeing US oil production stabilizing here near the 2019 highs and its hard to see a large amount of supply being added without significant investment but natural gas supply, depending on region, can be added in significant quantities. I still very much see natural gas as the most important transition fuel for the next 20-30 years.
You raised a good point about electricity imports. I see California's reliance on imports as a disaster in waiting. 5 major cities sit ontop of the pipelines that feed california. Phoenix, Salt Lake City, St. George, Las Vegas and Reno. As these areas expand outwards and (to a limited extent) upwards, their demand for natural gas for electricity, residential, and industrial use will increase. With these centers siphoning gas out of the pipeline system, CA's supply will be constricted. Meeting peak power in the golden state is a problem because nothing can scale the walls of the "canyon curve" like gas can.
I recall you tweeted about CALISO's power mix a while ago, but don't recall if you also tweeted out the generation mix as well. Coal burned in the eastern half of Montana and Utah provides CA with a lot of power, but this comes with significant line losses.
As the southwest continues to expand, its energy needs will grow in kind. California being at the end of the line will need to figure out how to fend for itself and solve its energy crisis internally.
The monthly news release indicates the net CAPEX will be 106.11 million. Obviously this is not close to 75% of 301 million which is still listed as the gross CAPEX in the news release. Is 301 million for all of Blackbeard's leases and not just the PBT property. What is going on with these numbers? Thanks.
Waddell Ranch Properties: The net profits/overriding royalty interest in the Waddell Ranch properties is the largest asset of the Trust. The mineral interests in the Waddell Ranch, from which such net royalty interests are carved, vary from 37.5% (Trust net interest) to 50% (Trust net interest) in 78,715 gross (34,205 net) producing acres.
The gross budget for all of Waddell Ranch is $301M but only $106.11M is net to trust. In the past the trustee has announced the Net budget in the January cash distribution announcement and not the Gross amount. I questioned how it was stated with the trustee and was under the impression that the budget had increased by 3x originally but it is essentially a 12.9% decrease from 2023.
The 2023 budget was originally revised down twice in early 2023 but Blackbeard ended up spending the full original budget of $135M instead of the revised $96.8M expected.
The annual report was just released and Blackbeard indicates they plan to spend $301,000,000 on CAPEX in 2024. This is almost 3X the 2023 CAPEX and almost all will be on horizontal wells. Also do you have any thoughts on the trustee lawsuit?
The $301M most likely was proposed in late October to the trustee around the same time where communication between Argent and Blackbeard would of broken down based on the timing of the lawsuit filling. Given the allegations of double billing of materials/services, misallocated purchase of equipment to other properties not part of PBT, and even employee benefits; it's safe to assume Blackbeard felt they could continue to overcharge the trust and slap a huge CAPEX onto 2024 at the expense of unit holders.
'Blackbeard has advised the Trustee that the capital expenditures budget for 2024 has not been finalized'
I suspect the budget has not been finalized for this reason and the allocation towards horizontal wells, when those results have left little to be enthusiastic about, is absurd. We typically got yearly budget in the January 8K and not the 10k in the past. Currently there is a March 11th date for parties to answer according to a recent joint filling with the court and I am expecting Argent to expand on their findings since they mention this is $15M or more and will need to outline the additional amounts. The judge assigned to this case seems extremely tough and doesn't like cases to sit on his docket so expect responses to be swift and timely. There's plenty of areas that need to come under scrutiny here based on current allegations including possibly adding production reporting discrepancies as needing a clear full audit of Blackbeard activities.
Thank you for sharing your work on PBT. I'm curious why the production isn't even higher given the new work. Have you had a chance to look at any of the 37.5 wells scheduled for P&A this year? I'm curious if some were decent producers but had unfixable well issues or if they were all low volume strippers whose time had come.