After the most recent cash distribution of the Permian basin Royalty Trust(PBT) coming out flat month on month, I decided to write up a more in-depth explanation of how these fields are currently being drilled and reworked for new production volumes. The majority of this article is supplemental information.
We owe a large amount of gratitude to Mr Broncho this update is extraordinary both in its comprehensive detail as well as superb analysis. I am very grateful for his update on PBT. I agree with the oil price overview. For what its worth, I do not believe oil will crash or that the U.S. is headed for a crash. IMHO there is excessive pessimism and if you look at the news so many are predicting deep recession, crash, etc. Keep in mind that the purveyors of doom folks like Celente, Kioysaki, etc have been peddling these conspiracy theories for years about hoe these unnamed "they" want to cause a U.S. depression. why on earth would "they" (whoever they are but presumably welathy elites and corporations) would want to destroy their wealth? It is absurd. It has been about 20 years straight that Celente has claimed the U.S. was entering a depression "this year". The greatest danger to the U.S. is the reduction in critical thinking and increased belief in these absurd claims (crisis actors, tracking chips in vaccines, etc.). BTW - if so many analysts are predicting a severe recession/depression odds are this will NOT occur. Economically...my 2 cents is that the U.S. is in far better shape overall with large energy resouces, food security and a peerless military. Texas crude is a good bet. The world is not going to implode and big oil consumers like India and China will continue to grow even if the China slow down rmains a bit longer. The 0 Covid policies in China will be lifted at some point and demand will surge. But as Broncho wisely states, the range 85 plus if fine as too high a price will cause demand destruction. We should be happy with crude 90 - 110 lets say high 90s low 100s. I thank Broncho once again for his excellent analysis and evaluation of PBT. We are incredibly fortunate thta he is kind enough to share his analysis with us.
It was looking like a (the) recession might bring our prices down some, even from where they are, but now I'm not so sure. Housing data is curious, but payrolls and heavy truck sales are holding in there just fine (thanks, Bill McBride). The chemicals index has eased but is still strong. $9 gas isn't going away. The world can't get enough of it at $40+ European and Asian prices and lots more liquification capacity is coming.
Great analysis and update. Agree with much of what you present. A couple questions:
1. Why do you think the market will base its valuation on the unit price a based on a 7% distribution yield? Other trusts that are not undergoing the dramatic restructuring that PBT is are currently pricing out at 12% like SBR or DMLP (yes, not a trust, but similar). Given headline inflation is running at 9%, 3 month T's at 3.25% and the uncertainty and risk of the drill program outcome, oil prices, etc, how do you get 7%?
2. From what you have seen with the pipeline and infrastructure they have put in place would this be sized to support continued aggressive drilling with the accompanying CapEx, or does it look like this has been sized to support current needs and some growth / decommissioning of EOL resources?
3. I am sort of dreading the next annual announcement for CapEx. I certainly supported the first round and understood the second, but with drill material inflation and labor shortages are the investors like the guy from TPL or even Blackbeard willing to sink another $100M into the field this upcoming year in this environment?
You are an amazing resource in understanding not only the stock but the environment of the Permian Basin. I appreciate your work and insight!
We owe a large amount of gratitude to Mr Broncho this update is extraordinary both in its comprehensive detail as well as superb analysis. I am very grateful for his update on PBT. I agree with the oil price overview. For what its worth, I do not believe oil will crash or that the U.S. is headed for a crash. IMHO there is excessive pessimism and if you look at the news so many are predicting deep recession, crash, etc. Keep in mind that the purveyors of doom folks like Celente, Kioysaki, etc have been peddling these conspiracy theories for years about hoe these unnamed "they" want to cause a U.S. depression. why on earth would "they" (whoever they are but presumably welathy elites and corporations) would want to destroy their wealth? It is absurd. It has been about 20 years straight that Celente has claimed the U.S. was entering a depression "this year". The greatest danger to the U.S. is the reduction in critical thinking and increased belief in these absurd claims (crisis actors, tracking chips in vaccines, etc.). BTW - if so many analysts are predicting a severe recession/depression odds are this will NOT occur. Economically...my 2 cents is that the U.S. is in far better shape overall with large energy resouces, food security and a peerless military. Texas crude is a good bet. The world is not going to implode and big oil consumers like India and China will continue to grow even if the China slow down rmains a bit longer. The 0 Covid policies in China will be lifted at some point and demand will surge. But as Broncho wisely states, the range 85 plus if fine as too high a price will cause demand destruction. We should be happy with crude 90 - 110 lets say high 90s low 100s. I thank Broncho once again for his excellent analysis and evaluation of PBT. We are incredibly fortunate thta he is kind enough to share his analysis with us.
thanks so much for all the DD research you do - big fan
It was looking like a (the) recession might bring our prices down some, even from where they are, but now I'm not so sure. Housing data is curious, but payrolls and heavy truck sales are holding in there just fine (thanks, Bill McBride). The chemicals index has eased but is still strong. $9 gas isn't going away. The world can't get enough of it at $40+ European and Asian prices and lots more liquification capacity is coming.
Great analysis and update. Agree with much of what you present. A couple questions:
1. Why do you think the market will base its valuation on the unit price a based on a 7% distribution yield? Other trusts that are not undergoing the dramatic restructuring that PBT is are currently pricing out at 12% like SBR or DMLP (yes, not a trust, but similar). Given headline inflation is running at 9%, 3 month T's at 3.25% and the uncertainty and risk of the drill program outcome, oil prices, etc, how do you get 7%?
2. From what you have seen with the pipeline and infrastructure they have put in place would this be sized to support continued aggressive drilling with the accompanying CapEx, or does it look like this has been sized to support current needs and some growth / decommissioning of EOL resources?
3. I am sort of dreading the next annual announcement for CapEx. I certainly supported the first round and understood the second, but with drill material inflation and labor shortages are the investors like the guy from TPL or even Blackbeard willing to sink another $100M into the field this upcoming year in this environment?
You are an amazing resource in understanding not only the stock but the environment of the Permian Basin. I appreciate your work and insight!