Updated March 5, 2023 by Felix Martinez
Income investors looking to buy oil and gas stocks may want exposure to the booming Permian Basin. The Permian Loyalty Trust (PRT) is an oil and gas producer with all assets in the Permian Basin, with a current stock yield of approximately 14.3%.
PermRock pays more than high dividend yield monthly Dividends instead of the traditional quarterly distribution schedule. Monthly dividend payments are great for investors (such as retirees) who need to dedicate their budget to paying dividends.
Monthly dividend stocks are 69 shares. Click the link below for a complete list of monthly dividend stocks (as well as key financial metrics such as payout ratio and dividend yield).
PermRock is immediately attractive based on its nearly double-digit dividend yield. But as always, investors need to understand the underlying business to make sure the dividend payout is sustainable.
This is where oil and gas royalty trusts are particularly risky. As such, only investors with a high risk tolerance should consider purchasing his PermRock.
Business overview
The Permian Loyalty Trust was established in November 2017 by Boaz Energy, a company specializing in the acquisition, development and management of oil and gas assets in the Permian Basin.
The Trust owns properties in the Permian Basin. The company receives his 80% of net profits from the sale of oil and natural gas produced on its assets and distributes all these net profits as monthly dividends.
According to EIA, the Permian Basin is the richest oil-producing region in the United States. The area extends over 75,000 square miles in western Texas and southeastern New Mexico. Since its discovery in 1921, it has produced over 30 billion barrels of oil and over 75 Tcf of natural gas.
Source: Investor Relations
Trust characteristics have distinct advantages. They consist of long-lived reserves of mature conventional oilfields with reliable production profiles.
Due to the mature nature of these fields, production and reserves estimates are very reliable. This is in contrast to unconventional field estimates, which are characterized by a high degree of uncertainty.
These reserves are sufficient for about 10 years of production at current production rates. However, the trust will be able to discover new reserves in the area while simultaneously boosting production through water flooding techniques. As a result, management expects the Trust to economically produce oil and natural gas for at least 75 years. Such a long lead time should be enough to satisfy even the most demanding investors.
It is also worth noting that the trust’s properties are characterized by very high operating margins. The future path of oil prices is so unpredictable that oil producers need to increase production consistently year after year in order to increase their long-term earnings.
growth outlook
The Trust reported results for the third quarter of 2022, which ended September 30, 2022. Net income received by the Trust was $3.53 million for the quarter, compared with $2.27 million for the third quarter of 2021. Significant improvement year-on-year, offset by lower volumes, due to significantly higher oil and natural gas selling prices.
The average realized selling price ($/Bbl) for crude oil was $107.75 during the quarter, up 59% from a price of $67.82 in the same period last year. The average realized selling price of natural gas also increased significantly, from $4.29 to $8.95 per Mcf. The trust’s distributable income increased from $2.1 million to $3.36 million in the third quarter of 2021.
Distributable income per unit increased to $0.28 from $0.17 last year. The Trust paid out all distributable profits to its shareholders as dividends with a payout ratio of 100%. Total cash reserves were $1 million as of September 30, 2022, the same as at year-end 2021. The Trust did not miss out on his 2022 distribution payment. For fiscal year 2022, the Trust has so far declared a distribution of $0.9307.
On the bright side, oil prices soared to 13-year highs this year, largely thanks to Russia’s invasion of Ukraine and the ensuing Western sanctions against Russia. The latter produces about 10 million barrels of oil daily and exports about 5 million barrels daily (about 5% of world supply).
Moreover, natural gas prices rose to a 13-year high this year for a similar reason: Western sanctions against Russia. Europe, which generates 31% of its electricity from natural gas supplied by Russia, is now stepping up its efforts to diversify away from Russia.
As a result, LNG cargoes from the US to Europe increased significantly. This development has made the US natural gas market very tight. As a result, US natural gas prices recently climbed to a 13-year high.
Simply put, the current business environment is ideal for PermRock. In his final three months of 2022, PermRock has distributed $0.2645 per unit to his shareholders. Therefore, he plans to increase his annual dividend from $0.86 in 2022 to at least $1.05 this year.
On the other hand, the natural decline of PermRock’s vineyards is a strong headwind to the outcome in the long term. In addition, oil and gas prices are well known for their dramatic cyclicality. U.S. oil and gas producers are now ramping up production thanks to multi-year highs that are now prevailing. At some point supply will outstrip demand and the next cycle of oil and gas prices will begin.
Overall, it would be wise not to rely on PermRock to significantly expand its distribution in the years to come from its high base this year..
Dividend analysis
As previously mentioned, PermRock Loyalty Trust pays out monthly dividends that vary according to the underlying net income. In 2022, the Trust paid a total dividend of $0.86 per share. Based on this, this stock has a high dividend yield of 12.2%.
The Trust accelerated its performance in 2022 thanks to the aforementioned tailwinds, declaring a distribution of $0.1308 per share in the first two months of the year. This distribution level equates to an annual yield of 14.3%.
Overall, PermRock Loyalty Trust offers a very high dividend yield, but investors should keep in mind that it can fluctuate significantly from month to month depending on the underlying oil price. Extremely weak oil prices in 2019-2020 have been a major challenge for PermRock, who in 2020 suspended his dividend for the fifth consecutive month.
Conversely, if oil prices rise significantly from current levels, PermRock Loyalty Trust would benefit significantly more than the major oil majors. In fact, the recovery in oil prices from the pandemic has allowed PermRock to resume increasing its dividend from last year.
This trust is therefore ideal for those who are confident in future oil price increases and want to get in touch with the Permian Basin oil boom.
In summary, trust has influenced oil prices much more than the consolidated oil companies, so it will be much higher in the positive scenario (higher oil prices) and much higher in the case of a recession in the energy sector. fall down
PermRock’s properties are located in the Permian Basin, the richest oil-producing region in the United States. But oil royalty trusts are a poor way to gain exposure to the region’s booming production. Investors find it far more lucrative to invest in traditional oil and gas producers, or midstream companies. The suspension of PermRock’s dividend for five months in 2020 is a strong reminder of the risks for oil and gas royalty trusts.
final thoughts
The Permalock Royalty Trust has faced many challenges over the past few years, including low oil prices and the coronavirus pandemic that has dampened global oil demand. The trust offers a very high dividend yield, operates in the richest oil-producing regions of the United States, and has promising growth prospects.
We don’t expect the energy sector to fall again in the near future, so we believe the trust will offer consistently high dividend yields. Nevertheless, due to the trust’s non-diversified business model and dramatic reliance on oil prices, investors should not allocate large portions of their portfolios to this stock.
In addition, investors should be aware of the risks involved in investing in such purely upstream companies as commodity prices are at 13-year highs. Excessive downside risk accompanies PermRock whenever the next downcycle in the energy markets appears.
Additionally, the trust’s short history leaves much to be desired by investors seeking a reasonable level of dividend security and consistency.
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