Pacific Coast Oil Trust (ROYT) is expected to outperform the market and royalty trust peers in the longer term thanks to its capable management, its structure and its exposure to higher global oil prices, says Ethan Bellamy, Senior Analyst at Robert W. Baird & Co. Although he is somewhat cautious on the U.S. oil and gas royalty trust group as a whole, he does like ROYT.
“Our favorite trust buy-and-hold for the long term — and what I would own personally if they let me eat my own cooking — is ROYT, and that’s 98% oil production from the Santa Maria and Los Angeles Basin in California. We think it has a very good structure; it’s a perpetual trust, it’s linked to global crude prices. California tends to trade at North Sea Brent prices, which is a premium price versus interior U.S. prices like WTI,” Bellamy said.
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Bellamy says ROYT is run by the same management as BreitBurn Energy Partners L.P. (BBEP), a master limited partnership he also likes. He also expects a total 9% rate of return for investing in this particular royalty trust.
“We think that there’s potential production upside from their exposure to the Orcutt diatomite. We have a $21 target on ROYT, which implies 30% potential to our target and 9% in total rate of return. We think that’s attractive and really well-run. It’s actually one of the few that’s actively marketed by the folks that run it,” Bellamy said.
What are Royalty Trust Companies Doing?
November 15, 2007