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Volatility Advantage for CRT
One
issue that has puzzled us was how to account for the lower volatility of the
distributions made by Cross Timbers Royalty Trust compared to San Juan Basin
Royalty Trust and Hugoton Royalty Trust. CRT’s
royalty interest is a percentage of revenue and bears no responsibility for
capital outlays. SJT and HGT have
royalty interests that are a percentage of profits and therefore fluctuate with
expenses and capital outlays as well as commodity price.
Arbitrarily we have increased the discount rate in the present value
calculation for the latter. That
has the effect of raising the McDep Ratios for SJT and HGT and narrowing the gap
with CRT. Valuation implies
strongly positive potential in each of the three entities.
May 20, 2002; Natural Gas Royalty Trusts: Volatility Advantage for CRT
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