Excerpts from article by Michael Brush on Royalty Trusts posted 5/25/01 on Microsoft Network:

Analysts come up with valuations on U.S.-based trusts by calculating their net asset values (NAV). They do this by estimating the value of all the monthly cash payments a trust will produce for investors over the lifetime of its projected reserves. Then they discount those payments back to the present, to get the NAV.

One of the few analysts who still does this for U.S. trusts is Kurt Wulff, a former energy analyst with Donaldson, Lufkin & Jenrette who now runs a boutique equity analysis shop called McDep Associates. He says valuations on U.S. trusts really don't get compelling until they trade at less than 80% of their NAV. Of the three trusts he covers, only Hugoton Royalty Trust (HGT)(reference corrected, KW) gets close, at 88%. San Juan Basin Royalty Trust (SJT) and Cross Timbers Royalty Trust (CRT) -- the other trusts he covers -- are around 100% or above.

"It's late in the run," says Wulff. "If you buy them now, don't expect to make a lot of money right away." But if, like him, you think natural gas prices might be higher several years from now and you plan to hold for that long, then buying even at these prices may make sense.