I have been receiving a lot of questions in regards to my bullishness on $BPT (BP Prudhoe Bay Royalty Trust) as of late, so figured I would get my thoughts together in a post. Let me preface this post by saying, I despise Oil and hope the recent surge in Oil prices help accelerate the worlds shift away from Oil/Coal and to renewable resources. At the same time, I am a trader, so when I see an opportunity I try to take advantage of it... which led me to $BPT (BP Prudhoe Bay Royalty Trust):
$BPT swings up or down based on Oil prices… comical…
As long as Oil is over $66 a barrel this stock should be much higher https://t.co/4UW8z1QhB8
— Option Millionaires (@OMillionaires) March 31, 2022
In a nutshell BPT(BP Prudhoe Bay Royalty Trust) pays out a royalty on 16.4246% of the the first 90,000 average daily barrels produced at the Prudhoe Bay oil field located on the North Slope in Alaska - it is the largest producing oil field in North America. When the price of a barrel of oil is high, BPT(BP Prudhoe Bay Royalty Trust) pays a hefty dividend. When it is low, it risks the possibility of termination of the trust. Pretty simple.
There are also more risks. Production has been in decline at the Prudhoe Bay oil field. And the Trust has a stipulation that Oil must be over a 'break even price', which rises each year on a sliding scale, before the royalty takes its cut. A few years ago the break even price was in the $40s... ie. so long as a barrel of Oil was over $40, the Trust would pay out a dividend. That number jumped to $66 in 2021 and will be $70 in $2022. Also, If the trust does not generate $1 million in royalty revenues in 2 consecutive years, the trust terminates. It looked like that was going to be the case in 2020 with Oil futures going negative as Covid created a demand crush. Luckily Oil came back at the end of 2021, saving the termination of BPT(BP Prudhoe Bay Royalty Trust). Which brings us to 2022.
BPT(BP Prudhoe Bay Royalty Trust) opened 2022 at $3.53. On January 6th it announced a $ 0.58 dividend or a 59.2% annual dividend yield. They also updated their filings saying not only do they think the trust will not be terminated, but the trust will be around for at least the next two years:
Since that announcement the stock has rallied 371%. BPT is now set to announce its next dividend, With Oil over $100 a barrel would have to think the dividend will be north of $2, pending any crazy disruption in production. If Oil stays over $100 that would mean an $8 annual DIVY or a 50% yield on a $16 stock. There are also many predicting Oil prices are going to be heading higher, even with the US accessing 1 million barrels of oil a day from the strategic oil reserve. Again, I despise Oil but think this BPT heads into the $20s and higher in the coming months as people realize it is a great play as a market hedge with Oil heading higher. It is also comical to see the name trade in sympathy with Oil prices. As long as Oil stays over $80 or so BPT will be a huge beneficiary. And if Oil really gains steam , then things can really get fun:
Just a disclaimer, I am in calls.
Happy Trading All!
-JB