All financial modeling involves estimates and assumptions which means that all financial models have a margin of error (and that margin of error can be rather significant). However, it is still beneficial to go through the brain damage of creating a model to try and understand what is going on and what may happen going forwards. This is especially true for investments that will have a finite life, like oil and gas royalty trusts.
After some interesting discussions on Seeking Alpha and Twitter back in January of 2014 I threw together a quick and rough BPT model and posted the Excel file for free on this website. Most (or perhaps substantially all?) retail investors in BPT will never bother trying to do a financial model so I thought perhaps interested investors could grab the Excel file and adjust the WTI price assumption as they saw fit (i.e. do some “what if” analysis, like what if WTI oil prices drop to $50). The model was rough and not perfect but it was a decent starting point (it was free so you know, you get what you pay for). I have subsequently continued to enhance the model for myself.
Below please find a summary table for my current estimates for what BPT will report in its next 10-Q (i.e. the guess the financials game):
(Click to view)
I am posting this chart to hold myself accountable for my margin of error which we won’t know until BPT’s 10-Q shows up around May 9-10 (please feel free to make fun of me on Twitter at any time). Estimating the 1Q15 financials is an important step in making sure the model functions as accurately as possible for future projected periods. Some of the uncertainty with BPT is the recent change in Alaskan Production Taxes that took effect in 2014 and how that calculation runs in the Trust when using WTI prices. My production tax estimate is likely to cause the largest margin of error once the actual financials show up but I will use the next 10-Q to further adjust and enhance the overall model.
Projecting the actual financials is all fine and good but what really matters is that next distribution that will be announced around April 3rd. I will tweet and/or post my updated 2Q15 distribution estimate on April 1 but it appears to be tracking somewhere near $1.
Disclosure: I am currently long various BPT Put Options.