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BP Prudhoe Bay Royalty Trust Reports Operating Results (10-K)

March 01, 2011 | About:

BP Prudhoe Bay Royalty Trust (NYSE:BPT) filed Annual Report for the period ended 2010-12-31.

Bp Prudhoe Bay Royalty has a market cap of $2.44 billion; its shares were traded at around $114.09 with and P/S ratio of 15.3. The dividend yield of Bp Prudhoe Bay Royalty stocks is 8.4%. Bp Prudhoe Bay Royalty had an annual average earning growth of 20.6% over the past 10 years. GuruFocus rated Bp Prudhoe Bay Royalty the business predictability rank of 3.5-star.Hedge Fund Gurus that owns BPT: Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

The Chargeable Costs per barrel of Royalty Production for each calendar year are fixed amounts specified in the Conveyance and do not necessarily represent BP Alaskas actual costs of production. Chargeable Costs per barrel were $12.50 during 2006, $12.75 during 2007, $13.00 during 2008, $13.25 during 2009 and $14.50 during 2010. Chargeable Costs for 2011 and subsequent years are shown in the following table:

The Cost Adjustment Factor for a quarter is the ratio of the Consumer Price Index published for the most recently past February, May, August or November to 121.1 (the Consumer Price Index for January 1989). The Consumer Price Index is the U.S. Consumer Price Index, all items and all urban consumers, U.S. city average (1982-84 equals 100), as first published, without seasonal adjustment, by the Bureau of Labor Statistics, Department of Labor, without regard to subsequent revisions or corrections. If the average WTI Price for any calendar quarter falls to $18.00 or less, the Cost Adjustment Factor for that quarter will be the Cost Adjustment Factor for the immediately preceding quarter. If the average WTI Price returns to more than $18.00 for a later quarter, adjustments to the Cost Adjustment Factor resume, but with an adjustment to the formula that excludes changes in the Consumer Price Index during the period that adjustments to the Cost Adjustment Factor were suspended.

Until August 2006, the Production Taxes deductible with respect to the Royalty Production under the Alaska oil and gas production tax statutes, AS 43.55.10 et seq. (the Production Tax Statutes) were (i) the Alaska Oil Production Tax (the Old Tax), which was levied at the flat rate of 15% of the gross value of oil at the point of production (the wellhead or field value) and which, as required by the Conveyance, was applied for the purpose of determining the Royalty Interest without regard to the economic limit factor (a formula designed to result in low tax rates for smaller low productive fields and higher tax rates for larger highly productive fields), and (ii) a surcharge of $0.03 per barrel of Royalty Production. The Conveyance provides that, in the case of taxes based upon wellhead or field value, the WTI Price less the product of $4.50 multiplied by the Cost Adjustment Factor is deemed to be the wellhead or field value.

In August 2006 Alaska adopted amendments to the Production Tax Statutes (Chapter 2, Third Special Session Laws of Alaska 2006) (the 2006 Amendments) which replaced the Old Tax. Commencing with the 2006 Amendments, producers were taxed on the production tax value of taxable oil (gross value at the point of production for the calendar year less the producers direct costs of exploring for, developing, or producing oil or gas deposits located within the producers leases or properties in Alaska (Lease Expenditures) for the year) at a rate equal to the sum of 22.5% plus a progressivity rate determined by the average monthly production tax value of the oil produced. The progressivity portion of the 2006 Amendments was equal to 0.25% times the amount by which the simple average for each calendar month of the daily production tax values per barrel of the oil produced during the month exceeded $40 per barrel. In addition, the 2006 Amendments increased the surcharge on oil produced from leases or properties in Alaska from $0.03 to $0.04 per barrel.

In December 2007, a bill (Chapter 1, Second Special Session Laws of Alaska 2007) (popularly titled Alaskas Clear and Equitable Share or ACES) took effect and further amended the Production Tax Statutes in certain respects. ACES changed the basic tax rate from 22.5% to 25% and increased the progressivity rate. If the producers average monthly production tax value per barrel is greater than $30 but not more than $92.50, the progressivity tax rate is 0.4% times the amount by which the average monthly production tax value exceeds $30 per barrel. If the producers average monthly production tax value per barrel is greater than $92.50, the progressivity tax rate is the sum of 25% and the product of 0.1% multiplied by the difference between the average monthly production tax value per barrel and $92.50, except that the sum may not exceed 50%.

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Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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