If you’re investing for “energy income,” watch out…
My top “energy income” investments are royalty trusts. They simply collect cash from oil and gas wells drilled on their lands and distribute it to owners.
They are passive, low-risk investments that, if bought at the right time, can provide commodity investors with double-digit yields… and you don’t have to depend on commodity prices rising.
[ad#Google Adsense 336×280-IA]As I’ve been showing you over the last year, low natural gas prices have depressed their distributions.
That’s no problem if you buy at a low price…
But now, there’s another wrinkle to the story.
San Juan Basin Trust (NYSE: SJT) is one of the top names in the sector.
It generates royalties from wells drilled by ConocoPhillips in the San Juan Basin (in Colorado and New Mexico). But with natural gas prices at today’s depressed levels, you just can’t make money drilling new wells there.
So Conoco said it was going to stop drilling wells. And that’s a major problem for SJT.
SJT’s wells are old and in decline. It needs new wells to generate more revenue. If it doesn’t get those wells, its distributions are going to fall… even if natural gas prices hold steady.
If you jumped back into San Juan Basin, I suggest getting out. Shares of this trust are going lower.
And I expect many operators to follow ConocoPhillips’ lead… That’s going to hurt folks who specialize in drilling natural gas wells. If you own shares of drilling companies, tighten your trailing stops.
– Matt Badiali
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Source: The Growth Stock Wire