Summary
- Crude oil and natural gas prices are expected to trade higher in 2023.
- VOC Energy Trust engages in the acquisition and subsequent management of a term net profit interest of the net proceeds from the sale of US oil and natural gas assets.
- VOC Energy Trust is heavily dependent on crude oil prices, while analysts are forecasting rising prices on the International Energy Agency's demand and supply update.
- Shareholders of VOC Energy Trust should benefit if higher earnings drive up the share price.
VOC Energy Trust Should Benefit from the Expected Increase in Crude Oil and Natural Gas Prices
When market prices for crude oil and natural gas rise, the VOC Energy Trust ( VOC ) share price typically benefits as the fund's earnings adjust to higher commodity prices.
As oil and natural gas are expected to trade higher over the next few months, VOC Energy Trust earnings should rise, potentially giving the stock price a strong boost. This is because earnings are the main driver of stock prices.
Therefore, investors should consider increasing their position in VOC Energy Trust.
About VOC Energy Trust in The Oil & Gas Exploration and Production Industry
Headquartered in Houston, Texas, VOC Energy Trust is a fund engaged in the acquisition and subsequent management of term net profit interests calculated as a percentage of the net proceeds from the production and sale of oil and natural gas assets in Texas and Kansas.
VOC Energy Trust's total proven reserves amount to approximately 8.3 million barrels of oil equivalent [MMBoe], with 35% on the underlying properties in Kansas, with the remaining 65% on the underlying properties in Texas.
The VOC Energy Trust's term net profits interest is quantifiable as a percentage of 80% of the net proceeds from the underlying properties.
The underlying mineral properties consist of interests in about 452 net-producing wells and approximately 51,150 net acres.
It's worth noting that over 95% of VOC Energy Trust's profits come from the sale of barrels of crude oil, so the share price should reflect oil price patterns quite closely.
Over the past 5 years, as crude oil gained 55.14%, shares of VOC Energy Trust rose at a slightly faster pace, delivering a total return of 58.32%.
In Seeking Alpha's chart, crude oil's performance is represented by Crude Oil WTI Futures - March 23 (CLH2023), while natural gas, whose investment lost 18.69% over the same 5-year period, is represented by Natural Gas Futures - March 23 (NGH2023).
For the first 9 months of 2022, VOC Energy Trust reported an income from net profits interest of $16.8 million, an increase of 195% year-over-year, as a result of higher prices and sales volumes of oil equivalent.
In the first 9 months of 2022, available cash retained for trust expenses was $550,291 and general and administrative expenses were $772,288.
Thus, payable income increased 195% to $15.47 million or $0.91 per share.
As of September 30, 2022, total assets were valued at $15.12 million including cash of $837,495 and the remaining $14.28 million in net investments in net profit interests.
Fossil Fuels Price Outlook
In terms of natural gas, analysts are forecasting a price increase of 13% per metric million British thermal units (MMBtu) this quarter and a 37.6% increase by the end of 2023. The projected increases in fossil fuels are from the level at which the commodity was trading at the time of writing, i.e., $2.44 per MMBtu
While the barrel of crude oil is expected to rise 5.2% this quarter and grow 18.2% by the end of 2023. Gains are calculated from the $78.9 per barrel level, the price at which the commodity was trading at the time of writing.
Since the trust's share price is highly dependent on the price movement of the commodity crude oil, it is interesting to note the following main factors that are currently leading the analysts to rate a rising price per barrel.
Essentially, two things will drive up the price of crude oil.
The first is record demand expected because of China's economy fully reopening after the government lifted restrictive measures to contain the Covid-19 virus infection.
The second concerns the market's fears of a production deficit that could emerge from major OPEC+ exporters after Western countries imposed a new package of sanctions on the Russian economy.
To add some numbers to these expectations, according to the International Energy Agency [IEA] February report, global oil demand should strengthen by 2 million barrels per day in 2023 to a new record of 101.9 million barrels per day.
The IEA also predicts about half of that demand is likely to come from China as the economy reopens after drastic coronavirus restrictions and lockdowns.
The February IEA report also said shipments from OPEC+ countries could contract later in the year. This means more non-OPEC crude may need to be brought to market to meet rising global demand.
So, on top of the catalyst of rising crude oil prices, VOC Energy Trust's earnings will now also benefit from an increased volume of the fossil fuel produced for the global market by US operations.
The stock price is therefore expected to trade higher in the coming period and investors should add shares of VOC Energy Trust to their positions if they wish to benefit from the potential upside.
The Stock Valuation
After falling significantly from a high of $13.09 per share on January 20, 2023, shares of VOC Energy Trust are down more than 35% to trade at $8.07 at the time of writing.
These share price levels are not high, as they are significantly below the 75-day simple moving average line of $9.44, while they are nearly equal to the 200-day simple moving average line.
The stock has a 52-week range of $5.53 to $13.70 and its market cap is $140.76 million.
By taking advantage of these levels, investors may have a greater opportunity to benefit from the expected increase in VOC Energy Trust's term net profit interests due to higher barrel-oil equivalent prices and sales volumes.
Higher earnings on the expected better outlook for commodities should be reflected in higher share prices. Dividends could also rise and this will further help the share price to reach higher levels.
On February 14, 2023, the VOC Energy Trust paid a dividend of $0.23 per share to shareholders for the quarterly payment period that ended December 31, 2022. The payment results in a forward dividend yield of 11.11% at the time of this writing.
It can also be that crude oil prices and output catalysts will not work as projected. But with an expected sharp increase in energy consumption from China and severe pressure on fossil fuel supplies due to the geopolitical fallout from the war in Ukraine, it is almost impossible to imagine any scenario other than the one outlined.
Conclusion
With crude oil prices and non-OPEC sales volumes expected to trade higher in 2023, investors should consider increasing their positions in VOC Energy Trust as this fund stands to benefit from the resulting tailwinds and potentially propel the share price to higher levels than current levels.
For further details see:
VOC Energy Trust Is Ready To Perform Well