Friday, November 28, 2014

Sold Whiting Trust II (WHZ)

Earlier this month I sold Whiting Trust II (WHZ). I had been busy working with the folks over at Sharpe Trade that I didn't post it here and to be honest, I hadn't planned on mentioning it. However with its above average price drop I feel its important to address it now.

As with my ARCP sale, to prevent anyone thinking I am using hindsight bias here is the trade confirmation.

I ended up breaking even on this position. While I had a large loss when I sold, I had received 20% dividends for a couple years which ended up making these be a wash. This trade was certainly not one to brag about.

I sold for two reasons. The price of oil has plummeted from well above $100 down to $80. WHZ has costs they have to pay for the extraction of the oil and those costs do not go down with the price of oil. Their profit will take more than a 20% hit. I have seen many other oil companies take large hits in share price and WHZ seemed to not have been affected by it. However the history of WHZ is that it drops by a lot at ex-dividend date and then recovers over the quarter. This time due to the downward pressure of oil prices on the share price, I do not expect it to recover this time. This is a short term reason but an important one.

The second reason is more long term in scope and I expect it to last for the duration of the trust's life. Investors weren't pushing the share price up to a high level. Most trusts will have the share price rise as investors look at high yields and push it up. BPT, GNI, WHX are all examples of this and I had hoped that WHZ would follow suit. They did not. I had pressumed that would be the worst case scenario and that I would break even due to having a minimum amount paid out.

Royalty land trusts are fairly easy to estimate what they will pay out. They list the estimated amount of energy they expect to extra and you pick a reasonable price for the commodity it produces. Specifics will vary as these are estimates but you can come close. The bigger variable is how the market will react. You have a floor on your losses and gains because of the distributions paid out. Sometimes it works out like it did for me in BPT years ago, sometimes it doesn't like here with WHZ.

With WHZ losing about 8% of its production a year its best years are front loaded. The last years of a trust's life pay very little. With oil this low and who knows when it will recover I felt it best to move on.

As I post this, WHZ is traditionally at its point where it bottoms out and starts recovering for the quarter after its last distribution. If that happens this quarter or not I do not know. The odds are against it I think and that's what trading is to me. Only being in positions that have a high probability of being successful. I don't do the crap shoot investments.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.


  1. WHZ was a big head ache for me as well but it was a good learning experience.

  2. Why even bother with these outrageous yields and more complex corporate structures? Buy, cheese, cereal, Band Aids, light bulbs, Scotch tape, etc. and be happy owning solid dividend growers in companies you know and understand. What's wrong with GE, KRFT, GIS, MMM, CAT, ABT, CLX and the like? I wouldn't come close to touching any of these types of investments. Thanks for sharing though.

    1. Thats a good question actually. Why bother?
      Because I agree with Benjamin Graham in the "Intelligent Investor" when he says the difference between the passive investor and active investor is the amount of time spent. Complex company structures can become understood with research just as how all investing is not understood when a person first starts out. One can find safe high yield assets just as one can find risky low yield.

  3. Hi DivHut,
    I thought I would answer based on why I would invest in WHZ... its not a stock but a trust... Its an alternative way to get diversification. Just like any asset it matters when you buy. It really isn't that hard to understand it is an oil and gas trust that has cost of getting the assets out of the ground and sells them on the market. The trust has 28 distributions left. Right now with a $7.36/28 a .26 distribution would be needed to break even. Anything else is profit and the payments (cash) are given quarterly to be put to use buying whatever.