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VOC Energy Trust is expected to benefit from the expected increase in crude oil and natural gas prices
When the market prices of crude oil and natural gas rise, the stock price of VOC Energy Trust (NYSE:VOC) typically benefits as the fund’s earnings adjust to higher commodity prices.
As oil and natural gas are expected to trade higher in the coming months, VOC Energy Trust’s earnings are expected to rise, potentially giving a major boost to the stock price. 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 and gas exploration and production industry
Headquartered in Houston, Texas, VOC Energy Trust is a trust engaged in the acquisition and subsequent management of interest in net forward earnings 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 are 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 interest on the VOC Energy Trust’s net forward earnings is quantified as a percentage of 80% of the net proceeds of the underlying properties.
The underlying mining holdings consist of interests in approximately 452 wells with net production 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 stock price should reflect oil price trends fairly closely.
Over the past 5 years, while crude oil has gained 55.14%, shares of VOC Energy Trust have risen at a slightly faster pace, offering a total return of 58.32%.
Source: Seeking Alpha
In the Seeking Alpha 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 net income interest income of $16.8 million, an increase of 195% year over year, as a result of increased pricing 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 $837,495 in cash and the remaining $14.28 million in net interest income investments.
Perspectives on fossil fuel prices
In terms of natural gas, analysts expect prices to rise by 13% per million British thermal units (MMBtu) this quarter and rise by 37.6% by the end of 2023. Projected increases in fossil fuels are from 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 18.2% by the end of 2023. Gains are calculated from the $78.9 a barrel level, the price at which the commodity was trading at the time of writing.
Since the share price of the trust is highly dependent on the price movement of crude oil, it is interesting to note the following main factors which are currently leading analysts to estimate an increase in the price per barrel.
Essentially, two things will drive up the price of crude oil.
The first is the record demand expected due to the full reopening of the Chinese economy after the government lifted the restrictive measures to contain the Covid-19 virus infection.
The second concerns market fears that a production shortfall could emerge from major OPEC+ exporters after Western countries imposed a new package of sanctions on the Russian economy.
To add a few numbers to these expectations, according to the International Energy Agency [IEA] Report in February, global oil demand is expected to strengthen by 2 million bpd in 2023 to a new record of 101.9 million bpd.
The IEA also forecasts that about half of that demand will likely come from China as the economy reopens after drastic coronavirus restrictions and lockdowns.
The February IEA report also said that shipments from OPEC+ countries could contract later in the year. This means that more non-OPEC crude may need to be brought to market to meet growing global demand.
So, in addition to the catalyst for higher crude oil prices, VOC Energy Trust’s earnings will now also benefit from an increase in the volume of fossil fuel produced for the global market by US operations.
Therefore, the share price is expected to rise higher in the coming period and investors should add shares of VOC Energy Trust to their holdings if they want to benefit from the potential upside.
Valuation of shares
After dropping significantly from a high of $13.09 per share on Jan. 20, 2023, shares of VOC Energy Trust are down more than 35% to trade at $8.07 at the time of writing.
Source: Seeking Alpha
These stock price levels are not elevated, 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 forward net profit interests due to higher barrel equivalent prices and sales volumes.
Higher earnings based on the better expected outlook for commodities should be reflected in higher equity prices. Dividends could also rise and this will further help the share price reach higher levels.
On February 14, 2023, the VOC Energy Trust paid shareholders a dividend of $0.23 per share for the quarterly payment period ended December 31, 2022. The payment results in a forward dividend yield of 11.11 % at the time of this writing.
It may also be that crude oil prices and production catalysts are not working as expected. 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 a different scenario from the one outlined.
Conclusion
With crude oil prices and non-OPEC sales volumes expected to rise in 2023, investors should consider increasing their positions in VOC Energy Trust as this fund will benefit from the resulting tailwinds and could push the share price to lower levels. higher than current levels.
