20.9%-Yielding BP Prudhoe Bay Royalty Trust Stock Up 421% in 2022

BPT Stockholders Could Keep Benefiting From Higher Oil Prices

Depending on where we are in the economic cycle, some stocks stand out more than others. Right now, it would be tough to trash-talk a dividend stock like BP Prudhoe Bay Royalty Trust (NYSE:BPT). The company has been firing on all cylinders, its share price has been ripping higher, and it continues to raise its ultra-high-yield dividends.

No stock goes up forever, but there’s no reason to believe BP Prudhoe Bay Royalty Trust stock’s good times won’t last for the foreseeable future.

BP Prudhoe Bay Royalty Trust is the largest conventional oil and gas trust in the U.S. Perched on the northern reaches of Alaska on the shores of the Beaufort Sea is the massive Prudhoe Bay oil field. It’s the largest oil field in North America, covering 213,543 acres. (Source: “Fact Sheet: Prudhoe Bay,” BP plc, archived at Wayback Machine, last accessed August 19, 2022.)

The Prudhoe Bay oil field originally contained 25 billion barrels of oil and an estimated 46 trillion cubic feet of natural gas. It came on stream in June 1977 and, by 1979, the production increased to the field’s maximum rate of 1.5 million barrels per day. Since then, the production has declined steadily to less than 68,800 barrels per day.

While the glory days might be in the rearview mirror for Prudhoe Bay, it’s still an important source of energy and a major source of income for BP Prudhoe Bay Royalty Trust and its shareholders.

BP plc (NYSE:BP) set up BP Prudhoe Bay Royalty Trust as a partnership to fund its operations. The trust collects income from nearby oil wells and passes on the profits to BPT stockholders. The trust, which went public in 1989, receives 16.4% of the Prudhoe Bay oil field’s daily production, up to the first 90,000 barrels. (Source: “Form 10-K,” United States Securities and Exchange Commission, March 14, 2022.)

Q2 Dividend Up 30% Quarter-Over-Quarter & 5,733% Year-Over-Year

As an oil and gas refining company, BP Prudhoe Bay Royalty Trust’s profits fluctuate depending on the price of oil. Right now, the company is reaping the rewards of soaring oil prices.

The company said that, in the second quarter of 2022, the average price of West Texas Intermediate (WTI) oil was $108.70 per barrel, with an average royalty of $29.47 per barrel and an average net production of 68,800 barrels per day. (Source: “BP Prudhoe Bay Royalty Trust Announces Record Date and Payment Date for Distribution to Unitholders for the Second Quarter of 2022,” BP Prudhoe Bay Royalty Trust, July 5, 2022.)

The average daily closing WTI oil price was above the trust’s break-even price for the quarter, resulting in a quarterly payment of $30.3 million. After paying the trust’s expenses accrued through June 30, $30.1 million was available for distribution to BP Prudhoe Bay Royalty Trust stockholders.

This resulted in a dividend of $1.405 per unit, for a yield of 20.9%. That represented a 30% increase over the $1.088 per unit that BP Prudhoe Bay Royalty Trust paid out in the first quarter and a 5,733% increase over the $0.024 per unit it paid in July 2021.

That illustrates just how much BPT stock’s distribution can fluctuate. In some cases, it has even meant no dividend. The company only pays dividends when its revenues are above its break-even costs.

(Source: “BPT Dividend History,” Nasdaq, last accessed August 19, 2022.)

According to the U.S. Energy Information Administration, the spot price for Brent crude oil will average $105.00 per barrel in 2022 and $95.0 per barrel in 2023. The spot price for WTI oil is expected to average $98.71 in 2022 and $89.13 in 2023. (Source: “Short Term Energy Outlook,” U.S. Energy Information Administration, August 9, 2022.)

Of course, these forecasts can be revised higher or lower. A possible recession, an economic slowdown in China, the war in Ukraine, or changing output from oil-producing countries could force oil prices up or down.

For now, things are rosy for BP Prudhoe Bay Royalty Trust. That’s reflected not just in BP Prudhoe Bay Royalty Trust stock’s ultra-high-yield dividends, but also in its share price, which has been thrashing the broader market. As of this writing, BPT stock is up by:

• 9.5% over the last three months
• 95% over the last six months
• 421% year-to-date
• 551% year-over-year

Chart courtesy of StockCharts.com

The Lowdown on BP Prudhoe Bay Royalty Trust Stock

BP Prudhoe Bay Royalty Trust is an oil and gas company that has been thriving. The high demand for oil has resulted in significantly increased average quarterly WTI oil prices and average per-barrel royalties. This, in turn, has juiced BPT stock’s quarterly distributions and its stock market returns.

The good times won’t last forever, and they can change from quarter to quarter. This isn’t the kind of stock you buy and forget about for decades at a time. But right now, it’s tough to find a better ultra-high-yield dividend stock than BP Prudhoe Bay Royalty Trust stock.