MVO Stock: A Contrarian Play for Patient Investors
Crude prices may be facing near-term headwinds on concerns about the global economy, but the longer-term outlook for West Texas Intermediate Crude remains robust. And for contrarian investors, the long-term outlook is more important than near-term volatility.
According to the U.S. Energy Information Administration (EIA), global oil demand is expected to increase by 1.0 million barrels per day in 2024 and 1.2 million barrels per day in 2025. U.S. crude production is projected to grow from 12.9 million barrels per day in 2023 to 13.2 million barrels per day in 2024 and 13.5 million barrels per day in 2025. (Source: “Short-Term Energy Outlook November 2024,” U.S. Energy Information Administration, November 2, 2024.)
Continued growth of U.S. oil and gas production coupled with the expected slight increases in oil prices should help beaten-down oil and gas exploration and production (E&P) companies like MV Oil Trust (NYSE:MVO).
MV Oil Trust is an oil and gas E&P company that holds interests in the oil and natural gas properties of MV Partners LLC in Kansas and Colorado. (Source: “Form 10-Q,” U.S. Securities and Exchange Commission, November 7, 2024.)
Whereas most oil and gas exploration and production companies spend millions of dollars drilling new sites, MV Oil focuses on getting as much as it can out of its existing operations. Then it gives the vast majority of its profits to its unitholders.
On the plus side, because MV Oil Trust pays out all of its cash flow to investors, its dividend yield can be exceptionally high.
At the same time, the company’s oil and gas wells will eventually run dry. When I wrote about the partnership in February 2022, it had approximately 900 oil and gas wells. Today, MV Oil Trust has interests in about 850 wells. The projected reserve life of the company’s underlying properties is more than 44 years.
And because of supply/demand metrics and the price of oil and gas, the partnership’s earnings and dividends fluctuate unpredictably.
MV Oil Stock Paid Q3 Distribution of $0.33/Unit
In the third quarter of 2024, MV Oil generated 149,086 barrels of oil equivalent (BOE) at an average price per of $73.90 per BOE. This resulted in gross proceeds of $11.07 million. (Source: “MV Oil Trust Announces Third Quarter Distribution,” MV Oil Trust, October 4, 2024.)
This resulted in a quarterly distribution of $3.79 million, or $0.330 per unit, with MV Oil stock. That works out to $1.50 per unit on an annual basis for a massive 15.92% yield.
Because the price of oil fluctuates, MV Oil stock’s distribution payout will as well. In the second quarter, the partnership generated 151,140 BOE at an average price of $76.62. This resulted in a quarterly distribution of $4.71 million, or $0.410 per unit. (Source: “MV Oil Trust Announces Trust Second Quarter Distribution,” MV Oil Trust, July 5, 2024.)
Technical Indicator Points to Potential Upside
Perhaps not surprisingly, moves in MV Oil stock are tied closely to the direction of oil prices.
If you look at the chart below, you can see that MVO units spiked in mid-October in step with oil prices. Since then though, the so-called “war premium” has been removed and replaced by tepid demand from China.
And because of that, MV Oil stock has not exactly been performing well; it’s down 13% in 2024 and 12% on an annual basis as of November 19. Since the start of June, though, MVO units have advanced almost seven percent.
For technical traders, MV Oil stock is at an interesting junction, with the short-term 50-day moving average (MA), the blue line, having just crossed over the longer-term 200-day MA, the red line. This is referred to as a golden cross, which is a bullish indicator that points to additional gains.
Chart courtesy of StockCharts.com
The Lowdown on MV Oil Stock
As its name suggests, MV Oil Trust is a trust, which means it pays out virtually all of its cash flow to investors. That’s great news for MV Oil stockholders when the economy is running on all cylinders, but it can result in lower distributions when the economy is weak or when we’re in a recession or dealing with a global pandemic.
As is always the case with the stock market, all this means is that investors need to understand how fickle some energy stock prices and distributions can be. Whether we’re in a bull market or bear market, though, as long as MV Oil Trust keeps pulling oil and gas from the ground, MV Oil stock’s high-yield dividend should be safe.