PermRock's Stock A 'Straightforward Opportunity,' Stifel Says

PermRock Royalty Trust PRT, a statutory trust that's entitled to receive 80 percent of the net profits from the sale of oil and natural gas production from certain properties owned by Boaz Energy in the Permian Basin, is a "straightforward opportunity" for investors to benefit from the Permian Basin, according to Stifel.

The Analyst

Stifel's Timothy Howard initiated coverage of PermRock Royalty with a Buy rating and $17 price target.

The Thesis

Owning PermRock Royalty's units gives investors direct exposure to the Permian Basin with a monthly distribution and a 1099 status for taxes but without the risk of dilution to unitholders, additional leverage, and acquisition of additional acreage, Howard said in a note. In fact, Boaz Energy's interests are directly aligned with unitholders through a retention of 5.9 million units and a 20 percent direct interest in net profits of the underlying properties.

The assets behind PermRock Royalty can show volatility from month to month, but over the longer term it's likely that "significant value" can be created, the analyst wrote. Management already invested $60 million in the business and another $30 million is expected to be invested over the next five years to drive production growth.

Investors should be cautioned that cash flows are directly correlated with commodity prices, which creates some uncertainty, but the unit's 12.8 percent current yield compares well to peers and should generate a 22 percent potential return over time, the analyst wrote.

Price Action

Shares of PermRock Royalty Trust closed higher by nearly 4 percent at $16.20.

Related Links:

Newfield Exploration, Parsley Energy, WPX Energy Upgraded At Seaport Global

Energy Sector Earns An Upgrade