Whiting USA Trust (NYSE:WHX) which is a trust involved in the extraction and sale of oil and gas. On 13th March, this oil and gas trust filed a Form 10-K to SEC as part of its annual operational report. The fine print in the report sent the stock plummeting down 35 percent during trading on 28th March trading. The back ground to the steep fall in value is discussed below.
The trust was formed by its parent Whiting Petroleum Corporation. The trust offers “net profits interest” for a fixed term (NPI) to its unit holders and was slated to end on 30th June 2015. Buried in fine print of this report was a red flag raised by Trustee of Whiting USA Trust (NYSE:WHX) The Bank of New York Mellon Trust Company. The trustee has provided a grave warning to the unit holders about two significant developments. First is the likelihood of abrupt drop in the value of their holdings and the second is the term of the trust paying out “net profits interest” ending much earlier than previously scheduled.
The trustee goes on to state that, “To the extent that the Trust units are trading at a price substantially in excess of the aggregate distributions that may be reasonably expected to be made prior to the termination of the Trust, the market price decline in Trust units is likely to include one or more abrupt substantial decreases”. The operative part of the Trustee also states that, “the expected date of termination of the Trust has advanced to March 31, 2015”.
What Does The Fine Print Mean To Unit Holders?
The trustees warning means that the unit holders can expect the value of their holdings to experience abrupt and drastic fall, from its current valuations. The new valuations would be in line with the pending proceeds that the trust can expect to receive from its parent, which would be raised from the sale of close to 1.08 million barrels of oil equivalent. The value of this expected proceeds has been estimated to translate to nearly $2.10 per share as against the $5.23 per share current trading price.