Simply put, the grantor trust structure and accompanying tax relief
was a subsidy delivered straight to the E&P's pockets enabling them to
monetize assets at valuations they would not have otherwise achieved
under any other legal structure.

From BP's perspective, creating the trust and paying out based on WTI
makes sense under two conditions: 1) raising capital this way costs
less than from captial markets, equity, etc. 2) WTI spot prices are
expected to decline, resulting in declining payments to the trust. I
don't know what the initial unit price was for the trust, but there
must have been some calculation of the cost to raise capital (remember
interest rates in the 80s were sky-high) and creating the trust must
have been cost-effective or BP wouldn't have done it.

A decline in spot prices would be offset by hedging their sell price
for the oil produced, allowing them a steady revenue stream while
paying less to the trust. I think the recent run in WTI was a great
windfall for unitholders, but horrible for BP.

The trust only gets 16% or so of the WTI, minus chargeables, so BP is
still getting plenty of cash out of the production. I would guess that
they hedge the price rather than selling on the open market - anyone
have any info on that?

On May 12, 6:25 am, frank1...@gmail.com wrote: