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Greetings, students. Today, we will be discussing investment vehicles in the oil and gas sector. Specifically, we will be focusing on conventional oil and gas royalty trusts.
These trusts are actively managed portfolios that engage in the development, acquisition, and production of oil and gas reserves. The trust receives royalty income from its producing properties, which is essentially net cash flow.
To fund their operations, these trusts then sell interests in the trust, known as trust units, to investors. As the trust generates cash flow from its assets, it passes on a portion of that income to the unit holders as royalty income.
It's important to note that these trusts primarily hold mature producing properties, meaning they are less risky compared to other investment options in the oil and gas sector. Additionally, the trust's cash flow is subject to certain deductions, such as administrative expenses and management fees, as well as capital expenses, which are usually restricted in amount.
