BP Prudhoe Bay Royalty Trust: Navigating Uncertain Valuations in the Winding-Up Process

The BP Prudhoe Bay Royalty Trust (NYSE: BPT), a once-viable investment vehicle tied to Alaska's oil-rich Prudhoe Bay, now faces a precarious liquidation phase following its termination on December 31, 2024. With Hilcorp North Slope, LLC (HNS) declining its purchase option and RedOaks Energy Advisors' de minimis valuation clouding the process, unit holders are left in a high-stakes gamble. This article dissects the risks and opportunities for investors amid a valuation crisis and structural uncertainties.

The Winding-Up Process: A Timeline of Uncertainty

The Trust's termination, triggered by two consecutive years of insufficient net revenues, has thrust its assets—primarily royalty rights to Prudhoe Bay oil—into a sale process managed by trustee The Bank of New York Mellon. HNS, the operator of the field, held an option to buy the assets at the greater of $11.6 million (calculated as $0.544 per unit multiplied by 21.4 million outstanding units) or a fair market value (FMV) determined by RedOaks. HNS declined this option on June 2, 2025, citing the de minimis FMV opinion of $0 issued by RedOaks as of December 31, 2024.

The Trustee has now launched a formal sale process, requiring bids by July 29, 2025. However, RedOaks explicitly stated its valuation was not reflective of current market conditions, leaving the Trust's worth open to interpretation. HNS has signaled it may submit a bid “substantially lower” than the $11.6 million minimum, raising red flags about the potential for a fire sale.

HNS's Declined Option and the De Minimis Valuation: A Recipe for Risk

The RedOaks valuation, while legally compliant, is deeply problematic for unit holders. By deeming the Trust's assets “de minimis” as of termination, the advisor effectively negated their economic value, despite the Trust's historical role in generating royalties from one of Alaska's largest oil fields. This creates a paradox: the Trust's assets may hold residual value tied to future oil production, but the FMV opinion treats them as near-worthless.

HNS's refusal to exercise its option—despite its operational expertise and intimate knowledge of Prudhoe Bay—hints at a bleak outlook. The company's potential lowball bid underscores a lack of confidence in the field's remaining economic life, especially as oil prices remain volatile and production declines.

The Bidding Timeline and Structural Risks

With bids due by late July, unit holders face a critical window to influence outcomes. However, several risks loom:
1. Bidder Participation: HNS's dominance in the North Slope region could stifle competition, leaving unit holders reliant on its goodwill.
2. Valuation Gaps: The Trust's FMV as of December 2024 ($0) contrasts sharply with any bids reflecting current market conditions. The Trustee must navigate this discrepancy while adhering to fiduciary duties.
3. Proceeds Uncertainty: The Trustee explicitly warns there is no assurance of proceeds. Even if a sale occurs, administrative costs and legal hurdles could erode payouts further.

Data query: Plot BPT's closing prices from December 1, 2024, to present, highlighting the decline from $0.544 (termination price) to current levels.

Voting Threshold: A Double-Edged Sword

The Trust Agreement mandates that sale terms must secure approval from 60% of unit holders unless the Trustee deems a vote impractical. This creates two scenarios:
- Scenario 1 (Voting Required): Unit holders could reject a bid deemed too low, forcing the Trustee to seek alternatives. However, mobilizing 60% of holders—a dispersed group—could prove logistically challenging.
- Scenario 2 (Voting Waived): If the Trustee skips a vote, the sale must meet FMV (the de minimis $0) and “commercially reasonable terms.” This could allow a HNS bid far below the $11.6 million floor, leaving holders with minimal returns.

Investment Considerations: Proactive Action or Exit?

Risk Factors to Weigh:
- Valuation Disparity: The de minimis FMV clashes with potential bids, creating a valuation limbo.
- Operational Decline: Prudhoe Bay's aging infrastructure and declining production (down 14% in 2024 alone) reduce its long-term viability.
- Legal and Administrative Costs: Even if assets sell, expenses could eat into proceeds.

Opportunities (Limited but Present):
- Bidder Competition: If other firms bid beyond HNS's offer—unlikely but possible—unit holders might secure a modest payout.
- Strategic Voting: Engaging in the voting process to block low bids could pressure buyers to raise offers.

Final Recommendation: Act with Caution

Unit holders face a stark choice:
1. Engage Proactively: Contact RedOaks to inquire about bidding details, and organize with other holders to demand transparency and fair terms. The July 29 deadline is non-negotiable.
2. Liquidate Positions: Given the lack of guarantees and structural headwinds, holding BPT units is akin to gambling on an asset with no clear floor.

The Trust's termination and sale process are a cautionary tale of reliance on depleting resource assets. For most investors, exiting now—before the final payout (if any) is determined—may be the prudent move.

In sum, the BP Prudhoe Bay Royalty Trust's winding-up highlights the perils of investing in legacy energy royalties. With valuation uncertainties, operational decline, and a buyer with minimal incentive to overpay, unit holders must act swiftly to minimize losses.