CHESAPEAKE GRANITE WASH TRUST (CHKR) stock intrinsic value fair value estimate & owner earnings analysis

Chesapeake Granite Wash Trust owns royalty interests in oil, natural gas and natural gas liquids production from the Colony Granite Wash formation in Washita County, western Oklahoma. It has no employees, no debt (no loans were outstanding at year-end 2023), no capital spending and no stock compensation, so owner earnings are simply the cash the Trust distributes: royalty income less production taxes and the Trust's administrative costs. The 46,750,000 units have not changed. The operator is a subsidiary of Diversified Energy, which also holds about half the units. The units were delisted from the New York Stock Exchange in March 2020 and there is no intent to relist them. Important limitation: the most recent annual report on record is for 2023, filed April 1, 2024, roughly two and a half years old. Every figure below is built on that report. Distributions since then could not be checked and may differ from our path. How the Trust works. The Trust dissolves on June 30, 2031. At that date the Term Royalties (half of the royalty interests) revert to the operator for nothing, and the other half, the Perpetual Royalties, is sold with proceeds paid to unitholders. The operator has a right of first refusal on that sale, which may discourage outside bidders. This is a melting asset: the units are worth the remaining distributions plus one sale, and there is no growth to credit. History. Distributable income per unit was about $0.28 (2017, as computed from the reported dollars), $0.24 (2018), $0.16 (2019), $0.07 (2020), $0.14 (2021), $0.28 (2022) and $0.17 (2023). The swings track commodity prices layered on a declining production base. The 2017 filing's printed per-unit figure of $0.3577 does not reconcile to its own dollar total, so we used the computed amount. Distributions fell 38% in 2023 (from $0.2778 to $0.1721). The base case assumes royalty income declines about 10% a year from a 2024 level near $6.6 million; this is a smaller fall than 2023 because the reserve engineer's report for year-end 2023, prepared at flat prices, shows the wells as fully developed and producing with no new drilling, so 2023 was largely price-driven. Reserve report: 3,593 thousand barrels of oil equivalent, $71.1 million of undiscounted future net revenue and a $35.1 million present value at 10% for the whole life of the royalty interests, before Trust administrative costs of about $1.4 to $1.6 million per year. A February 2024 distribution of $0.0214 per unit (about $0.09 annualized) is consistent with a lower run rate than 2023. Base case, about $0.34 per unit. Royalty income falls about 10% a year through mid-2031, with administrative costs near $1.4 million a year taken off. Distributions discounted at 6% from today total about $11.4 million. The sale of the Perpetual Royalties in 2031 is credited at about $6 million, or roughly three years of the then cash flow from that half, because the reserve report supports that the wells will still be producing then, though the price is uncertain. Total about $15.9 million, or $0.34 per unit. Bear case, about $0.08 per unit. Production declines 15% a year, and administrative costs stay near $1.6 million, absorbing most of the shrinking royalty income by 2030. The Perpetual Royalties sale yields nothing because the operator holds a right of first refusal and could decline to pay a meaningful price. Leverage is not an issue, since the Trust has no debt. Bull case, about $0.50 per unit. Decline slows to 7% a year from a 2024 base near $7.5 million, and the Perpetual Royalties sell for about $9 million. This rests only on the wells' own production record and reserve report, not on any rise in commodity prices. What we left out: any rebound in gas or oil prices, any new drilling (the reserve report shows none), and any value after 2031 beyond the Perpetual Royalties sale. What could make this wrong: lower realized gas prices (the year-end 2023 gas price used in the reserve report was about $1.68 per Mcf after differentials), faster well decline, higher administrative costs, an early wind-up, or distributions since 2024 that are materially different from our path. Because the latest filing is stale, these estimates should be checked against the 2024 and 2025 annual reports once available.