The sun sets behind the buff and pink cliffs and the shadows lengthen like long fingers reaching over the sage and rabbit brush. The moon rises and coyotes howl. Jets of burning gas from erector set wells light the night. It's the end of another day in the San Juan Basin -- home of San Juan Basin Royalty Trust (NYSE:SJT).

Royalty trusts are investment vehicles that collect income on royalties from natural resources and commodities. Oil and gas trusts are one type, but there are others. Like their close cousins, realty trusts, royalty trusts pay out almost all of the cash they collect as distributions to shareholders. And this means the yields can be generous.

The San Juan basin in northern New Mexico sits on a reported 236 million Mcf (thousand cubic feet) in natural gas reserves. San Juan Basin Royalty Trust collects royalties on the oil and gas reserves from 151,900 acres in the basin produced by 3,738 wells. Total annual production is around 19 million Mcf. Independent petroleum engineers have estimated approximately 9.47 years worth of reserves remain. The production index is subject to change from year to year based on reserve revisions and production levels.

Burlington Resources (NYSE:BR) owns and operates the gas and oil wells on the land, and pays San Juan Basin Royalty Trust. Royalties from gas on San Juan's properties are typically in excess of 50% of the gross proceeds generated from gas sales. Yields to investors are currently around 10%.

Returns from San Juan Basin Royalty Trust were hotter than a chili pepper in 2003. Shareholders earned a sizzling $1.94 per share in dividends for a 10.2% yield. However, both the dividends and the price can be volatile since they are tethered to the price of natural gas. In Oct. 2000, shares could be bought for $10.13 and the dividend was $1.72 for the year. The cash dividend in 2000 was a meager $0.78. The price per share has drifted up steadily and is now around $19, and the two monthly distributions for 2004 total $0.25.

San Juan Basin Royalty Trust owns royalties on a finite resource. The gas in the fields will eventually play out and dividends will disappear once the resource is gone, unless the company aligns with a new producer. There is no terminal value as with a stock. Couple that with the volatility of gas prices and that makes oil and gas royalty trusts a speculative investment. However, if you believe the future price of natural gas will remain high and supplies will remain tight, San Juan represents a pure play on a commodity without trading in futures and commodities markets.

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Motley Fool contributor J. Graham owns shares of San Juan Basin Royalty Trust.