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Wednesday, February 14, 2007

Peyto Energy Trust PEY.UN-T

Peyto just released their year end reserve report and its pretty good. This company was my largest holding at one time but I am down to only 3,000 units today after the Canadian Governments slaughter of the income trust sector. Peyto has struggled for the past 18 months with stagnant production per unit growth and weak commodity prices.

However, this reserve report places their net asset value of $23.08 per unit based on total proven reserves at a 5% discount. It closed today at $17.70 per unit which translates to a a 23% discount to net asset value. Furthermore, these units pay $0.14 per month distribution which results in a 9.5% yield based on todays closing price.

In my book this company fits my investing for income theme. It's a growing business (although slowly) with a nice monthly payout.

Peyto has been criticzed for its high payout ratio's (ratio based on cash distributions plus capital expenditures per unit) but they have proven that high payout ratio's are acceptable as long as the capital expenditures are accretive to unit holders.

Be careful though, most capital expenditure budgets for oil & gas trusts are only to maintain production per unit.

I feel Peyto will be above $25 per unit by year end.

Please conduct your own due dilligence before taking a position.

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