Natural Gas Weighted Income Trusts

Natural Gas Weighted Energy Trusts have been decimated since the "Tax Fairness" policy was announced on October 31, 2006.

Despite the spike in trading activity year-to-date, unit prices still remain depressed for Trilogy Energy Trust (TET.UN-T) and Paramount Energy Trust(PMT.UN-T). February 2008 to-date, Paramount’s unit price is 46% below its pre-Tax Fairness level and 43% below for Trilogy. Peyto Energy Trust (PEY.UN-T) and Progress Energy Trust (PGX.UN-T) have fared better, and currently exhibit average prices only 9% and 12% below their pre-Tax Fairness levels respectively.

Investors seeking the most exposure to increased natural gas prices should consider both Trilogy and Paramount. Trilogy has the highest cash flow sensitivity to natural gas given its unhedged production, while Paramount’s cost structure (both operational and financial) provides leverage but 25% of their production is hedged.

I presently have positions in Paramount and Peyto.

Target Prices for Canadian Royalty Trusts

Please click here to download a spread sheet summary of Canadian Royalty Trust (affectionately known as Canroys) target prices by various Candadian Investment Houses as of September 28, 2007. Investors should use this information to determine good entry points into Canroy positions.

This spread sheet is courtesy of THOR on the Yahoo Canroy board.

Please note that this link will only be available until November 30, 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.