UBS Analyst: Energy Trusts Offer Exceptional Value

The way Grant Hofer sees it, even when you lose you win.

Mr. Hofer, the UBS Securities guy crunching data on royalty trusts in Calgary, thinks now is the time to take a good look at the group. The trusts he covers are down 8% over the past month (but still up 34% this year), and Mr. Hofer thinks “the sector appears to us to be very well positioned and offers exceptional value today.”

Cash yields, he says, have climbed 10.7%, which makes the trusts attractive, given payout ratios of about 50% in 2009. His numbers are based on $120 per barrel oil and $10.10/mcf for natural gas. Don’t think those prices are reasonable? No sweat.

In bold, he wrote:

Should commodity prices continue to pull back, we believe that the yield should provide attractive support for unit prices.

Vermilion Energy Trust (VET) and Crescent Point Energy Trust (CPGCF.PK) were his two favorites on Thursday, given their high weightings to crude oil and growth plans and because of their acquisitive ways.

Mr. Hofer’s target on Crescent Point is $45, and he expects Vermilion to get to $49. Vermilion, he thinks, will be “essentially debt-free” by the end of the year. “With its low payout ratio, 75% weighting to crude oil (unhedged), and sector-based netbacks, the trust remains our best overall pick in the sector.”

For those of you who like to dig deeper into the numbers, Mr. Hofer notes the trust group is trading at just 83% of net asset value.

He said:

This is the lowest level that we can recall (typically the sector trades at a premium to our conservative NAVs).

When analysts get excited, they (sometimes) come up with eye-catching headlines for their reports. Looks like Mr. Hofer falls into that category on this one. At the top of his report, he wrote: “Valuation update: Back up the truck!”

Canaccord Puts Verenex Energy on its Best Ideas List

VERENEX ENERGY

VNX : TSX : C$9.76 | SPECULATIVE BUY, C$12.75 target

We are adding Verenex (VNX: TSX)to the Canaccord Adams Best Ideas List. Verenex is an oil and gas exploration and production company that has exploration acreage in the Ghadames Basin in Libya and in the Paris Basin and Aquitaine Maritime in France.

Verenex has had remarkable exploration success in Libya with 100% success on six exploration wells in Area 47. In addition, the company recently released test results from an appraisal well in Area 47 that provides increasing confidence that there is a significant stratigraphic component to the oil deposit.

Stratigraphic traps provide the potential for very large accumulations of oil, in the range of hundreds of millions to billions of barrels of oil (as opposed to more modest individual accumulations of 25 to 40 million barrels in structural traps typical of the Ghadames basin).

Our SPECULATIVE BUY recommendation and 12-month target price of C$12.75 per share are based on our contingent asset valuation of the company. Our estimate of contingent asset value for Verenex is based on recoverable reserve potential of about 2 billion barrels (gross). Verenex currently trades at about 77% of our target price of C$12.75 and is down about 45% from its 52 week high of $17.63.
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In the interest of full disclosure I own 5,000 shares of Verenex.

If you want a safer way to play Verenex (VNX-T) you could by Vermillion Energy Trust (VET.UN-T). It has a substantial interest in Verenex. Vermillion pays $0.19 per month per unit anf is trading around $35 per unit.

Verenex Energy Q3 Results- $19 Haywod Securities Target

Verenex Energy (VNX : TSX : $10.65)

Verenex issued their third quarter results. They spudded their seventh well in Libya. However, they don't expect cash flow from their Libyan discoveries until late 2009.

Haywood Securities maintains "sector outperform", 12-month target price is $19.00.

This is one of two "none income" producing holdings at this time. A safer way to play Verenex is by holding Vermillion Energy Trust (VET.UN:TSX) which is Verenex's largest sharholder. Vermillion pays out $0.17 per month and is trading around the $40 mark.

Verenex will be very volatile until they actually start production and can publish accurate reserve calculations. Please conduct your own due dilligence.

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.

Top Pick Verenex Energy VNX-T Presently Trading at $12.30 with a 2008 target of $18

Verenex Energy (VNX-T) is 45% owned by Vermilion Energy Trust(VET.UN-T). They are drilling in Libya. Drilled 2 wells so far. The first one flowed 10,000 BOE a day and the second flowed 20,000 BOE.

Verenex hit an all time high in August of $17.63 but has pulled back considerably since the ORCA well drilled by Bordeux Energy (BDO-X) off the coast of France (they had a 30% interest) came up dry.

I normally only accumulate dividend paying stocks and stay away from risky stocks such as Verenex because its purely an oil exploration play in Libya. However, they have struck oil and I expect that in in 2008 Verenex will also become a production company too. Once this happens it will attract different investors and valuations.

I feel that it will reach $18 by the end of 2008.

I picked up 2,000 shares.

Please do your own due dilligence before acquiring any securities.