I have acquired more units of Harvest and Crescent Point Energy Trust last week. I am hoping for a pull back so I can acquire more units.
I also picked up 40,000 shares of Plexmar just for the fun of it.
Sunday, April 29, 2007
Monday, April 16, 2007
Harvest Energy Trust Upgraded by Canaccord
Harvest Energy Trust (HTE.UN : TSX : $29.62) - Buy - Target: $31.00
Bruce McDonald
Comment: Raising target price due to rising refinery margins
Refinery crack spreads have been rising significantly due to recent refinery outages. Harvest generates approximately 35% of its EBITDA from the North Atlantic Refinery. We have increased our EBITDA estimate for North Atlantic from $319 million to $377 million. Under the NYMEX forward strip, we now forecast 2007E cash flow of $7.37 per unit, representing a payout ratio of 62%, and a debt to cash flow ratio of 2.2 times.
Based on a conservative multiple of 5.0 times EV/EBITDA, we estimate the value of North Atlantic at $1.9 billion. The upstream business is trading at 5.8 times 2007E EV/EBITDA under the forward strip, compared with an average of 6.6 times for average large cap royalty trusts.
We maintain our BUY recommendation and have raised our 12-month target price from 29.00 to $31.00 due to higher refinery cash flow estimates. Our target price is based on a 2007E EV/EBITDA multiple of 5.0 times for the refinery business and a 6.0 times 2007E EV/EBITDA for the upstream business under the forward strip. Our upstream target multiple is a discount to the 6.9 times average target multiple for large cap royalty trusts, given Harvest's shorter upstream asset RLI.
Bruce McDonald
Comment: Raising target price due to rising refinery margins
Refinery crack spreads have been rising significantly due to recent refinery outages. Harvest generates approximately 35% of its EBITDA from the North Atlantic Refinery. We have increased our EBITDA estimate for North Atlantic from $319 million to $377 million. Under the NYMEX forward strip, we now forecast 2007E cash flow of $7.37 per unit, representing a payout ratio of 62%, and a debt to cash flow ratio of 2.2 times.
Based on a conservative multiple of 5.0 times EV/EBITDA, we estimate the value of North Atlantic at $1.9 billion. The upstream business is trading at 5.8 times 2007E EV/EBITDA under the forward strip, compared with an average of 6.6 times for average large cap royalty trusts.
We maintain our BUY recommendation and have raised our 12-month target price from 29.00 to $31.00 due to higher refinery cash flow estimates. Our target price is based on a 2007E EV/EBITDA multiple of 5.0 times for the refinery business and a 6.0 times 2007E EV/EBITDA for the upstream business under the forward strip. Our upstream target multiple is a discount to the 6.9 times average target multiple for large cap royalty trusts, given Harvest's shorter upstream asset RLI.
Thursday, April 12, 2007
Bought More Harvest & Crescent Point Today
Today I bought 2,000 units of Crescent Point (CPG.UN-T) and Harvest Energy Trust (HTE.UN).
I also bought 1,000 units of Vermillion Energy Trust (VET.UN-T) too.
Disclaimer;
We are not investment professionals. We often post our own opinions and identify them as such, we reserve the right to change our opinions. The fact that we sometimes disclose when we establish or sell a position in a company is no warrantee that we will publish every trade. We do not warrant that any information that we post is true beyond the fact that it came from whatever source we acknowledge. We may at anytime have or not have an interest in a stock that we discuss. Finally we advise every investor to perform their own due diligence on both the investment products they purchase as well as the people whose opinions or decisions they accept about investing.
I also bought 1,000 units of Vermillion Energy Trust (VET.UN-T) too.
Disclaimer;
We are not investment professionals. We often post our own opinions and identify them as such, we reserve the right to change our opinions. The fact that we sometimes disclose when we establish or sell a position in a company is no warrantee that we will publish every trade. We do not warrant that any information that we post is true beyond the fact that it came from whatever source we acknowledge. We may at anytime have or not have an interest in a stock that we discuss. Finally we advise every investor to perform their own due diligence on both the investment products they purchase as well as the people whose opinions or decisions they accept about investing.
Wednesday, April 11, 2007
Bought 1,000 Units of Harvest Energy Trust today
Today I added to my position of Harvest Energy Trust.
After the market close they annouced that they are maintaining their $0.38 per month distribution. This is one well managed trust.
After the market close they annouced that they are maintaining their $0.38 per month distribution. This is one well managed trust.
Tuesday, April 10, 2007
Plexmar Resources PLE-X
I was very disappointed in Plexmar's press release today. It seemed more like a puff piece. There was no mention of drilling schedules or any other advancement on the property.
I sold all my shares today. I may get back in later. We will see.
Disclaimer;
We are not investment professionals. We often post our own opinions and identify them as such, we reserve the right to change our opinions. The fact that we sometimes disclose when we establish or sell a position in a company is no warrantee that we will publish every trade. We do not warrant that any information that we post is true beyond the fact that it came from whatever source we acknowledge. We may at anytime have or not have an interest in a stock that we discuss. Finally we advise every investor to perform their own due diligence on both the investment products they purchase as well as the people whose opinions or decisions they accept about investing.
I sold all my shares today. I may get back in later. We will see.
Disclaimer;
We are not investment professionals. We often post our own opinions and identify them as such, we reserve the right to change our opinions. The fact that we sometimes disclose when we establish or sell a position in a company is no warrantee that we will publish every trade. We do not warrant that any information that we post is true beyond the fact that it came from whatever source we acknowledge. We may at anytime have or not have an interest in a stock that we discuss. Finally we advise every investor to perform their own due diligence on both the investment products they purchase as well as the people whose opinions or decisions they accept about investing.
Sunday, April 8, 2007
Sound Energy Trust-Very Tempting
I presently hold 5,000 units of Sound Energy Trust (SND.UN). I plan on acquiring additional units as funds become available.
However, the "street" does not like management so I would not expect much capital gains in this investment until commodity prices firm up and the company has some reasonable quarterly reports. However, the 18% yield pays you to wait for the capital gains which will eventually come.
Below is an opinion posted on Investor Village message board which reflects my views.
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SND's most recent guidance was EXTREMELY impressive for a company yielding around 18%.
"It remains our objective to be known as a low-payout trust, and with the distribution cut effected beginning in March 2007, we estimate our payout ratio to average approximately 50 percent for the year. Based on price assumptions of US$55.00/bbl WTI and $7.00/Mcf AECO, our cash flow projections for 2007 are $78.1 million. These funds will enable us to cover distributions of approximately $43.0 million and capital expenditures of $31.3 million without issuing additional equity or increasing our debt levels. "
So SND's all-in POR (capex plus distributions) is projected to be around 95% using a very conservative price deck.
I don't know of a trust yielding anywhere near as much with similar sustainability.
Assuming that same conservative price deck, SND is trading for about 3.1 times cash flow (which is about as cheap as any trust in the sector, and tremendously cheaper than most. The only trusts comparably cheap on this basis are THY and TUI, both of which are total basket cases and understandably sector pariahs).
SND's NAV (as calculated by the company using a seemingly reasonable price deck and 10% discount rate) is 5.05, meaning that SND is currently trading at roughly a 23% discount to NAV. I believe that this is one of the very largest discounts to NAV in the sector.
SND will also be one of the best takeover candidates around when/if the Trust Tax is passed, thanks to their extreme undervaluation and very large tax pools. That's another reason to like the trust imho.
It was encouraging to see Chairman Boyce buy 50,000 units last week.
http://www.canadianinsider.com/coReport/allTransactions.php
That buy reinforces my opinion that SND is very undervalued at its current price of $3.92 and pays $0.055 per month distribution.
However, the "street" does not like management so I would not expect much capital gains in this investment until commodity prices firm up and the company has some reasonable quarterly reports. However, the 18% yield pays you to wait for the capital gains which will eventually come.
Below is an opinion posted on Investor Village message board which reflects my views.
---------------------------------------------------
SND's most recent guidance was EXTREMELY impressive for a company yielding around 18%.
"It remains our objective to be known as a low-payout trust, and with the distribution cut effected beginning in March 2007, we estimate our payout ratio to average approximately 50 percent for the year. Based on price assumptions of US$55.00/bbl WTI and $7.00/Mcf AECO, our cash flow projections for 2007 are $78.1 million. These funds will enable us to cover distributions of approximately $43.0 million and capital expenditures of $31.3 million without issuing additional equity or increasing our debt levels. "
So SND's all-in POR (capex plus distributions) is projected to be around 95% using a very conservative price deck.
I don't know of a trust yielding anywhere near as much with similar sustainability.
Assuming that same conservative price deck, SND is trading for about 3.1 times cash flow (which is about as cheap as any trust in the sector, and tremendously cheaper than most. The only trusts comparably cheap on this basis are THY and TUI, both of which are total basket cases and understandably sector pariahs).
SND's NAV (as calculated by the company using a seemingly reasonable price deck and 10% discount rate) is 5.05, meaning that SND is currently trading at roughly a 23% discount to NAV. I believe that this is one of the very largest discounts to NAV in the sector.
SND will also be one of the best takeover candidates around when/if the Trust Tax is passed, thanks to their extreme undervaluation and very large tax pools. That's another reason to like the trust imho.
It was encouraging to see Chairman Boyce buy 50,000 units last week.
http://www.canadianinsider.com/coReport/allTransactions.php
That buy reinforces my opinion that SND is very undervalued at its current price of $3.92 and pays $0.055 per month distribution.
Saturday, April 7, 2007
Picked up 1,000 EIT.UN on Thursday April 5, 2007
I picked up another 1,000 units of EIT.UN last Thursday before the market closed. I could not resist the 13.5% yield and a 14.5% discount to net asset value plus I get a diversified portfolio of over 60 income producing assets.
I am surprised how weak these trusts are but I am still hanging in there.
I am surprised how weak these trusts are but I am still hanging in there.
Thursday, April 5, 2007
The Right Market at The Right time
Below is an article published by Roger Conrad an American newsletter writer. I think he is being overly optimistic about Canadian Income Trusts but I figure my readers may find his article interesting.
Some of his comments with respect to the Trust tax legislation are out of date so I edited those portions out.
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THE RIGHT MARKET AT THE RIGHT TIME
by Roger Conrad Editor, Utility & Income
April 4, 2007
Remember when investors could retire and live well on a modest nest egg? Remember when taxes were only 15% a year, and when you didn't have to worry about losing your shirt before the closing bell?
That way of life has gradually been taken from you. But this letter is going to bring it all back, courtesy of the Canadian government.
They've invented a whole new kind of investment, one that's pulling hundreds of billions of US dollars across the border into Canada today.In a nutshell, Canadian Income Trusts are a brilliant structure that allows a business to avoid taxes--all taxes.
That's one pretty obvious reason they're so popular.The other big reason is that by Canadian law, nearly all the earnings from a trust business must flow right through to its investors, which in this case means you.
You no longer have to settle for the bread crumbs we call "dividends" here in the South 50!Here's how trusts work up North: A trust uses what it receives from its product sales to pay general expenses and service any debt, and it also sets aside a little bit for exploration or development. Trusts are very careful to set aside no more than 15% of their gross profits, so at least 85% normally goes directly to your mailboxevery month. In other words, you usually get a check for about 85% of the true earnings. Sometimes it's near 100%!Life doesn't get any smoother than that.
Canadian income trusts aren't structured for the benefit of their CEOs, but their shareholders.
What a concept!
Canadian Income Trusts: A Screaming "BUY" Opportunity
On Halloween day last year, Canadian Finance Minister Jim Flaherty decided that no more companies should be allowed to convert into trusts and that virtually all existing trusts should lose their tax-exemption starting in 2011.
Four years is an eternity in politics. It gives Canadian authorities plenty of time to allow certain businesses back into the income trust fold. (I'm convinced that what they really want is to restrict the format to the natural resource companies it was intended for--not to kill the trust format altogether.)
A year from now, I bet we'll barely remember this Halloween scare. And look on the bright side: It's hard to lose if you buy in now.
Trust prices have fallen in the face of uncertainty, giving you a great entry point and super-sized yields. Trusts that were yielding 10% the day before Halloween are now paying 12%. The actual businesses underlying these trusts haven't changed a bit. Conservatively run, high-quality income trusts are as solid as ever, and I have no doubt they'll prevail for years to come.
Remember, the current yields still hold until 2011. So the owners of Precision Drilling, just to pick one of my favorites, will still receive 13.2% on their capital for the next four years. And even if they're taxed four years from now, these companies will still be paying yields that dwarf your options in the Dow and S&P. Dozens of trusts now yield more than 10%, some as high as 21%.
Bottom line: I'm pounding the table because there are still plenty of trusts worth buying and holding for the long haul as their businesses grow.
Some of his comments with respect to the Trust tax legislation are out of date so I edited those portions out.
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THE RIGHT MARKET AT THE RIGHT TIME
by Roger Conrad Editor, Utility & Income
April 4, 2007
Remember when investors could retire and live well on a modest nest egg? Remember when taxes were only 15% a year, and when you didn't have to worry about losing your shirt before the closing bell?
That way of life has gradually been taken from you. But this letter is going to bring it all back, courtesy of the Canadian government.
They've invented a whole new kind of investment, one that's pulling hundreds of billions of US dollars across the border into Canada today.In a nutshell, Canadian Income Trusts are a brilliant structure that allows a business to avoid taxes--all taxes.
That's one pretty obvious reason they're so popular.The other big reason is that by Canadian law, nearly all the earnings from a trust business must flow right through to its investors, which in this case means you.
You no longer have to settle for the bread crumbs we call "dividends" here in the South 50!Here's how trusts work up North: A trust uses what it receives from its product sales to pay general expenses and service any debt, and it also sets aside a little bit for exploration or development. Trusts are very careful to set aside no more than 15% of their gross profits, so at least 85% normally goes directly to your mailboxevery month. In other words, you usually get a check for about 85% of the true earnings. Sometimes it's near 100%!Life doesn't get any smoother than that.
Canadian income trusts aren't structured for the benefit of their CEOs, but their shareholders.
What a concept!
Canadian Income Trusts: A Screaming "BUY" Opportunity
On Halloween day last year, Canadian Finance Minister Jim Flaherty decided that no more companies should be allowed to convert into trusts and that virtually all existing trusts should lose their tax-exemption starting in 2011.
Four years is an eternity in politics. It gives Canadian authorities plenty of time to allow certain businesses back into the income trust fold. (I'm convinced that what they really want is to restrict the format to the natural resource companies it was intended for--not to kill the trust format altogether.)
A year from now, I bet we'll barely remember this Halloween scare. And look on the bright side: It's hard to lose if you buy in now.
Trust prices have fallen in the face of uncertainty, giving you a great entry point and super-sized yields. Trusts that were yielding 10% the day before Halloween are now paying 12%. The actual businesses underlying these trusts haven't changed a bit. Conservatively run, high-quality income trusts are as solid as ever, and I have no doubt they'll prevail for years to come.
Remember, the current yields still hold until 2011. So the owners of Precision Drilling, just to pick one of my favorites, will still receive 13.2% on their capital for the next four years. And even if they're taxed four years from now, these companies will still be paying yields that dwarf your options in the Dow and S&P. Dozens of trusts now yield more than 10%, some as high as 21%.
Bottom line: I'm pounding the table because there are still plenty of trusts worth buying and holding for the long haul as their businesses grow.
Thursday, March 29, 2007
Plexmar Resources PLE-V
I am having a bad week. My junior mining stock Plexmar Resources took a dive due to delay in drilling.
I am still holding on and I am considering increasing my stake.
In the meantime click here to read a telephone interview with Plexmar's CEO.
I am still holding on and I am considering increasing my stake.
In the meantime click here to read a telephone interview with Plexmar's CEO.
EIT.UN-TSX and SDT.UN-TSX Clobbered
My two largest holdong Enervest and Sentry Select Diversified Exchange Traded income funds got clobbered today.
This is primarily due to the government announced they will tax Hotel and Retirement REITS operating income.
I am anxious to see the Net Asset Values of these two trust ETF's tomorrow morning.
I suspect the NAVs may be up.
This is primarily due to the government announced they will tax Hotel and Retirement REITS operating income.
I am anxious to see the Net Asset Values of these two trust ETF's tomorrow morning.
I suspect the NAVs may be up.
Tuesday, March 27, 2007
Firm Crude & Natural Gas Prices May Boost Energy Trusts
Firm Crude Prices May Boost Energy Trusts
Firm oil prices should provide the catalyst to kick-start the next upleg in energy stocks.
Oil and Natural gas prices have remained remarkably firm over the past few weeks despite declining growth expectations and increased market volatility. Recent price action suggests that, after dropping 35% from its July 2006 high, oil prices may have completed their corrective phase.
While a slowing U.S. economy remains a risk, strong Chinese demand should help maintain the floor under crude prices.
If so, investor confidence in this commodity should begin to restore as global growth concerns ease, providing the catalyst to trigger another rally in energy plays.
After consolidating for almost a year, the energy sector does not exhibit the overbought properties of most other markets. Bottom line I am going to start loading up on energy trusts.
Firm oil prices should provide the catalyst to kick-start the next upleg in energy stocks.
Oil and Natural gas prices have remained remarkably firm over the past few weeks despite declining growth expectations and increased market volatility. Recent price action suggests that, after dropping 35% from its July 2006 high, oil prices may have completed their corrective phase.
While a slowing U.S. economy remains a risk, strong Chinese demand should help maintain the floor under crude prices.
If so, investor confidence in this commodity should begin to restore as global growth concerns ease, providing the catalyst to trigger another rally in energy plays.
After consolidating for almost a year, the energy sector does not exhibit the overbought properties of most other markets. Bottom line I am going to start loading up on energy trusts.
Saturday, March 24, 2007
Income Trust Tax not as bad as some think
The income trust taxation announced by the Canadian Government on halloween 2006 is somewhat misunderstood.
1) Canadians in the highest tax bracket who hold their trusts in a taxable account will see little if any decline in after tax income. However, Canadians with little or no taxable income (ie the dividend tax credit is non-refundable) will feel the full effect of the trust tax. This Trust tax actually screws the low income investor and investors who have retirement accounts.
2) USA investors with trusts in the non-taxable accounts will find that there will be no more 15% withholding tax on distributions that will go into that account, reducing the net effect of the Trust tax up to 50%.
3) USA investor placing certain trusts into a retirement accounts, they will be hit with little or no tax (except for tax paid by the income trust under the new trust tax regime) and no 15% withholding tax, which is somewhat better than investing in the current income trust structure.
4) Some investors are under the mistaken impression that the distributions of all trusts will decline by 31.5% starting in 2011. That is not necessarily true. There are oil and gas, pipeline, power and other infrastructure income trusts that will pay no tax or minimal tax for years after 2011 due to tax pools and depreciation allowances on assets.
5) It appears the income participating units (units that consist of a common share plus a bond "stapled" together) will not be affected by the trust tax. If this strtucture is allowed I think we will see some existing trusts convert to this structure and new IPO's issued using this structure.
1) Canadians in the highest tax bracket who hold their trusts in a taxable account will see little if any decline in after tax income. However, Canadians with little or no taxable income (ie the dividend tax credit is non-refundable) will feel the full effect of the trust tax. This Trust tax actually screws the low income investor and investors who have retirement accounts.
2) USA investors with trusts in the non-taxable accounts will find that there will be no more 15% withholding tax on distributions that will go into that account, reducing the net effect of the Trust tax up to 50%.
3) USA investor placing certain trusts into a retirement accounts, they will be hit with little or no tax (except for tax paid by the income trust under the new trust tax regime) and no 15% withholding tax, which is somewhat better than investing in the current income trust structure.
4) Some investors are under the mistaken impression that the distributions of all trusts will decline by 31.5% starting in 2011. That is not necessarily true. There are oil and gas, pipeline, power and other infrastructure income trusts that will pay no tax or minimal tax for years after 2011 due to tax pools and depreciation allowances on assets.
5) It appears the income participating units (units that consist of a common share plus a bond "stapled" together) will not be affected by the trust tax. If this strtucture is allowed I think we will see some existing trusts convert to this structure and new IPO's issued using this structure.
Tuesday, March 20, 2007
Harvest & Crescent Point Energy Trusts Have High DRIP Participation
I was reading an RBC report today and noticed that Harvest and Crescent Point Energy Trusts have the highest DRIP (Dividend Re-Investment Plan) participation rate of the Oil and Gas Trusts.
Crescent Point has 30% of their dividends re-invested and Harvest Energy has 43% of their distribution re-invested.
This tells me that the shareholders have long term confidence in the management of these two trusts.
This is another reason why both of these trusts are my top picks.
Crescent Point has 30% of their dividends re-invested and Harvest Energy has 43% of their distribution re-invested.
This tells me that the shareholders have long term confidence in the management of these two trusts.
This is another reason why both of these trusts are my top picks.
Monday, March 19, 2007
Sold 1,000 Units of EIT.UN today
I sold 1,000 Units of EIT.UN today.
I wanted to free up some cash to invest in some oil & gas trusts during the shoulder season correction.
Please note that I may not always tell you what I am buying or selling.
Please perform your own due diligence and refer to our disclaimer on our web site.
I wanted to free up some cash to invest in some oil & gas trusts during the shoulder season correction.
Please note that I may not always tell you what I am buying or selling.
Please perform your own due diligence and refer to our disclaimer on our web site.
Bought 1,000 Units of Harvest Energy Trust Today
I bought 1,000 units of Harvest Energy Trust today in my RRSP account. Harvest yields almost 17% and since the distribution is most likely 100% taxable I have decided to let the distributions compound tax free in my RRSP until 2011.
Sold my GMR-N today For a small profit
I sold my General Maritime Corp stock today for a small profit. I decided not to wait for the $15 special dividend because I wanted to free up some capital to acquire more income trusts this this week.
Furthermore, with the recent market weakness the value of GMR may drop more than the $15 dividend after the record date. So I decided to cash out.
Please perform your own due diligence.
Furthermore, with the recent market weakness the value of GMR may drop more than the $15 dividend after the record date. So I decided to cash out.
Please perform your own due diligence.
Oil Storage Down More Than OPEC Cuts
This is an interesting post from an participant in an Investor Village Message Board
If this analysis proves correct then I would definitely hold on to my "oily" income trusts such as Harvest and Crescent Point.
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According to March 13, 2007 Wall Street Journal the size of the drop in Oil storage levels have been:
1) IEA - Q4 93 million drop
2) EIA - 100 million in US since Oct
3) CGES - 160 million drop world in 6 months
It looks like all the estimates agree with each other, and in 6 months we fell 160 million.
How much of OPEC cuts made up that drop?
It takes 6 weeks for a drop in production to reach the market, so in the 10 weeks of 2007, only 4 weeks worth of cuts at 1 million a day are in the data. At 1 milion a day of lower production that will be about 30 million reduction reaching the market.
The other 6 weeks of 2007 had cuts from the end of 2006 and were at .5 million a day, so add another 20 million.
In 2006 we then had 3 months at much less than .5 average, but I will use .5 for this analysis, or 45 million.
Total OPEC cuts reaching the market are at best 95 million barrels (I suspect I am 20 million too high), while world inventories during this time dropped by 160 million.
If OPEC had been pumping at their max rate, world inventories would have dropped by 65 million barrels over the last 6 months.
What this says is that this winter world oil demand was higher than max world oil production capacity for the first time ever!
For 2007, world oil demand is projected to be up by around 1.5 million barrels a day, while production growth appears after depletion to be having a problem to grow.
OPEC has engineered a drop in stroage level such that going into 2007 Q3 this year without a storage cussion. With growth in overall demand, and cycle demand coming in during Q3/Q4, the swing in demand could be 3 to 4 million a day by Q4.
With 1 million of spare capacity, and questionable net growth in production, next fall will be interesting.
If this analysis proves correct then I would definitely hold on to my "oily" income trusts such as Harvest and Crescent Point.
---------------------------------------------------
According to March 13, 2007 Wall Street Journal the size of the drop in Oil storage levels have been:
1) IEA - Q4 93 million drop
2) EIA - 100 million in US since Oct
3) CGES - 160 million drop world in 6 months
It looks like all the estimates agree with each other, and in 6 months we fell 160 million.
How much of OPEC cuts made up that drop?
It takes 6 weeks for a drop in production to reach the market, so in the 10 weeks of 2007, only 4 weeks worth of cuts at 1 million a day are in the data. At 1 milion a day of lower production that will be about 30 million reduction reaching the market.
The other 6 weeks of 2007 had cuts from the end of 2006 and were at .5 million a day, so add another 20 million.
In 2006 we then had 3 months at much less than .5 average, but I will use .5 for this analysis, or 45 million.
Total OPEC cuts reaching the market are at best 95 million barrels (I suspect I am 20 million too high), while world inventories during this time dropped by 160 million.
If OPEC had been pumping at their max rate, world inventories would have dropped by 65 million barrels over the last 6 months.
What this says is that this winter world oil demand was higher than max world oil production capacity for the first time ever!
For 2007, world oil demand is projected to be up by around 1.5 million barrels a day, while production growth appears after depletion to be having a problem to grow.
OPEC has engineered a drop in stroage level such that going into 2007 Q3 this year without a storage cussion. With growth in overall demand, and cycle demand coming in during Q3/Q4, the swing in demand could be 3 to 4 million a day by Q4.
With 1 million of spare capacity, and questionable net growth in production, next fall will be interesting.
Sunday, March 18, 2007
Sound Energy Trust-Very Tempting
Sound Energy Trust (SND.UN : TSX : $3.96)
Sound reported Q4 and year-end 2006 results.
Q4 production was 10,536 boe/d. Q1 production levels are estimated at approximately 10,100 boe/d. 2007 production guidance is 10,200 boe/d. Management estimates their payout ratio to average approximately 50% for the year.
Based on price assumptions of US$55.00/bbl WTI and $7.00/Mcf AECO, their cash flow projections for 2007 are $78.1 million. These funds will enable to cover distributions of approximately $43.0 million and capital expenditures of $31.3 million without issuing additional equity or increasing our debt levels.
Year-end total net debt amounted to $113.0 million against an available bank line of $146.5 million.
Sound's net asset value (NAV) based on a year-end report by the trust's independent engineers, GLJ Petroleum Consultants is $5.05 (using a 10% discount rate) per unit. That's over 20% below the reported NAV.
Sound reported Q4 and year-end 2006 results.
Q4 production was 10,536 boe/d. Q1 production levels are estimated at approximately 10,100 boe/d. 2007 production guidance is 10,200 boe/d. Management estimates their payout ratio to average approximately 50% for the year.
Based on price assumptions of US$55.00/bbl WTI and $7.00/Mcf AECO, their cash flow projections for 2007 are $78.1 million. These funds will enable to cover distributions of approximately $43.0 million and capital expenditures of $31.3 million without issuing additional equity or increasing our debt levels.
Year-end total net debt amounted to $113.0 million against an available bank line of $146.5 million.
Sound's net asset value (NAV) based on a year-end report by the trust's independent engineers, GLJ Petroleum Consultants is $5.05 (using a 10% discount rate) per unit. That's over 20% below the reported NAV.
Saturday, March 17, 2007
Canadian Energy Trusts May Get a some sort of break on the Trust Tax
Richard Lehmann on PBS show NBR thinks Canroys may get a reprieve
Below is a portion of the transcript from the Friday March 16, 2007 Nightly Business Report Market monitor interview. I don't know where he is getting his information.
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Full Transcript http://www.pbs.org/nbr/site/onair/transcripts/070316c/
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Partial Transcript
YASTINE: Really. Well, tell us which ones that you like best here. One area I know that you like are Canadian energy trusts. What are those?
LEHMANN: Canadian energy trusts are actually stocks, but they're income secured because they pay monthly dividends. And they -- they differ from the U.S. energy trusts in that Canadian trusts are allowed to continually replenish their reserves so they never go out of business. And the second advantage of them is that the dividends from them is qualified dividend income, so it's only subject to a 15 percent tax rate.
YASTINE: Do you have a first pick?
LEHMANN: Yeah, the biggest and best energy trust is EnerPlus Resources (ERF). And --
YASTINE: It has a 10 percent yield.
LEHMANN: It has a 10 percent yield, ticker ERF and it's about 50-50, oil and gas. So it's not only just in exploration. They produce from a pool of reserves.
YASTINE: And you have a second one.
LEHMANN: The second one is PennWest Energy (PWE). And this, too, is a very large company with over nine years in reserves and a lot of unexplored properties as well.
YASTINE: And this one, both of these have come down quite a bit from 43 to 27. On PennWest you expect these to go back up in addition to the yield?
LEHMANN: Yeah. The trusts suffered a big drop in November when the Canadian government announced that it was planning to start taxing them in four years. But since then, the government's found that they don't have the votes in the parliament to pass this legislation, so the chances are that there will be some sort of compromise settlement, and my expectation is it's definitely going to be for the better, and so we'll see some spike in the price while you're collecting this dividend.
Below is a portion of the transcript from the Friday March 16, 2007 Nightly Business Report Market monitor interview. I don't know where he is getting his information.
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Full Transcript http://www.pbs.org/nbr/site/onair/transcripts/070316c/
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Partial Transcript
YASTINE: Really. Well, tell us which ones that you like best here. One area I know that you like are Canadian energy trusts. What are those?
LEHMANN: Canadian energy trusts are actually stocks, but they're income secured because they pay monthly dividends. And they -- they differ from the U.S. energy trusts in that Canadian trusts are allowed to continually replenish their reserves so they never go out of business. And the second advantage of them is that the dividends from them is qualified dividend income, so it's only subject to a 15 percent tax rate.
YASTINE: Do you have a first pick?
LEHMANN: Yeah, the biggest and best energy trust is EnerPlus Resources (ERF). And --
YASTINE: It has a 10 percent yield.
LEHMANN: It has a 10 percent yield, ticker ERF and it's about 50-50, oil and gas. So it's not only just in exploration. They produce from a pool of reserves.
YASTINE: And you have a second one.
LEHMANN: The second one is PennWest Energy (PWE). And this, too, is a very large company with over nine years in reserves and a lot of unexplored properties as well.
YASTINE: And this one, both of these have come down quite a bit from 43 to 27. On PennWest you expect these to go back up in addition to the yield?
LEHMANN: Yeah. The trusts suffered a big drop in November when the Canadian government announced that it was planning to start taxing them in four years. But since then, the government's found that they don't have the votes in the parliament to pass this legislation, so the chances are that there will be some sort of compromise settlement, and my expectation is it's definitely going to be for the better, and so we'll see some spike in the price while you're collecting this dividend.
Tuesday, March 13, 2007
Sound Energy Trust-SND.UN-T
I have 5,000 units of Sound Energy Trust and the unit price is collapsing. I have decided to hold on because the net asset value at a 10% discount rate (click here to see table from their recent press release) is $5.05 per unit. At a recent price of $3.60 this translates to a 28% discount to Net Asset value. It is now yielding over 17% with a payout ratio most likely below 50%.
The market is discarding all small Canadian royalty trusts at any price.
I do not recommend anyone buy it because its hard to catch a falling knife. However, I highly recommend you conduct your own due diligence because this may be a "ruby" in the rough.
The market is discarding all small Canadian royalty trusts at any price.
I do not recommend anyone buy it because its hard to catch a falling knife. However, I highly recommend you conduct your own due diligence because this may be a "ruby" in the rough.
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