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Gold/Mining/Energy : Canadian Oil & Gas Companies
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To: Gulo who wrote (7012)12/13/1999 9:24:00 PM
From: Lorne Larson  Read Replies (1) of 24939
 
I think the O&G trusts are a steal right now. The assumption seems to be that at some point oil and gas prices are going to drop, and the yields will therefore also drop. However most of the trusts are already discounted for this event, and the current prices give no credit for potential upside moves in oil and gas prices and/or the the fact that a lot of trusts are now hedged for a large portion of their 2000 production at $22-$25. As for reserves, there are a number of trusts that have 12-15 years booked. Even if these trusts don't replace a barrell, getting 10-15% for 15 years is a pretty good return.

An even more interesting play is some of the closed-end trusts that hold O&G and other royalty trusts - Enervest, NCD, Citadel, etc. These are trading at a discount of 10-20% to NAV. You therefore get a double whammy, because the royalty trusts which they own are also trading at a discount. The downside is that you are paying management fees on top of management fees, but even so the yields are pretty impressive, and you get some protection from the fact that most of these closed-end trusts are somewhat diversified.

My feeling is that a lot of these trusts are being hammered by year-end tax selling, and there will also be substantial capital appreciation after Jan 1. Not bad if you're getting 15% in the meantime.

Regards
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