Crossy,
I started running numbers off these and found LEL.V (Lightning Energy)which appears to be showing good growth and may be undervalued.
David
The story:
Taken from Globeinvestorgold
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Calgary — The tidal wave of cash from record high commodity prices has lifted the fortunes of the junior end of the oil and natural gas sector, creating eye-popping growth and unprecedented demand for equity in the hypercharged small firms.
Consider this: The top junior, Meridian Energy Corp., increased its production 94 per cent in the third quarter from the second quarter on a per share basis, according to a survey by investor relations firm Iradesso Communications Corp. That number, an important gauge for investors, may take the better part of a decade for Canada's largest producer, EnCana Corp., to match.
The investment promise of the juniors has rarely been greater, but perils loom larger every day, as well. Competition has never been more fierce for land, for talent and for the equipment to find new reserves. At the same time, capital is chasing after investments in the junior sector, allowing private companies to pick their shareholders and driving up the valuations of public firms.
There are already warning signs that the lift of high commodity prices is not enough to float all juniors. While there are a handful of firms such as Meridian putting up big numbers, the typical junior reported no production growth in the third quarter, and close to half of the firms surveyed had production declines, partly because wet weather in Western Canada impeded drilling efforts.
And, more than a quarter of juniors posted losses at a time when oil was hovering near $50 (U.S.) a barrel — sounding a loud alarm for Peter Knapp, president of Iradesso. "It's kind of astonishing, with commodity prices so high," he said. "It makes you wonder: What would happen if oil was $25? How many companies then would be reporting losses? And how big would they be?"
The upshot for the investor: It's time to get picky, particularly as prices for oil and natural gas finally lurch lower after a long run.
Rising costs are one of the top worries for the energy sector, in particular the juniors. As commodity prices have risen, costs for drilling and other services have soared as demand for those services has intensified with more people hunting for oil and gas. That situation is unlikely immediately to change as oil and gas prices dip.
The juniors are the hardest hit in the business because of their small size and lack of clout with drillers, for example. Even something as seemingly simple as getting a logger to clear a patch of land to drill a well is much more difficult now.
"When we called the logging guy, he used to jump. Now he doesn't jump," said Fred Woods, who runs junior Midnight Oil Exploration Ltd. and Daylight Energy Trust.
Combined with factors such as often getting only second-string drilling crews, rising costs means juniors have a lot harder time turning a good idea into a profitable reality, Mr. Woods said.
Price pressures are unlikely to ease in the coming quarter, as companies large and small scramble to make up for time lost during Alberta's soggy summer. There is equally intense competition for land, as trusts, large companies and juniors vie for producing assets.
The result is that some juniors have essentially given up on acquisitions, opting instead to grow entirely by the drill bit, a riskier though potentially more profitable strategy. Artemis Exploration Inc. — a year-old private company with $20-million (Canadian) in capital but no production — has rewritten its strategy entirely. "Drilling more, sooner. Buying less, later," sums up Riley Waite, president and chief executive officer of the three-person firm.
Numbers from the Small Explorers and Producers Association of Canada highlight the recent frenzy in the junior sector, even though the outlook is not rosy as it once was. In the year ended Sept. 30, nearly a third of its 335 members disappeared, largely through takeovers, which is by far the highest proportion on record during the current boom cycle. As recently as 1999, less than 10 per cent of its members were disappearing.
Indeed, there has never been a better time to sell out, said George Gosbee, president and CEO of Tristone Capital Inc. "There are just so many options."
Today, juniors can sell to a trust, turn themselves into a trust, or even merge with another junior to bulk up before converting to a trust. A decade ago, Mr. Gosbee said, the only exit strategy was to sell to a larger company. For public juniors with high stock valuations, finding a buyer to cough up cash was even more difficult. "They were almost trapped," Mr. Gosbee said.
There is, however, one area of the business where competition is not so fierce: new capital.
Tom Budd, president of GMP Capital Corp. and based in Calgary as its head energy investment banker, said he has never seen a longer boom for juniors in his nearly quarter-century career in the oil patch. He described the money available for juniors as a "seemingly never-ending supply of equity capital."
Competition could start to bite, though. "Rapidly escalating costs could pose problems if commodity prices drop," Mr. Budd said.
Rich valuations, supported by high commodity prices, have also been driven by the idea that all juniors will in some form become a trust. TD Securities Inc., in a large report last week, said that the valuation of the juniors it follows shows a "presumption" for conversion into an income trust. "Finding 'value' is challenging," TD analysts Steve Larke and Roger Serin wrote.
Valuation is also pushing some investors away from the public market. Wayne Deans, a partner at Deans Knight Capital Management Ltd. in Vancouver, has a pool of $55-million for private investments, roughly 5 per cent of the funds the firm manages, up from nothing in early 2003. The reason is simple, he says. "You don't pay a premium for assets in the private market place."
Of the firms' public holdings, Mr. Deans said he is not rushing to sell, and will buy if the right opportunity presents itself. But he is increasingly careful: "We're more wary about what we're doing."
Calgary — ProEx Energy Ltd., the progeny of Progress Energy Ltd., is one of a new breed of juniors and few upstart energy companies have generated more buzz this year.
The Calgary company has an “industry-leading asset base,” Raymond James Ltd. declared in November, rating the stock “strong buy.” ProEx's prospects have been recognized and its popularity among investors is clear, generating what CIBC World Markets Inc. has described as “super premium valuation.”
This enviable position is the result of an innovative move pulled off earlier this year by David Johnson and Don Archibald, two widely respected oil patch veterans. The Mr. Johnson-led junior producer Progress Energy was merged with the junior that Mr. Archibald ran, Cequel Energy Inc., to create Progress Energy Trust while also spinning out two baby juniors, Cyries Energy Inc. and ProEx.
“We basically pushed restart,” said Mr. Johnson, ProEx's president and chief executive officer. The mature assets of Cequel and Progress were put in the trust, aiming to produce steady returns for unitholders, while the most promising bits were thrown to the new juniors, whose mandate is growth. This organization, Mr. Johnson said, is the best fit for the realities of oil and gas exploration in Western Canada, a situation that's changed notably from the 1990s when Mr. Johnson built Encal Energy Ltd. to a size far greater than what he is gunning for today.
“There's not an endless supply of attractive prospects,” he said. “The basin is better suited to small exploration companies.”
Cyries, run by Mr. Archibald, is among the other new-breed juniors. The small but quickly growing group also includes Midnight Oil Exploration Ltd., spun out of Midnight Oil & Gas Ltd. when it recently became Daylight Energy Trust, and Storm Exploration Inc., created after Storm Energy Ltd. was sold earlier this year to Harvest Energy Trust.
ProEx is drilling wells in northeastern British Columbia, hunting for natural gas. The company's production is about 1,600 barrels of oil equivalent a day. Rapid growth is predicted by Mr. Johnson, who is projecting average production of as much as 3,500 barrels a day in 2005. The goal, as it was with Progress, which Mr. Johnson joined in November, 2001, is to reach 10,000 barrels, less than a quarter or the size of Encal when it was sold in February, 2001.
“We don't want to wake up with 100 employees and 30,000 barrels a day,” Mr. Johnson said, adding that if ProEx reaches its targets, he would look at “doing this again,” pushing restart one more time.
ProEx, then, is an enticing recipe, a junior with great potential, led by a team familiar with the land on which it is drilling and guided by a man, Mr. Johnson, whose track record easily stacks up against all of his peers.
But enticing recipes are expensive ones. While ProEx and others of its ilk are attractive companies, money manager Kevin Nyysola of Investors Group Inc. in Winnipeg said investors have to think about “what you're paying” for such stocks.
The going rate is stiff. In a report Dec. 2, Haywood Securities Inc. pegged ProEx's price-to-cash-flow ratio at 56.9 times for this year and 8.7 times for next year. Even using the 2005 figure, that's way higher than the typical price-to-cash-flow figure of about 5. Haywood rates ProEx “sector perform” but is a big believer in its future.
“ProEx will grow to become one of the pre-eminent junior exploration companies,” Haywood analyst Frederick Kozak predicted. “Success tends to foster more success.”
The risk for investors, of course, is if ProEx falls short of aggressive goals. As Haywood stated, and as others have said in different words: “Unsuccessful exploration or results that do not meet our expectations would have a negative impact on the company's stock price.”
TD Securities Inc., in a Nov. 29 report, said recent drilling results suggest the company has a clear inventory of prospects for as much as three years. Noting the stock's lofty valuation, TD analysts Steve Larke and Roger Serin said: “We believe this premium is justified by the growth potential,” rating the stock “buy.”
Mr. Johnson said ProEx obviously trades at a significant premium to its net asset value but said, “People are buying it, I believe, based on the future, on a track record of having done this several times . . . In July, 2004, we were at 1000 barrels [a day]. In December, 2005, we're going to be four times that.”
The shares closed at $7.17 Wednesday on the Toronto Stock Exchange, up from a low of around $5 when it made its debut in July. TD's one-year stock price projection is $8.50. Haywood's is $9.
Calgary — The following is a selection of favourite junior names from a handful of brokerages:
-- Dundee Securities Corp . : Of the 10 juniors Dundee follows, eight are rated “outperform,” though none are cited as a top pick.
Stock of Flowing Energy Corp. (FLO-TSX) is considered the best bet with Dundee predicting a 73.3-per-cent gain to $2.60 in the next year from Wednesday's close of $1.50.
The company has had a “challenging year,” analyst Brian Kristjansen said in a Nov. 30 report.
The troubles included slashed production targets. The stock fell two-thirds from a high of $3.73 early in the year to a low of $1.20 in August.
-- FirstEnergy Capital Corp . : The firm's top pick among juniors is Mustang Resources Inc. (MUS.A-TSX), which operates in central Alberta.
Analyst Robert Fitzmartyn predicts the company's production could average about 3,600 barrels of oil equivalent in 2005, roughly double the projection for this year. Mr. Fitzmartyn, in a report this week, said Mustang has shown “sustained success” and predicted the stock could rise to $11 in the next year, 37.5 per cent higher than Wednesday's $8 close.
-- Peters & Co. Ltd . : The Calgary investment dealer has four top picks: NuVista Energy Ltd. (NVA-TSX), Resolute Energy Inc. (RSE-TSX), ProspEx Resources Ltd. (PSX-TSX) and Rider Resources Ltd. (RRZ-TSX).
The biggest predicted stock-price gain is for Resolute, which Peters thinks could rise 42.9 per cent to $6 a share from Wednesday's close of $4.20 .
Conversion into a trust will increasingly become a do-it-yourself project for juniors, as high commodity prices, and a surprisingly weak U.S. dollar, divert the attention of potential buyers.
Royalty trusts are likely to focus on buying up assets from large independents and U.S. firms, with purchases from the latter group given additional impetus by the new-found muscle of the Canadian dollar against a weakening greenback.
At the same time, the buoyant prices for crude oil and natural gas are intensifying the pressure on junior firms to fashion an exit strategy, as strong cash flows overwhelm capital spending programs — and dry up the tax pools that shield their earnings.
The result will be an increasing glut of motivated sellers among the ranks of juniors, who will have little choice but to merge with one of their peers if they aim to become a trust. “There will be some M&A opportunity, but more led by companies looking to get a bigger base when they're looking at conversion,” says Jill Angevine, a research analyst with FirstEnergy Capital Corp. in Calgary.
Midnight Oil & Gas Ltd. surprised markets in late September when it announced its own variation of a do-it-yourself conversion, saying that it would buy the Canadian assets of Vintage Petroleum Inc., and then split the resulting company into Daylight Energy Trust, with the equivalent of 15,000 barrels of oil in daily production, and a junior with 750 b/d. The strategy of bulking up through a merger before converting simply made more financial sense than alternatives such as selling out to a trust, said Fred Woods, the former head of Midnight and now president and chief executive officer of Daylight Energy.
The more typical path is the one being taken by Fairborne Energy Inc., which is thought to be the most likely candidate to next announce a trust conversion. Its production is certainly of a level that would allow it to split itself into a trust and an exploration company. Yet, capital markets are friendly enough that Fairborne president and chief executive officer Dick Walls says that he sees no pressing need to become a trust. “There seems to be some very large buckets of money available,” he said in an interview — just a few hours before he backed up that claim with a $36-million financing.
As for acquisition activity by the trusts, a high loonie and high commodity prices and are dampening enthusiasm for purchases of juniors, according to analysts.
A stronger dollar is turning the trusts' attention to U.S. companies edging out of Canada, since domestic buyers now get an automatic discount when bidding for the assets where they will pay out in greenbacks. And on the other side of the ledger, U.S. firms are less likely than before to make a move for Canadian assets. In any case, recent years have seen an ebb in the American presence in the Western Canadian Sedimentary Basin.
Buoyant commodity prices hand the trusts enormous cash flows that allow them to easily maintain distributions. Not only that, the valuations on juniors are on the rise, making them less attractive to trusts on the hunt for deals that will immediately add to the bottom line. A year ago, a flowing barrel of production among the juniors group was valued at $33,000, but that has risen to $46,000 as of late November, according to FirstEnergy's Ms. Angevine.
Valuations have risen among the trusts, as well. Indeed, they have risen more than for the juniors. But a junior hoping to be bought out competes not with the trust's current production, but with other potential acquisitions. On that front, says Ms. Angevine, the juniors lose out. They are good acquisition candidates — but not the best. With files from reporter Dave Ebner.
This time, it's different. Whenever there is a boom in a market sector, the optimists come out in droves with that phrase, saying with confidence that the factors contributing to the current wave of exuberance are different than those of a prior boom. And it always happens that some weird variable comes out of nowhere and ruins the party.
When it comes to the oil patch, it was Ottawa's National Energy Program in 1982 that brought an abrupt end to what was a rollicking party. Then, just at the industry was getting back on its feet in 1986, oil prices crashed. It took until the early 1990s, with the majors deciding to sell out of Canada — as they have off and on since 1947 — to ignite some fantastic growth in the sector by providing assets for the juniors to buy.
Additional charts:
Junior oil and gas company comparison
Change in production Q2 to Q3, 2004
Change in production per share Q2 to Q3, 2004
Q3 cash flow netback
Annualized Q3 cash flow multiples
And so it is today with the excitement surrounding the current crop of junior oil and gas companies. But it is different today than it was in 1993 or 1997, which are considered the benchmark years for booms among junior producers.
And the single factor for that difference is that there is a defined exit strategy for these players — and the cycle is much shorter, says Brett Wilson of FirstEnergy Capital Corp. “The corporate longevity of a junior used to be five to 10 years, but now it could be as short as 18 to 36 months, at which time the company can either be sold to a trust or be merged with another junior and then turn into a trust.”
Also making a huge difference are the high commodity prices. Back in 1993, folks dreamed of a natural gas price that stayed at $2 per thousand cubic feet; by 1997, the market was a price north of $3 per mcf. So far this year, natural gas has averaged $6.50. The same is true for oil, with crude set to average a record $41 (U.S.) a barrel this year, and it's hard to find a price forecast suggesting prices will moderate significantly in 2005.
The bullish commodity outlook — especially with respect to oil — is not only making it easier for the small companies to raise money, it's allowing companies to drill for prospects that until now were tough to justify from an economic standpoint. Moreover, there are more juniors operating overseas than before — such as Niko Resources, First Calgary Petroleums, InterOil and others.
So far this year, according to Sayer Securities, the oil patch has raised $11.4-billion (Canadian). That compares with $3.6-billion in 1993 and $5.6-billion in 1997.
Then there is new technology, which not only is facilitating the pursuit of complex geological formations but is making the drilling of shallow wells more cost effective and, therefore, extending the producing lives of mature fields.
Finally, there are the management teams that learned their lessons — good and bad — through the 1990s, sold out or merged, and are now up and running their second or third venture.
Apart from the commodity price environment, it's proven management teams with strong exploration and exploitation track records that are key success factors in this current phase, says Frank Mersch, who runs Front Street Capital, who successfully played the junior oils in the 1990s.
Things look so good, in fact, that there are a bunch of investment banking and brokerage types who have decided to hang in and see this cycle through, rather than hanging up their spurs. Some, such as Richard Wyman, who was once at Peters & Co., have even come back after a pronounced hiatus.
But when it all looks so good, even with the strong Canadian dollar, it's hard not to ask whether the oil patch is the place for the current wave of irrational exuberance.
According to Canaccord Capital's Rick Grafton, who has also put in time at Peters & Co. and was a founding partner of FirstEnergy Capital Corp., the first boom in the oil patch from a market standpoint took place in the late 1970s and early 1980s, when companies such as Merland Exploration, Sulpetro, Dome Petroleum, Gulf Oil and a handful of others traded at 16 times cash flow and multiples of net asset value.
Those kinds of valuations on a cash flow basis are happening today, although on a smaller scale. However, market darlings, such as Cyries Energy and ProEx, where management has just started up again, are trading at eye-popping valuations of more than 30 times 2005 cash flow. But, apart from them, and the $3-billion market value accorded to First Calgary Petroleum, which has yet to produce a drop of oil, the rest of the sector is trading between three and 10 times next year's cash flow. In other words, the sector still looks cheap from an investment standpoint.
As the current cycle chugs along, the universal expectation is that companies able to generate production and reserves through exploration will be those that survive. The asset acquisition game that was also a source of growth, Mr. Grafton says, has been taken over by the royalty trusts and put the prices for assets way out of reach.
There is no question everything is pointing in the right direction for the oil patch these days — high commodity prices, low interest rates, available pools of capital to fund the myriad of new ventures — and yet it's as if everyone is looking over their shoulders ever so slightly. Because the worst has happened before.
Says veteran investor Mr. Mersch: “There will eventually be a hard landing in China that will put significant downward pressure on oil prices and we'll all look at ourselves and ask: ‘what kind of fools are we?' But that will set the stage for the next cycle and so it will go.”
Tax rise won't solve Kyoto woes
ERIC REGULY
00:00 EST Tuesday, Jan 18, 2005
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Okay, Ottawa, we're waiting for it. Just tell us the truth about greenhouse gases and taxes. It's hard to see how less of the former can be accomplished without more of the latter.
On Feb. 16, the Kyoto Protocol on climate change legally comes into force. Canada has absolutely no hope of meeting its greenhouse gas reduction targets, not now, not next month or in 10 years. That's because Canada was a boy scout when it joined Kyoto in 1997. It agreed to the most aggressive reduction target of any signatory -- 6 per cent below the 1990 emissions level. Thanks to strong economic growth, the love affair with gas-gobbling SUVs, huge expansions of the Alberta oil sands operations, Canada's greenhouse gas compliance gap was 171 million tonnes a year in 2002. Aldyen Donnelly of Vancouver's Greenhouse Emissions Management Consortium says the gap, based on fuel use data, could rise to 220 million tonnes by the time the first Kyoto reporting period ends in 2012.
Forget Rick Mercer's One Tonne Challenge. Every car and every furnace in the country could be turned off for a month a year and the target would still be fantasy. The target becomes all the more unachievable when you consider the government suddenly wants to remove a lot of the Kyoto burden from the "large final emitters" -- the 700 or so big energy-burning companies such as electricity producers and oil refiners. If they cut back less, everyone else -- households, businesses -- will have to cut back more.
Any attempt to reduce the compliance gap will be stupidly expensive. One option is buying so-called Certified Emission Reduction credits from United Nations-approved projects in developing countries. For example, Canada could pay for a Central American country to put a chunk of rain forest aside forever, or pay for a system that captures methane, a particularly nasty greenhouse gas, from landfill sites. Nice idea, especially if you like making work for UN bureaucrats. The problem is that buying enough credits to offset the compliance gap would require shipping billions of dollars out of the country, with zero economic benefit to Canada.
The other option is to slap taxes on the consumption of energy -- electricity, natural gas, gasoline, diesel, heating oil, even barbecue propane if necessary. No one wants to pay higher taxes, but the government could at least argue that Her Majesty's levies would slosh around Canada instead of taking a one-way trip to Costa Rica or Brazil. To make the energy consumption tax more palatable, the government could use the proceeds to finance a payroll tax reduction or build a monster fund to finance the construction of energy-efficient houses (In 2000, Canada's Climate Change Fund, used to retrofit old homes, contained a mere $78-million and has been next to useless.)
The tax idea has been floating around for a few months and has been notoriously hard to pin down. Last week, The Globe and Mail reported the existence of a draft "secret" document, possibly written by a federal bureaucrat for cabinet consumption, that suggested "more consideration of regulation and taxation to drive behavioural change" in meeting Kyoto's targets.
Was this a leak? If it was, you could expect a tax measure to appear in some Kyoto-related proposal before Feb. 16. But the signals from the government departments working on the Kyoto file suggest the document was not a leak, in the sense that cabinet has not yet discussed a Kyoto tax measure and is unlikely to do so next month. Nonetheless, you can bet that some sort of tax-induced behavioural change will have to come under formal consideration. Canada's Kyoto compliance gap is just too large to avoid it.
If Ottawa goes for an energy consumption tax, it will point to the relatively low per-capita energy consumption in Europe, where taxes have made energy prices outrageously high by North American standards (in Britain, gasoline goes for the equivalent of $1 a litre). Doubling gasoline or electricity prices would certainly reduce demand, taking greenhouse gas emissions down with it. But it would also be political suicide and hurt the poor and middle class much more than the rich. A small gasoline tax increase, say a dime a litre, would do almost nothing to reduce demand while painting the government as a blatant tax grabber.
Here's another problem with the energy tax scenario: Energy exports could not be taxed, meaning American buyers of Canadian natural gas and other hydrocarbons would be paying less that Canadians. In this scenario, energy imports would cost less than exports. Guess where the new electricity generation plants would be built?
Energy taxes seem inevitable in Canada's post-Kyoto world. They are also doomed to backfire.
WINNIPEG (GlobeinvestorGOLD) - Robert Lyon's energy picks have chalked up gains even as oil prices have wobbled.
His $87.4-million CI Global Energy Sector Fund produced a 39.1-per-cent return for the 12-months ended Dec. 31, 2004, well above the 19.6-per-cent return of the Globe Natural Resources Peer Index in the period. Mr. Lyon, vice president of CI Mutual Funds Inc. in Toronto, has managed the six-year-old portfolio since March, 2000.
"Even at oil's current price of $45 (U.S.), we have not seen enough pain from consumers to drive a substitution effect," Mr. Lyon said. "Nor are prices are high enough to bring a great deal more oil to market. Oil as a commodity is in price equilibrium. Yet energy stocks are priced for oil in the low $30s as a hangover from investors' 1990s malaise when resources seemed poor investments."
Petro-Canada Ltd. is a Calgary-based, integrated oil company that Mr. Lyon bought at an average cost of $56.80. It has recently traded at $61.21. The stock has recently tumbled from a 12 month high of $70.40 on concerns that the company paid too much for recent acquisitions and lacks near-term production growth, Mr. Lyon said. But Petro-Canada is worth having because the market has not valued production due to come on stream in 2006, he added. Assuming that oil holds at $38 (U.S.) per barrel, cash flow for the year ended Dec. 31, 2006 should rise to $14.20 from $12.40 a year earlier, he said. If Petro-Canada sells at a multiple of 5.5 times cash flow, then the stock should rise to $78 within 12 months, he suggested.
Penn West Petroleum Ltd. is a Calgary-based, upstream oil producer. It may be converted to a royalty trust that would be priced at $87.50 with an enhanced distribution worth $8 per share, Mr. Lyon said. The fund holds shares with an average cost of $55.40 per share. Conversion to a trust would generate a 23-per-cent total return above the recently price of $76.50 and another $3 per unit of tax savings, he added. Trust conversion is inevitable, because it offers shareholders a big premium that would be tough to give up, he noted. What's more, the Canada Revenue Agency is thought ready to approve the conversion, he suggested. If oil holds at $38 (U.S.) per barrel, cash flow per share should rise to $16.00 for the year ended Dec. 31, 2005 from $15.95 a year earlier. On that basis, the share price could rise to as much as $87.50 within 12 months, Mr. Lyon said.
Talisman Energy Inc. is a Calgary-based, upstream oil producer that Mr. Lyon bought at an average cost of $29.70. Shares have recently traded at $36. Talisman has a good portfolio of gas properties and much experience in international oil plays, Mr. Lyon said. Cash flow for the year ended Dec. 31, 2005 should rise to $9.35 per share from $7.80 a year earlier assuming an oil price of $38.00 (U.S.) per barrel. Using a multiple of 4.5 times cash flow, Talisman shares could reach $42 within 12 months, Mr. Lyon said.
Locking in gas prices
09:39 EST Thursday, Jan 13, 2005
Rob Carrick
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Trust name: Energy Savings Income Fund (SIF.UN)
Category: Business trust
Profile: Energy Savings allows homeowners and small commercial enterprises in Quebec, Ontario, Manitoba, British Columbia and Illinois to lock in prices on natural gas for home heating. You sign a contract and you get a fixed rate that won’t escalate if the cost of gas rises, as it frequently has in recent years.
Yield: The monthly distribution of 7.2 cents per unit yields 4.8 per cent.
Track record on distributions: Outstanding. In 37 months of operation, the monthly payout has risen 17 times.
Price history: Energy Savings is down about 9 per cent so far in 2005, but long-term unitholders will barely have noticed thanks to a cumulative three-year gain of 250 per cent.
Comments: A 4.8-per-cent yield? What is this, an income trust or a dividend-paying common stock? The whole income trust phenomenon was built on the idea of trusts offering yields well above both dividend stocks and bonds. Energy Savings doesn’t do this, and yet it’s a market darling. So much so, in fact, that the consensus analyst rating is a “buy,” even after a one-year unit price gain of almost 40 per cent. The story behind Energy Savings’ success is growth – trusts are typically in low-growth businesses, whereas Energy Savings has been able to steadily increase cashflow and, in turn, distributions. This trust will be one of the most interesting ones to watch this year thanks to its sky-high unit price and compressed yield. You have to wonder, how low can the yield on a well regarded trust go?
First Calgary mulls options
PATRICK BRETHOUR
00:00 EST Tuesday, Jan 18, 2005
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CALGARY -- Richard Anderson, the head of fast-rising First Calgary Petroleums Ltd., is what the oil patch calls a land man, a deal maker whose exploration tools are a firm handshake and sharp eye for contacts and contracts.
"Land men are the social butterflies of the patch," says geologist Alan Grant, who worked for Mr. Anderson in the mid-1990s. "They're the ones working the cocktail parties."
Mr. Anderson's cocktail-party skills are being put to the test now, as First Calgary, armed with a new report released yesterday that nearly doubles its reserves using the most expansive measure, examines its strategic options, including an outright sale. The report on its reserves, which lie undeveloped in the Algerian desert, sent First Calgary's stock, which has already tripled this year, soaring to a new high yesterday, gaining 10 per cent or $2 a share to close at $21.20 on the Toronto Stock Exchange.
The president and chief executive officer of First Calgary is avoiding the spotlight for now, but Mr. Grant describes him as the kind of guy willing to mortgage his home for working capital. And willing to joke with his wife about it, which Mr. Grant said was a bit of a running gag between Mr. Anderson, partner Les Currie and their spouses. "Good news, the company is up and running," goes the joke. "But we don't own the house any more."
Mr. Anderson still has the same propensity to tie his personal fortunes to the companies he runs. According to insider trading filings, he exercised 1.1 million stock options, out of a total of three million, in mid-November, but held on to the resulting stock rather than sell. A First Calgary spokeswoman said the options were about to expire, but said Mr. Anderson had chosen to retain the equity rather than sell. (Any such sale would have come at an awkward time, since the company had announced an equity financing two days before Mr. Anderson's exercise of options.)
Still, the decision to hold has worked out well for Mr. Anderson. Those 1.1 million shares have gained $6-million in value since he first acquired them in mid-November, including $2.2-million just yesterday as the updated reserves report fuelled a big jump in First Calgary stock.
The much-anticipated report, from an external engineering firm, shows that total reserves -- using the broadest definition -- have nearly doubled to the equivalent of 13.6 trillion cubic feet of gas as of Oct. 31 from nine months earlier, when reserves stood at 7 trillion cubic feet. Both figures use an expansive definition of reserves that include proved, probable and the far less certain category of possible.
Using the more restrictive, and more commonly employed, definitions of proved and probable reserves, the total rose to 4.5 trillion cubic feet as of Oct. 31, from 2.8 trillion cubic feet as of Dec. 31, 2003.
Of that, about 15 per cent accrues to First Calgary through its production-sharing agreement with the Algerian government, giving it 214 billion cubic feet on a proved and undeveloped basis; 556 billion cubic feet on a probable basis; and a total of 770 billion cubic feet of proved and probable reserves.
In addition, First Calgary needs to find a way to transport any production out of Algeria, with possible pipelines to Spain or Italy seen as likely routes.
Despite those caveats, investors have run up the stock dramatically in the last year from its low of $6. And there has been continual speculation that First Calgary may be acquired, with Norway's Statoil reported in December to be eyeing a bid. At an investor conference in Toronto in September, Mr. Anderson said Statoil was one of a number of larger companies that had talked with First Calgary. He also cited Royal Dutch/Shell Group.
Then, he said a sale was premature, but acknowledged that such is his goal. "Most companies are built to be sold, and we're probably no exception." |
