The current yield on PWE is indeed terrific, but I have a strong suspicion that it will be materially reduced in the near future. The trust started making this statement a couple of months ago, primarily to sooth CNE unitholders about the impending acquisition:
"Penn West's Board of Directors recently resolved to keep the Trust's distribution level at $0.34 per unit, per month, for the next three months based on current forecasts of commodity prices, production and planned capital expenditures." (quote from the most recent earnings report)
If Canroy history is any guide, this statement is likely to be fair warning that "We intend to reduce the distribution in three months". This is just my speculation, of course, but it's speculation based on hard experience with Canroys over the years.
My speculation is reinforced by the fact that (a) PWE has some very good assets, but they will require a great deal of money to develop -- money that is currently leaking away as distributions to unitholders, and (b) PWE never really wanted to be a trust in the first place; they would have preferred to remain a corporation, but shareholder demands and the higher valuation placed on trusts vs corporations (at the time) forced the conversion. I think it nearly certain that PWE will drift towards the E&P model even while they remain a trust. That may not be an altogether bad thing, but it will mean a substantial reduction in distributions and that will cause a lot of unitholder unhappiness and spark a lot of selling.
Better to step back and observe until the dust from PWE's reinvention of itself has begun to settle. Full disclosure: I have been reducing my substantial PWE position over the past few months, and completed the selling last week in favor of LINE, CEP, and BBEP.
All just IMVHO, of course. |
