Hi Bocor -
Enerplus Corporation Common Sto (NYSE: ERF)
Penn West Petroleum Ltd (NYSE: PWE)
Suncor Energy Inc. Common Stoc (NYSE: SU)
CANADIAN OIL SANDS (Other OTC: COSWF.PK)
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I have owned both of these companies for their U.S. and Canadian reserves. The companies have converted from the Energy Royalty Trust status to a corporate structure. PWE now pays their dividend on a quarterly basis, ERF still pays monthly.
For 2010 ERF's properties consisted of 42% crude oil and NG liquids and 58% NG. I am not too concerned that ERF is building out their NG reserves (even at the current low prices) but it is important to me that their overall reserves grow faster than as they are depleting them. I doubt they can continue such a high payout at the same time building up their reserves.
PWE reduced their dividend last year as they ran into this problem. The company's properties are primarily located in Western Canada (Alberta, British Columbia, Saskatchewan and Manitoba). They own good acreage and seem to build their reserves over time.
The best way to check to see just how much these companies are adding to their reserves is to view their annual presentations. They usually provide a chart that shows depletion and additions to overall reserve base. More depletion, provide higher cash flows, more money for explorations & development and dividend payout. By not adding to their reserve base, the capital asset losses NAV (ie failing BV).
My strategy is long term owning a diversified group of these Canadian companies. For me, Canada has less political risk and I recently have been existing Brazil in favor of Canada. I have added Oil Sands to my basket of Canadian Oil companies buying SU & COSWF.
My dividend strategy is to build a mix of these companies where I own (1) lots of acreage w/ proven reserves, (2) companies continue to build their reserves and (3) companies make distributions sometime at the expense of building their reserve base. The overall group would generate a dividend yield of between 4%-5%, total cumulative reserves grow YOY and the OIL & NG production 60%/40%.
So yes, I share a few of your concerns for ERF, but it still fits in my overall strategy. I am still building my Oil Sands position(s) but the portfolio is weighted now with PWE (37%), ERF (34%), SU(15%) and CSUWF (14%). I also from time to time sell ERF and/or PWE book loss and Buy PWE/ERF and reduce cost basis. This strategy worked quite well when I had a larger cost basis in each company and both companies were dropping in price. I still maintained my overall holdings (even acquired more shares of PWE at low prices).
The biggest impact is that most of these are held in the taxable portfolio so I generate a large Foreign Tax Credit with the Canadian tax withholding. Finally, I believe PWE & ERF have some type of dividend reinvestment discount. I have not pursued this as Schwab at this time does not offer the discount program for these companies. I was considering moving the shares to my Ameritrade Account where they do offer the 5% company dividend reinvestment program.
FWIW, my Canadian Oil & NG basket represents only 5% of the total portfolio. I should build this position much larger (for example CVX represents 7.7% of the portfolio & COP represents 6% of the portfolio) but since I have such a low cost basis in each, my tax hit would be so large that it is better to slowly peel shares off and build the position over time. This way I can offset gains w/ losses and manage my tax bite in the account much better.
Hope that helps.
EKS
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