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Strategies & Market Trends : Value Investing

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To: E_K_S who wrote (47357)	4/8/2012 11:22:14 AM
From: E_K_S	Read Replies (2) of 78507

Enerplus Corporation Common Sto (NYSE: ERF) Penn West Petroleum Ltd (NYSE: PWE) goo.gl ERF - 2012 Presentation enerplus.com My takeaway: (1) 50% Oil/50% Gas (2) 50% acres in North Western Canada & 50% U.S. domestic shale (3) Pg-3- Netback $/boe OIL= $45-$50 (4) Pg-4- of presentation: 175% Organic Reserve Replacement in 2011; Oil reserves increased by 14% (5) pg-8- of presentation - Company increasing Payout ratio (by 20% to 180% - very high and not sustainable) to maintain high dividend; Also increased equity offering ($345M 1/2012) w/ limited growth in Funds Flow from operation due to low NG prices. 2012 Debt/Funds Flow 185% PWE - 2012 Presentation pennwest.com (1) 66% Oil/ 34% Gas (2) pg-9- Debt to Annualized Fund Flow 190% (est) Surprised to see it a bit higher than ERF but no no equity offering to increase credit facility like ERF. (3) Netback $/boe OIL= $60 (4) Pg-12- Replaced over 230% of 2011 production and achieved overall 2P reserve growth of 12%. ------------------------------------------------------------------- ERF appears to be a bit more leveraged than PWE but has a 20% lower netback $/boe. ERF looks to increase reserves by 10%/year while PWEs's target is 12%/year. PWE has 30% more Oil production & reserves than ERF. ERF is adding future oil reserves at a slightly faster pace increasing Oil production (YOY) 2011 to 2012 by 35% through acquisition and drilling. Both companies plan on spending over 85% of 2012 Capx on light oil development projects. PWE is aggressively increasing their total YOY production faster than ERF (this for me is a huge factor but it does result in a higher netback cost for PWE). PWE (last $18.11/share) selling 5% below it's 200 day MA of $19.1/share, ERF ($20.70/share) selling 16% below it's 200 day MA of $24.84. It's hard for me to determine which company is the better "value" buy as each has it's positive and negative attributes. PWE is well ahead of ERF in production and building their Oil reserves. ERF has a 20% advantage in their Netback $/boe for OIL. Both companies have been impacted by the historical low price in NG perhaps w/ ERF being hit more than PWE here. ERF can reduce their generous 10.5% dividend payout to save capital, while PWE still yields 6.5% w/o having to extending a $345 Million Equity Offering like ERF did in 2012. Surprisingly PWE has a larger estimated Debt/Funds Flow (only by 3%) than ERF but both (for me) are quite high at 185%-190% which is not sustainable. Therefore, I will probably add to both companies on any continued sell off but would favor ERF by a small amount since they have the lowest netback $/boe cost for Oil. However, ERF has the biggest NG exposure of the two that could offset any gain they may have in their lower netback $/boe advantage. The biggest positive I see, is both companies have little political risk w/ 50% of their assets located in the U.S. and 50% in Canada. There could be some impact on future delays in the installation of gas/oil pipelines into the U.S. as both companies rely on these pipeline to move their product to market. Disclosure: I own both companies ERF (45% - avg cost $22.50/share) & PWE (55% - avg cost $15.08/share), the total represents a 3% position in the taxable portfolio. EKS

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