Peyto & more metrics
Yahoo! CWEI: "I find your assumption that you have to convince me that Peyto is a good company is unnecessary. If I were a reserve-future-oriented investor, I'd probably own it.
RAY is not arbitrary. It is one measurement meant (by me) to screen for one aspect of the trusts, after which I check other metrics to find ones that fit me, personally.
The WEIGHT each of us logically gives to any metric is (or should be) relative to our investment outlook and premise, risk tolerance, and time horizon.
YOU (and many oilsands investors) may like to invest in compamies that you think will increase their profitability and/or payout in the future, while others will want to invest in vehicles that have high payouts NOW. This has as much to do with investor goals as with how wonderful any specific company is. You place more emphasis on growth and future reserve additions that I do and IMO this is not contradictory. Your emphasis does not make me less confident or comfortable with my own.
As much as possible, I'd like to own high current payers that also add to reserves and money-in-the-ground. But if I have to choose, I'll take the money now, thank you very much, because I have been around the Market and the Oil Patch long enough to know a bird in the hand is really worth two in the bush (to me).
One size does NOT fit all. And using one's owns set of metrics to fit personal goals is smart, not arbitrary...but other people with different goals, risk tolerance, time horizons wouldn't use the same weightings.
As per the reserves, you are talking about cash flow changes caused by a decline in the price of NG and I was talking about the official definition of reserves. The Canadian official definition takes into consideration the pr"
Yahoo! CWEI
Yahoo! CWEI: "'Superior' is your word, not mine. Let's just say that I like efficiency and pocketing high and frequent distributions and I think the model I like will get me these things. It is a matter of it fitting my needs, not of any objective 'superiority'. I have been repeatedly saying stuff like this, especially to the Oilsands afficianados.
I didn't say I wanted a short P+P reserve life. I said I wanted the largest PER UNIT Proved Producing RL, and the largest Proven RL/Unit I could get for my money and that Proved+Probable RL/U wasn't as important to me. The latter is true because
1. most of the Probable reserves are not profitable produced and may never be.
2. I don't want my trusts spending extra cash and issuing more units or debt to get Probable reserves
3. Because adding Probable reserves is the cheapest way for Management to make a trust's RLI look good to the unsophisticated investors who don't drill down to look at the type of reserves and how much there is on a per unit basis.
Yes, I don't care how they add cheap reserves, whether by acquisition, the drill bit, or enhancement techniques (Harvest is a good example of using enhancement techniques to reduce average cost of added Proved and Proved Producing reserve).
No, I don't think I agree about Advantage as fitting my preferred model. I once owned it but not now. If go back to the Risk-adjust Return calculation, you will see that any reserve without a low POR tends to rate poorly and that their high POR puts their distribution at risk and/or is bound to dilute ownership by issuing more shares to just replace deletion, much less to increase Reserves/unit. I therefore like a low POR and a high payout (if I can get it). Advantage had a high yield even before their recent poor results...because they weren't among the best even then.
Yes, since many have the experience with US static trusts, and have heard the mostly BS Ponzi-scheme name calling about trusts, the "Sustainable" model is becoming more and more popular. I think this is good.
A 70% POR is no benchmark for me (mean now on the ones I track is 78% with 1SD= 14.5%). My optimum would always depend on the trust's business model and success. I'd want a trust that could pay me a high cash-on-cash yield and still retain enough cash to fund enough capex to at least maintain reserves/unit and production/unit. If they can do this and prices continue to climb, the underlying assets become more valuable and my income grows simultaneously. I don't care which mix of drilling, enhancement, and purchases they use, as long as they can do it and do it over time.
As results come out each Q, I try to evaluate them and switch to those trusts that seem to be the closest to my optimum. In my experience, the ones that do also go up in value a lot (Harvest is one that I find approaches the optimum and it is more than twice what I started paying for it, even though the distribution hasn't changed much...but I think will go up before yearend).
As for your COS points, I don't dispute them. But I also don't evaluate Harvest or Peyto on whether I think they will buy more land someday and expand their reserves, because it is not my way of analysis. I am trained as a scientist and I know that the farther out you try to predict, the more mistakes you will make. Holding something for 2 years is long for me. I am comfortable with thinking about the crude supply/demand projection for yearend 2005. I am not comfortable with doing it for 2010, much less 2020.
So, as I have repeatedly wrote, whether an investment is a good one for you or me depends upon our time horizon, investment goals, and risk tolerance IN ADDITION to the characteristics of the individual businesses that we contemplate buying. In the early 70s, I daytraded cheap mines and oil stocks before anyone heard of daytrading. These days I am more conservative and have found it possible to make 50% per year returns on some trusts, which have less volatility than E&Ps. I still have a few more speculative investments (I've mentioned RTK here before for example), but since I have changed, I have changed my investing somewhat.
I don't think I am telling you that you are wrong. According to my numbers, COS has slightly more than 19 BOE per unit of P+P reserves. If/when there are technological breakthroughs and/or higher prices, that number could well increase significantly (because of the way reserves are measured in Canada) even if COS does not buy more reserves from someone else. I have not run a NPV on those 19 barrels because there are too many unpredictable assumptions I would have to make about production speed, price, netback and discount factors....This uncertainty is why I tend to avoid it and go with trusts with more short term models. Because of ME, and my time horizon and risk.
See?
COS.UN, Taxes, Hedging, and the price of crude
Yahoo! CWEI:
by: agrossfarm 06/18/05 11:40 am
Msg: 98302 of 98302
At the risk of stirring up the hornets again, I'll give you a few thoughts of mine that might get you to thinking, although we know that these decision are always proven good or bad in hindsight.
I certainly consider the downside of reinvesting post-tax remaining capital when I contemplate selling and compare it to the risk of a price decline in any significant position I am thinking of selling. This is especially important for Canadian Royalty Trust (CRT) investors that get part of their distributions as Return Of (not ON) Capital (ROC), which while currently not taxable, adds to capital gains upon sale.
Over the past few years, when I have sold a trust, I usually replaced it with another trust or option position on an E&P, so I was just adjusting within the sector (since I am a top-down type of guy, being in Trusts because of the continuing climate for Petroleum and Energy in general). My point here is that, if you are to sell one petrol. investment and replace it with another (either/or to sleep better or to make a better return), you should realize that you are just changing horses in the race, not being scratched.
You could sell a partial position as it goes up in price, if that seems a smart idea. You could also run some correlations to find something (like XLE) that you could use to hedge a position, or hedge using options on another OilSands player (assuming they are higher correlated with COS.UN).
My longer-term view of COS.UN fits into a discussion I have with Johnny Gambi on this board a day or two ago, about LNG's effect on NG pricing. NG pricing and availability is important to t"
How to calculate RAY for O&G Trusts
Yahoo! CWEI:
Yield*(1-PayoutRatio)*100
I do this for pre-tax and post-tax yeild so I can try to choose better which trusts should go in a regular versus retirment account (because different trusts payout varying amount of distributions that are Return of Capital rather than Return ON Capital).
Remember that Trusts only officially report last Q's payout ratio (POR). You can choose to use just last Q's POR or the average over the last 4 Qs, or you can use the guidance provided by the trust or analysts and use the projected POR for the current Q or current year.
Once I do the calculation (my spreadsheet really) I check to see whether the ones that rate highly have good recent trends in production per unit, reserves per unit, etc. so I can pick ones that appear safe but also competant. Sometimes I buy ones that are less safe if I am pretty convinced that they are going to show some significant improvement. This of course is riskier.
Hope this helps. "
Reserves per Unit is much better than Reserve Life Index
Yahoo! CWEI:
"RLI is relatively worthless because it tells you how many years a company can produce at their current rate of production. For example, people often buy COS because of their high RLI of 47.6 years because they think this will make them money (I just use COS as an extreme example and am not trying to badmouth them). But if COS is successful and gets production up to 4 times today's level, their RLI goes to 11.9, not because they have less reserves, but because they are finally able to produce more.
Staying with the example, if COS.UN, needing to raise billions in the coming years, to expand production, issues more and more units (assuming that is how they raise the cash) thereby reducing the number of BOE underlying each individual unit. So, if they double the number of units to finance Capex, the number of BOE underlying each unit goes down 50%. Looking at RLI doesn't let you know that your 'assets in the ground' are declining.
I want to own companies that will increase production as fast as possible and increase the reserves underlying MY ownership interest as soon as possible.
Managments in the Trust and E&P sector justify higher salaries and bonuses when they manage more reserves and production. If they have to dilute people's ownership interest to do so, they often will do it because it is to their advantage, even if it is not to the advantage of the individual unit holder.
I calculate RPU by dividing each class of yearend reserves by the number of fully diluted units. I update every time they issue more units and/or get more reserves. I place more weight on the different reserves in the following order: Proved Producing, Proven, Proved+Probable.
The RAY (risk-adjusted-return) is NOT a % number. It is just"
Paramount's recent Acquisition was quite accretive
Yahoo! CWEI
The recent acquisition raise per unit production 22% and per unit reserves 26%. It brought payout ratio (POR) down too (and it is declined since then to a projected 70%).
http://www2.ccnmatthews.com/scripts/ccn-release.pl?/2005/03/23/0323135n.html
I'd like them to make purchases this good every month.
But of course, the less they pay the better.
The only logical way for us to measure whether a company should be making a buy, is the effect it has on current and future operations.
Since trusts can hedge their production forward, "expensive" acquisitions (especially in the PMT.UN target area of high production, fast depleting shallow gas) can be hedged to guarantee a tidy profit for unitholders. I don't care that Mercedes dealers pay more per car for inventory than Hundai dealers. What counts is profit margin and turnover combined, IMO (which is why it is misguided to have a fixation on netback without considering changes in production per unit and recycle ratio).
The fact that POR ratio is declining suggest that it helps to insulate the trust from soft commodity prices, should that happen, because of increased cash flow available compared to if the acquisition hadn't been made, making distribution level and cash yield more safe.
Paramount Energy Trust
Yahoo! CWEI
Yes, I am familiar with the philosophy of Paramount. They (and Harvest and some others)rightly realize the business (and all business, as opposed to asset accumulation) is based upon using one's capital in the most efficient way. That is the way to continually maximize returns. They do this with their concentration on cheap to acquire, cheap to drill, easy and fast to produce shallow "loose" gas. And they have been consistently doing it successfully even when the Alberta govt. actions temporarily derailed their rampup. Meanwhile, those that care nothing about the actual ongoing and busines, but prefer to invest based upon future hopes and dreams (including analyst estimates that someday a trust will pay out high distributions, as with COS.UN) have yet to bid up Paramount because they look at RLI (which I explained was silly) instead of looking at production per unit (Paramounts' is up 9% in Q1 versus the mean production in 2004). Paramount's 15% yield.
Paramount's outperformance will probably increase my return with capital gains which is why I added some more today. For example:
Paramount's CFPU (cash flow per unit) last Q is up 22% compared to COS.un's minus 23%.
Paramount's proven reserves per unit are up 0.5% in the last year while their P+P per unit is up 7%, while COS.UN's are both down 7%.
Risk Adjusted Yield (RAY)
Yahoo! CWEI
RAY=my "risk adjusted yield" calculation, with high being good. It takes into consideration fully diluted payout per unit and cash-on-cash yield. It does not include anything else, like reserve life, stability of production/share, management quality or historical distribution stability.
Please see my other posts today on this topic because there are standard metrics, like RLI, that I think are foolish to consider. What counts is reserves per unit, NOT RLI, for example. RAY is likely to predict which trusts will be forced to issue more shares and/or debt to maintain their payout and asset backing of reserves. When I decide which trusts to own, I start with the high RAY companies and then I check out their business model, per unit historical changes in production, and the various measures of reserves, with most emphasis on proved-producing and proven. Trusts with high "Probable" reserves are the ones most likely to be paying out good money to buy reserves to impress unitholders, rather than to increase production and cash flow.
Perhaps more later.
Daylight Ener day-un.to dayff 14.1% 5.21
Harvest hte_u.to hvegf 9.8% 4.90
Fairborne Ener fel-un.to 11.8% 4.48
Acclaim ae_u.to acnjf 12.5% 4.23
Ketch Res ker-un.to kerff 13.4% 4.03
StarPoint Ener spn-un.to spnff 12.9% 4.01
NAL O & G nae_u.to noigf 13.0% 3.89
Zargon zar_u.to zarff 7.0% 3.75
Arc Energy aet_u.to arruf 9.0% 3.51
Esprit Ener eeea.to eeeaf 14.1% 3.37
Petrofund ptf_un.to PTF 10.2% 3.35
Paramount pmt_u.to pmgyf 15.1% 3.02
Focus fet_u.to fetuf 8.7% 2.87
Viking vkr_u.to vkerf 13.4% 2.69
Vermilion vet_u.to vetmf 8.8% 2.54
Peyto pey_u.to peyuf 4.7% 2.46
EnerPlus erf_u.to ERF 9.0% 2.43
Bona Vista bnp_u.to bnpuf 10.6% 2.34
Baytex bte_u.to bayxf 13.2% 2.25
Progress pgx_u.to pgxff 12.2% 2.20
APF Energy ay_u.to apfrf 15.4% 2.00
Crescent Pt cpg_u.to cpgcf 10.7% 1.93
Shining Bk shn_u.to sbkef 12.8% 1.79
TKE Energy tke-un.to tkeff 14.6% 1.75
Freehold fru_u.to frhlf 10.5% 1.68
PenGrowth pgfa.to PGH 10.1% 1.61
Provident pve_u.to PVX 11.1% 1.56
Can Oil Sds cos_u.to coswf 2.2% 1.11
Bonterra bne_u.to bneuf 9.6% 0.77
NAV Energy nvg_u.to nvguf 14.9% 0.59
Prime West pwi_u.to PWI 11.5% -0.23
Advantage avn_u.to avnnf 16.0% -0.32
Canadian Oil and Gas list with yields and Risk-Adjusted Yields (RAY)
Yahoo! CWEI
I specialize in CRTs. Below is my current list giving the name of the trust, the Yahoo ticker, the US pink sheet ticker, the yield as of 15 minutes ago and my personal rating of the risk-adjusted yield (RAY). The higher the RAY, the better. It is a measure that takes into account the yield AND the payout ratio to determine which trusts are paying out a high distribution AND are unlikely to have to reduce the distribution or dilute the units. Some of the newer trusts rate highly but I will be wary of them until they have longer operational history as a trust. Some trusts, like Peyto are often bought by people who want capital gains, not distributions, but in my experience, trusts that rate high on RAY usually provide some nice capital gains too.
Hopefully, this will display in a coherant manner.
Arc Energy aet_u.to arruf 9.0% 3.51
Acclaim ae_u.to acnjf 12.5% 4.23
Advantage avn_u.to avnnf 16.0% -0.32
APF Energy ay_u.to apfrf 15.4% 2.00
Bonterra bne_u.to bneuf 9.6% 0.77
Bona Vista bnp_u.to bnpuf 10.6% 2.34
Baytex bte_u.to bayxf 13.2% 2.25
Can Oil Sds cos_u.to coswf 2.2% 1.11
Crescent Pt cpg_u.to cpgcf 10.7% 1.93
Daylight Ener day-un.to dayff 14.1% 5.21
Esprit Ener eeea.to eeeaf 14.1% 3.37
Enterra ent_u.to EENC 7.8%
EnerPlus erf_u.to ERF 9.0% 2.43
Fairborne Ener fel-un.to 11.8% 4.48
Focus fet_u.to fetuf 8.7% 2.87
Freehold fru_u.to frhlf 10.5% 1.68
Harvest hte_u.to hvegf 9.8% 4.90
Ketch Res ker-un.to kerff 13.4% 4.03
NAL O & G nae_u.to noigf 13.0% 3.89
NAV Energy nvg_u.to nvguf 14.9% 0.59
Peyto pey_u.to peyuf 4.7% 2.46
PenGrowth pgfa.to PGH 10.1% 1.61
Penn West pwt-un.to pwtff 10.7%
Progress pgx_u.to pgxff 12.2% 2.20
Paramount pmt_u.to pmgyf 15.1% 3.02
Petrofund ptf_un.to PTF 10.2% 3.35
Provident pve_u.to PVX 11.1% 1.56
Prime West pwi_u.to PWI 11.5% -0.23
Sequoia O & G sqe-un.to sqeff 12.2%
Shining Bk shn_u.to sbkef 12.8% 1.79
StarPoint Ener spn-un.to spnff 12.9% 4.01
Thunder thy.to
TKE Energy tke-un.to tkeff 14.6% 1.75
Trilogy Energy tet_u.to 10.8%
Vermilion vet_u.to vetmf 8.8% 2.54
Viking vkr_u.to vkerf 13.4% 2.69
Zargon zar_u.to zarff 7.0% 3.75
