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?
posted by agrossfarm @ 8:48 AM
0 Comments:
Post a Comment
<< Home