Harvest Energy and Other Canadian Trusts Expected to Cut Distribution

The sharp decline in energy prices has hit plenty of producers, while distribution cuts by energy trusts have punished many investors too. While the reductions over the past couple or months are generally viewed as prudent moves, the market is watching closely as to who might be next.

Analysts at UBS have crunched some numbers to figure out which names are most at risk since previous analysis showed that trusts that are expected to cut exhibit unit price weakness. On average, trusts that reduce distributions underperform the relative index by 5% over the next month, they said in a research note.

Most notably, the analysts expect Harvest Energy Trust (HTE) to announce a distribution cut of roughly 50% when it reports year-end results after market close on March 2.

UBS also noted that the other trusts most likely to trim distributions next are Baytex Energy Trust (BTE), Crescent Point Energy Trust (CPGCF.PK) and Pengrowth Energy Trust (PGH).

Comments

[prairiedog555:]

A lot of the trusts like PWE have their prices locked in at around $70 per barrel for the next few years and should continue to pay.

Feb 05 08:26 AM

[Steve Ward:]

Why should they bother. They can always justify yield based on current stock price, i.e. 10% yield X the lower stock price.
Crescent Point's total expenditures, capex and dividend exceed cash flow by 14 %, that can't last long. So they'll cut and so will PWE. By the way, Crescent Point also has collars and hedges at higher locked in prices.
But they are still spending more than they make.

Feb 05 09:16 AM

[straitshooter:]

Even if HTE cut distribution by 50%, they would still be paying at least 18% yield. Why is this considered so bad? Why does this cause a downgrade. Are they really suggesting that people sell because now they will only get 18%?


On Feb 05 08:26 AM prairiedog555 wrote:

> A lot of the trusts like PWE have their prices locked in at around
> $70 per barrel for the next few years and should continue to pay.

Feb 06 01:28 AM

[ZX:]

Dividends are likely to be cut again later in the year as earlier hedges run their course and the oil price softens more with global contraction. HTE has only a small part of its revenues hedged at higher prices (which seems extraordinarily incompetant of management). Current contango in the WTI market is -600 front month and over -100 / mnth out to August, -50 /mnth beyond. there's too much oil being pumped and no major producers are likely to voluntarily cut back. Management could hedge a gppd part of 2010 and beyond's production at $60 + but have shown no inclination to do so.

Feb 06 10:05 PM

[Capt.Gene:]

On Feb 06 10:05 PM ZX wrote:

> Dividends are likely to be cut again later in the year as earlier
> hedges run their course and the oil price softens more with global
> contraction. HTE has only a small part of its revenues hedged at
> higher prices (which seems extraordinarily incompetant of management).
> Current contango in the WTI market is -600 front month and over -100
> / mnth out to August, -50 /mnth beyond. there's too much oil being
> pumped and no major producers are likely to voluntarily cut back.
> Management could hedge a gppd part of 2010 and beyond's production
> at $60 + but have shown no inclination to do so.

They understand that running their business model for the long term trumps short term fluctuations. The price of oil will not stay lower than the cost of bringing it to market.

Feb 09 09:42 AM

[Trader Rick:]

The return on my units is based on the price I paid for it a couple of years ago not todays price.
If I paid 15 dollars for it and the distribution was was reduced by 50 percent my return is half todays return. These reductions are not good for long term investors and they are the ones the management should be concerned with.


On Feb 06 01:28 AM straitshooter wrote:

> Even if HTE cut distribution by 50%, they would still be paying at
> least 18% yield. Why is this considered so bad? Why does this cause
> a downgrade. Are they really suggesting that people sell because
> now they will only get 18%?

Feb 20 12:22 PM

[Trader Rick:]

Why is there no comment about Harvests refinery side ?

They operate a 100k / day refinery so I would think they are doing well on that side.

Feb 20 12:24 PM

[jfr1107:]

I brought this issue up to some financial magazine and newspaper reporters who had just written stories on HTE. They did not know that HTE had a refinery, how much money it was making, etc. They just grouped HTE in with E&P companies which we know are doing bad because all they do is dig a hole and take out the oil, and when oil prices dropped their share price dropped accordingly. These writers were clueless on HTE refinery operations. One of them asked me if their refinery was dba under another name. I told him when it was first bought back in 07, it was NorthAtlantic, but is now HTE. He said he would do more due diligence in getting the facts on HTE refinery ops and the money they are making.


On Feb 20 12:24 PM Trader Rick wrote:

> Why is there no comment about Harvests refinery side ?
>
> They operate a 100k / day refinery so I would think they are doing
> well on that side.

Feb 20 05:49 PM

[Ames Tiedeman:]

PGH is at a new 52 week low. They announced a cut.

Feb 24 01:28 PM

[Ames Tiedeman:]

If Oil moves into the 20's you can expect these dividends to all but evaporate. Some sat oil is going back to 75. We shall see.

Feb 25 08:07 AM

[silver-bug:]

I think most of the recent drop in price comes from funds automatically selling at stop loss points. The bad thing is, the paper value is going down. The good news is, I can load up more at a really dirt-cheap price and lower my cost-average.

As far as oil prices go, I think the govt. is engineering the prices to stay low and manageble so that people can be motivated to buy cars and drive to the malls. There is something fishy going on, but there is also opportunity out there.

Feb 25 01:35 PM

[a. palmer jr.:]

PWE did cut their dividend. I believe it was last month, looks like about half what it was. A shame, I bought it for the dividend. HTE so far hasn't cut theirs. At least I don't have to pay as much in Canadian taxes.

Mar 10 05:32 PM

[jfr1107:]

They are doing great on the refinery side. They could have paid their dividend from what the refinery itself was making particularly in Jan and Feb. 2009.


On Feb 20 12:24 PM Trader Rick wrote:

> Why is there no comment about Harvests refinery side ?
>
> They operate a 100k / day refinery so I would think they are doing
> well on that side.

Mar 10 09:15 PM

[jfr1107:]

They are doing great on the refinery side. They could have paid their dividend from what the refinery itself was making particularly in Jan and Feb. 2009.


On Feb 20 12:24 PM Trader Rick wrote:

> Why is there no comment about Harvests refinery side ?
>
> They operate a 100k / day refinery so I would think they are doing
> well on that side.

Mar 10 09:16 PM

[a. palmer jr.:]

Just got my dividend today. They (HTE) all but eliminated the dividends. I would sell but the price is so low I may end up giving it to my heirs.

Mar 21 12:51 AM

[a. palmer jr.:]

My mistake, the HTE dividend on my statement was just a correction, not the actual dividend. So I guess they didn't eliminate the dividend. It was about the same as last month. I hope that didn't prompt anyone to sell. Sorry.

Mar 22 10:05 AM

[RevenueRese...:]

Wow, that scared the hell out of me. I own units of HTE as well and was thinking that was weird because I just got my distribution and it didn't seem low.

Selling did cross my mind though lol. Good thing I didn't act!


On Mar 22 10:05 AM a. palmer jr. wrote:

> My mistake, the HTE dividend on my statement was just a correction,
> not the actual dividend. So I guess they didn't eliminate the dividend.
> It was about the same as last month. I hope that didn't prompt anyone
> to sell. Sorry.

Mar 24 04:33 AM

[SpaceX:]

Is it really true? The 5 cent dividend announced for April is just a reduction from the 30 cents per share per month ($Canadian) previously offered? HTE should be more careful in their announcements, if this is so. Some people depend on dividends to supplement income in these difficult times.

Mar 27 10:28 AM

[artenemy:]

You would only be getting that 18% yield if you bought the stock at the current price. For the majority of owners who bought at several multiples of the current price, their yield will essentially be under 5% or less.


On Feb 06 01:28 AM straitshooter wrote:

> Even if HTE cut distribution by 50%, they would still be paying at
> least 18% yield. Why is this considered so bad? Why does this cause
> a downgrade. Are they really suggesting that people sell because
> now they will only get 18%?

Apr 08 02:43 AM

[jfr1107:]

What is really amazing is how all of the financial wizards said that HTE would cut its dividend by 50% (from its .30CDN level). Instead they cut it by 85% down to .05CDN. They said they wanted to pay off debt. Even if they had cut the dividend only 50% instead of 85% they still would have had $~CD20-22MM to pay down debt.

What the heck, and when is HTE management going to put their dividend back in line with the rest of the CANROYS?

Jun 25 03:04 PM