Protected Principal Retirement Strategy: Where The Eagle Flies

Mar. 7.13 | About: Eagle Energy (EGRGF)

For the past few months I have watched as one of our Protected Principal Retirement Strategy portfolio positions has continued a gradual decline. We purchased Eagle Energy Trust (ENYTF.PK) in the low $8 range and added to our position in the low to mid $7's. It has since declined to a new low of $6.64 as this article is being written.

After re-analyzing the fundamentals, and reading new news releases (including recent guidance and operational updates), I absolutely do not see a valid reason for this decline.

ENYTF is unique, in that it is a Canadian-based energy trust which owns producing oil-focused properties within the United States; primarily in the State of Texas. It makes monthly distributions of a portion of its available cash to unitholders, and uses remaining cash to fund growth through capital expenditures and acquisition of additional producing properties. It seeks long-life properties with low-risk remaining upside.

The current monthly distribution to unitholders is $.0875 ($1.05 annually) for a yield of over 15 percent.

A few months back it was subject to a wave of unfounded (according to management) selling. The company released information that supported the share price and the sustainability of the distribution.

Fundamentally, I see nothing markedly wrong with ENYTF. The price to book ratio is only 0.86 (book value of $8.00/share), and year over year revenues have increased by 174 percent.

Since February 13, daily volume has increased substantially above it's average trading volume of about 3,800 shares to levels two to three times that amount.

I am not a technician, but the present relative strength index sits at 20.44 percent. My understanding is that at levels less than 20 percent most stocks become a "buy".

On March 1, ENYTF released their "2012 Year End Reserves and Operational Update". The following has been culled from this press release:

  • Proven reserves increased by 188 percent year-over-year
  • The PV10 value of developed producing reserves increased by $46.4 million [USD] during this same period.
  • The reserved life index is 14.3 years (an increase of 78 percent)
  • 83 percent of proved reserves are light oil, 10 percent are natural gas, and seven percent are natural gas liquids

In the Management Commentary the CEO upheld the efficacy of their business model, and verified the positive results of their 2012 drilling programs.

In the Operations Update it mentioned that average production met target levels in both January and February, and that expectations are for additional production with eleven new wells at two Texas locations.


I have been contemplating adding to the portfolio's position in ENYTF since it broke below the $7 level; however, it appears that both Canadian and U.S. royalty trusts have been terrible performers for the past few weeks. I am ascribing this poor performance to a combination of oil prices breaking below the $90 level, and the failure of natural gas prices to increase despite the outbreak of late Winter weather. Looking at trading volumes, I would not rule out institutional selling and increased short positions.

I am aware that several SA readers do follow ENYTF.PK, and I would certainly be interested in any opinions they might have.

Disclosure: I am long ENYTF.PK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article does not constitute a recommendation to either buy or sell ENYTF.PK.