Initially estimating Net Present Value (NPV) of $16 a unit for Peyto Energy Trust (OTCPK:PEYUF) and $18 for Freehold Royalty Trust (OTCPK:FRHLF), we add the two stocks to our coverage of Canadian Income Trusts.
Peyto is concentrated entirely on natural gas, with associated liquids, in Canada’s Deep Basin where it enjoys a long reserve life and low operating costs. Peyto’s high distribution yield of 14% for the next twelve months looks reinforced by a high minimum price for half its production as a result of commodity hedges.
Freehold is the successor to valuable mineral rights originally granted to Hudson’s Bay Company in the historic development of the Canadian West. Freehold is the only Canadian trust we know with revenue royalty, as we call it. The trust receives an off-the-top percentage of oil and gas price on 71% of its production with no obligation to pay the cost of operations including the drilling of new wells. Both Peyto and Freehold appear to have low McDep Ratios that fall within a tight range for Canadian income stocks backed by valuable energy resources.
Originally published on April 24 2009.