High-Yield Canadian Oils: Bringing Home The Bakken

May.31.13 | About: Lightstream Resources (LSTMF)

Petrobakken is dead, long live Lightstream Resources (PBKEF.PK)!

No, it wasn't acquired, it just changed its name (again).

This was announced May 22 at the shareholders meeting. The Toronto stock symbol will also change, to LTS. It has been trading in the U.S. (OTC Pink) under the symbol PBKEF.PK, but I haven't heard that will change. Average volume there is about 83,000 shares a day so that provides significant liquidity. But this is certainly not a big blue chip stock that everybody knows about. After all, that's not where you find the truly high-yield stocks. You have to do your own investigating.

Its new web site is lightstreamresources.com. All the quotes below should be found there under press releases.

I think a little background on why this stock carries such a high yield (11.18%) is in order here.

Not so many years ago, Canada allowed a trust type of organization, somewhat similar to our trusts and REITs and partnerships, where profits could be passed through to the unit holder for tax purposes, in order to attract capital. That was the era of high yield Canadian stocks, often in the oil sector. Then a new administration was voted in, and they required the companies to pay taxes, culminating in most companies converting to corporate type organizations and cutting their distributions significantly. Investors, large and small, fled the scene. Oil companies have often had to merge to create the mass necessary to raise funds and survive. Canada got more tax revenue, but they lost the investment inflow that had caused the country to grow.

Enter Petrobakken (Lightstream). Its had its share of mergers. But I was looking for a way to participate in the Bakken/Three Forks oil boom, and still get paid dividends, and they're looking for capital (I'm long Lightstream). I'd been hurt by Enerplus when it decided to throw its stockholders under the bus and cut its dividend, so I was being especially careful.

The transcript of its annual meeting stated: "Over the last several years, our asset base has grown to include a diverse portfolio of light oil resource plays focused in Alberta and Saskatchewan".

Southern Saskatchewan includes the Northern Bakken. It was important to me that it not be gas (that's part of what happened at Enerplus), and that it be part of the Bakken. Also, light oil is much easier to extract, transport, sell, and refine (unlike heavy oil such as the oil sands). It went on to say "... to deliver growth and a sustainable dividend for our shareholders... staying true to the best interests of our shareholders...". That's the kind of thing I like to hear, although it doesn't guarantee it won't cut the dividend.

In its April production announcement Petrobakken stated: "Our monthly dividend of $0.08 (Canadian) per share has remained constant since the Company's inception." It was the first line of its announcement, something else I liked. It has two types of dividend reinvestment plans (Canadian and U.S.), after which cash dividends were only 19% of funds flow from operations.

"Consistent with previous years, second quarter production is expected to decrease from current levels as we experience restricted activity due to spring breakup".

On May 2, it had drilled 41% (53) of its projected 129 wells for 2013. It expects "a production exit rate of 49,000 to 52,000 boepd and year-over-year average production growth rate of 8% to 12%." Wells tend to lose some of their production growth rate over time (depletion). More from the April production report:

... combining light oil Bakken and Cardium ... with conventional light oil assets ... strong cash flows and production growth. ... multi-year inventory. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.

Funds flow from operations was $171 million ($0.92 per basic share). Net income was $2 million ($0.01 per basic share).

In its announcement of its shareholders meeting it also stated "... commitment to ... deliver growth and a stable dividend". So all this gives me assurance that it is unlikely it will cut its dividend, and makes it a viable investment for me. And I chose Lightstream because it might be less likely to show up in a computer screen that only searches U.S. companies.

Looking at a five year chart the stock started out at close to $30 in late 2009, then was a victim of the Great Recession, and went to a low of around $5 in late 2011, then bounced back to around $17 in early 2012, then fell to a range around $8 in mid February, 2013, bounced back to a high of about $9.50, and has traded in a range between $7.50 and $8.50 - approximately, since then.

Perfect. This is one of the situations I really like. I can sit back and follow the stock and collect the high dividend, with the probability I'll eventually get good capital gains, too. But I'm already in. I have been for awhile. So it's up to you.

Here are some things to consider. Stay diversified. No one can predict the future. There's a disparity between the Canadian dollar and the U.S. dollar you might want to consider. Canada takes a tax cut. Last time I was paying attention it was 15%, but these things change. In theory you can get that back when you send your taxes in (Form 1116). If somebody uses a tax accountant they can just mention it. But I've always done my own taxes, with a tax program, now. And I can tell you H&R Block doesn't handle it well at all.

So you think you want to try this stock. Then you have to decide when. You can just jump in. Or, because it's trading close to the high end of its range, you might want to wait until it's back to the low end of its range. You would get a better yield then. But you might miss it altogether. These are the kinds of decisions an investor has to make. Sometimes to resolve this dilemma, I make a small investment to be sure I'm watching it. Sometimes I end up with too many small investments.

Whatever, I'm certainly not recommending this stock. If I had just one stock, it probably wouldn't be this one. It's up to you. I had planned to evaluate more than one stock this weekend, but I'm running out of time. So maybe there will be a Part II.

Disclosure: I am long PBKEF.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: PBKEF.PK is (or was) listed on the OTC Pink exchange. I am long PBKEF.PK . The LTS symbol should be listed on the Toronto exchange (same company). Part of the article is about the new name and symbol changes in process.