Enterra Energy Trust: Crippling Debt Makes Speedy Recovery Unlikely -- Barron's

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

Enterra's Woes Mount by Vito J. Racanelli

Highlighted companies: Enterra Energy Trust (ENT), JED Oil Inc. (JDO), JMG Exploration (JMG)
Summary: Enterra Energy Trust (ENT) shares trade at $8.80, down from $24 last October. A number of reasons: (1) A 'sympathy move' following the meltdown in JED Oil Inc. (JDO) after it announced wells on its most important property weren't producing nearly as much as expected, and suspended production. (2) The collapse of natural gas prices, $5/million BTU down from $15 last winter, caused it to lower monthly dividends to $0.12/unit from $0.18; dividends, which are exempt from corporate taxation, are one of energy trusts' main selling points. (3) Low prices also forced it to terminate otherwise profitable revenue-sharing deals with drillers JED and JMG Exploration (JMG). (4) Of its $300M in debt, $200M is at Libor+4.5%, and matured on Sept. 20, meaning the rate escalates +1% for each of the next three months it goes unpaid; analysts are pessimistic they can refinance this debt without significant dilution. Marathon Resource Investments is short ENT, while Glickenhaus & Co. is adamant they're not selling, and calls it a "screaming buy" if it can solve the debt problem and gas prices rise. Barron's: "Those are big ifs. A reasonable scenario would be for Enterra to refinance via $150 million in new debt and $150 million in equity. At the current price of 8.80, that could mean as much as a 40% increase in shares outstanding. This would painfully dilute current unit holders, and would make another dividend cut likely."
Quick comment: Finding the Best Dividend Paying Equities: The Case of Enterra Energy Trust • Background: Enterra Energy Lowers Target Payout Ratio Range; Slashes Monthly Distribution To US$0.12/unit

Comments

[Enterra Energy:]

Hey there Rabbi Hoffmann ... Have you taken a look at Enterra Energy (ENT) lately? It is up 500% from it's lows in the past six or so months .. Nice article ... well taken points .. however Enterra Energy is now under new management paying down debt .. the dividend is gone the money is being used to put the company back in the black ... with oil approaching $140 Enterra is in the words of Jim Cramer of Mad money ... "cheap".

2008 May 23 03:40 PM

[Enterra Energy:]

Hey there Rabbi Hoffmann ... Have you taken a look at Enterra Energy lately? It is up 500% from it's lows in the past six or so months .. Nice article ... well taken points .. however Enterra Energy is now under new management paying down debt .. the dividend is gone the money is being used to put the company back in the black ... with oil approaching $140 Enterra is in the words of Jim Cramer of Mad Money ... "cheap".

2008 May 23 03:42 PM

[Enterra Energy:]

I Google .. there for I am ...

Google Enterra Energy and this article comes up from October 2006.

I own Enterra .. and things have changed ... I am "borrowing" this blog, which puts a new light on Enterra ... by the way if this article comes up when you Google .. well Microsoft will have no problem eating Google's lunch if and when it takes over Yahoo ...

Monday, May 19, 2008
Enterra Energy Trust (ENT)

An interesting special situation is a Canadian royalty trust, Enterra (ENT). It has sold off from over $20 a few years to around $1 earlier this year but has rallied sharply recently to $4.50. Previous management with conflicts of interest has been replaced, and assets sold to pay down debt. Remaining debt is expected to be restructured by 2Q/2008, with possible resumption of dividends by year end. 1Q report was very good with FFO up over 30%, and 2Q should be even better, given the rally in energy prices.

Book value is around $3.75, with most Canroys trading a 2-3x book ENT could trade at around $7-$10 by year end.

Posted by Reynold Tung

2008 May 23 07:32 PM