Canetic Deal "Modest Negative" for Penn West Shareholders

The announced $15-billion merger between Penn West Energy Trust (PWE) and Canetic Resources Trust (CNE) will be modestly negative to Penn West unitholders, according to RBC Capital analyst Fergal Kelly.

Mr. Kelly said in a note to clients that the transaction will be accretive to Penn West's cash flow per unit, but that net debt to cash flow increases from 1.6 times to 1.8 times. The analyst revised his production estimates to 203 million barrels of oil per day, down from his previous estimate of 214 million barrels of oil based on the sum of Canetic and Penn West.

The new estimate remains within management's guidance range of 200 to 210 million barrels of oil per day, however Mr. Kelly said the agreement stands to reduce Penn West's net asset value by approximately 3%.

"In addition to the slight net asset value reduction, the upside potential of Seal and Pembina [oil sands projects] is also diluted," he wrote. "Further, the proposed transaction introduces significant integration risk and increases financial leverage."

Mr. Kelly's "sector perform" rating and C$29.50 price target unchanged.

PWE 1-yr chart:

Comments

[JT$:]

CNE UnitHolders also have a slight "Negative" aspect...
Consider: After the inital six months, the PWE dividend is CAD4.08
which will be (0.515)(4.08) or CAD2.1012 for each CNE
share "merged" into PWE.
Currently, the annual CNE dividend is CAD2.28...
so CNE UnitHolders lose about 7.8% on dividends.

2007 Dec 20 12:10 PM

[User 132662:]

"203 million barrels of oil per day"
Are you sure of that number. I thought the whole world only produces about 88 million boe per day.

2007 Dec 22 04:09 PM