Penn West Energy Trust (NYSE:PWE) is our buy recommendation for high current income with an indicated distribution yield near 15% for the year ahead. Third quarter results reported late last night supported distributions of about C$247 million with unlevered cash flow (Ebitda) of C$355 million.
Our estimate of net present value [NPV], adjusted to $34 a unit from $36 for the latest acquisition, has become almost entirely justified by projected cash flow for the next twelve months capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P).
Large acquisitions have diluted the upside in high potential projects in carbon dioxide enhanced oil recovery and Peace River oil sands. A strong position as a leading producer of highly valued light oil in Canada helps the trust acquire smaller trusts on reasonable terms.
Strengthening the outlook for income distributions, six-year oil futures may be on trend to another double as was the case from the end of 2004 to mid 2006, subject to short declines from time to time.