Penn West Energy Trust (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.
Originally published on November 9, 2007.