Buy-recommended Penn West Energy Trust (PWE) offers unlevered appreciation potential of 23% to estimated net present value [NPV] of $37 a unit, concentrated 74% on oil and 26% on natural gas. Fourth quarter results released on February 22 recorded stable oil and natural gas volume to support a 14.4% distribution yield.
The recently completed acquisition of Canetic Resources Trust and other assets drive a 56% expansion in production in 2008. We increased NPV from $34 a unit on December 18 when we increased long-term oil price for calculating present value to $80 from $66 a barrel. Projected volumes along with current futures prices promise a high level of unlevered cash flow (Ebitda). NPV is mostly supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P).
In addition to proven reserves, Penn West is developing large resources in the Peace River Oil Sands and in CO2 Enhanced Oil Recovery. As it should, oil price has increased to offset the Canadian Federal and Alberta Provincial tax disincentives and now we are hopeful that natural gas price will increase to offset oppressive Alberta royalties.
Originally published on February 22, 2008.