We raise estimated net present value [NPV] of buy-recommended Penn West Energy Trust (NYSE:PWE) to $45 a share up from $37, presuming a long-term oil price of $100 a barrel, up from $80.
First quarter results released on May 13 recorded a 50% volume gain with the closing in early January of the Canetic and Vault acquisitions. Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda). Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.
The cash flow outlook is boosted by a continued uptrend for oil price and more recently natural gas price. About half of cash flow is distributed to unitholders to provide the highest rate of current income of any of our buy recommendations. The remaining cash flow can be used to repay debt or to fund new production on the trust’s vast land position.
Originally published on May 14, 2008.