Energy Stocks with Low Debt, No Hedging

Amid intensified financial turmoil, investors can be more confident in income stocks that have no debt, or minimal debt, and do not engage in commodity price hedging. Canadian Oil Sands Trust (COSWF.PK) fits that description, which we had in mind when we reinstated our buy recommendation (September 16, 2008).

The complete absence of debt and hedging bolsters our confidence in the long-term investment value of the U.S. Royalty Trusts and Dorchester Minerals (DMLP). There are financial risks that we expect will be manageable in the three Canadian trusts concentrated on conventional oil.

A close association with bankrupt Lehman Brothers prompted Linn Energy (LINE) to acknowledge a likely hedging loss of $68 million. Commodity price insurance from a highly leveraged bank proved to be false protection. Any further loss in today’s markets would push Linn’s ratio of debt to present value past 0.49, the maximum we consider tolerable.

Originally published on September 19, 2008.

Comments

[Greg Pinelli:]

Oil sands certainly aren't on my buy list..VERY expensive product development costs...very narrow margins with oil at $85 to $95...Ratios can be exceedingly misleading when you're in the bullseye of environmentalists and water conservationists. LINE is a far better play..as is PWE.

2008 Oct 13 10:28 PM

[searcher:]

Water is the elephant in the room in the oil shale and tar sands wing of the hydrocarbon recovery shack.

2008 Oct 14 06:12 PM

[sharkjeff:]

i would stay away from LINN,they bought our gas & oil revenues from another company in north texas 4 months ago & we haven't gotten a dime from them & they won't answer the phone or call back at all,i think they have swindled us,they now owe over $8000 & growing every day.STAY AWAY from doing any business with these crooks.

2008 Oct 18 01:45 AM