Hendrick3

Penn West Cuts Distribution, But Does Management Have Any Credibility?

PWE management caught me off guard as well but their explanations focus on the rapid deterioration in the natural gas markets which seems to be depressed relative to oil. I think they are about 40% natural gas in terms of production and recent prices have come down significantly (3.63). They rearranged their hedges to give them $6.50 per mcf minimum until October 2010. They are merely staying conservative so as not to find themselves in trouble if natural gas stays down at these levels for an extended period. No sense being a hero with the distributions and then see the company in distress in 2 years. They can always increase distributions if things turn around. I agree with the other poster that this is a grossly undervalued trust. I bought a significant number of units on Friday with the pullback.

Penn West Energy: Too Good to Be True?

What is not mentioned is that PWE has hedged its natural gas price with a base of $6.50 on a significant portion of production. They also have hedges on crude oil that gives them high prices (around $80) on 30000 BOE equivalent. The tax pools they have amassed should allow them to avoid taxes until 2014. I believe they will sustain their payouts although even if they cut further to be conservative, they are well positioned to see great returns in the long run. They are a steal at this price.