Buy-recommended Penn West Energy Trust (PWE) offers unlevered appreciation potential of 14% to our estimate of net present value ([NPV] of $36 a share, that includes only minimal recognition of the upside in high potential projects in Peace River Oil Sands and carbon dioxide enhanced oil recovery.
Second quarter results reported on August 2 indicated that distributions of about C$246 million were amply exceeded by unlevered cash flow (Ebitda) of C$346 million. Split 2/3 oil and 1/3 natural gas, NPV is almost matched by a correlation with operating companies in our coverage that does not count unusual potential.
Chairman Bill Andrew outlined on the quarterly call his expectation of independent certification in the next few months of oil sands resource near 6.8 billion barrels of which 400 million to 1.4 billion would be recoverable. Blockbuster prices for new oil sands projects announced by Petro-Canada (PCZ) and Royal Dutch Shell (NYSE:RDS.A), as well as for Marathon (NYSE:MRO)’s acquisition bid for Western Oil Sands (OTC:WTOIF), attest to industry interest in just the past few weeks. Supporting such confidence, long-term oil price appears to be in a rising trend despite volatility of short-term quotes. Yet, investors can buy PWE stock below its 200-day average while collecting distributions at the rate of 12% a year.Originally published on August 3, 2007.
PWE 1-yr chart: