PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 254.9 million; Market cap: $2.8 billion; SI Rating: Average) produces oil and natural gas from, mainly from properties in Alberta and British Columbia. It also owns 8.4% of the Sable Offshore Energy project, which extracts natural gas from several offshore fields south of Nova Scotia. Natural gas accounts for 60% of its production, while oil supplies the remaining 40%.
Pengrowth is down lately, along with most other oil and gas producers, due to falling energy prices. However, Pengrowth’s cash flow seems sufficient to let it keep paying monthly distributions of $0.225 a unit. That gives it a high current yield of 24.5%. Pengrowth paid out 62% of its cash flow as distributions in the latest quarter, down from 79% a year earlier.
In the three months ended September 30, 2008, Pengrowth’s earnings soared to $1.69 a unit (total $422.4 million) from $0.66 a unit ($161.5 million) a year earlier. Most of the increase came from unrealized gains on oil and natural gas hedging contracts. Cash flow per unit rose 23.6%, to a record $1.10 from $0.89. Revenue grew 23.3%, to $518.7 million from $420.7 million. A 27% rise in realized energy prices more than offset a 5% drop in average daily production.
In light of the growing uncertainty over oil prices and the value of the Canadian dollar in relation to the U.S. dollar, Pengrowth recently entered into new pricing contracts to cut its risk.
For the remainder of 2008, Pengrowth has locked in prices for 46% of its oil production and 41% of its natural gas production. It has also hedged some of its production for 2009 and 2010.
Pengrowth prefers to replenish its reserves with acquisitions of proven properties that immediately add to its cash flow, instead of investing in uncertain exploration projects.
It recently paid $89.9 million in units for Accrete Energy Inc., which increased its reserves by 3%. Pengrowth also paid $12 million to expand its interest in several other properties. At current production levels, Pengrowth’s reserves should last over 10 years.
Pengrowth is a buy.
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