Higher natural gas prices boost two high-yielding energy stocks

PEYTO EXPLORATION & DEVELOPMENT CORP. (Toronto symbol PEY; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 72,209 barrels of oil equivalent is 90% gas and 10% oil. In the quarter ended March 31, 2014, Peyto’s cash flow rose 53.6%, to $1.06 a share from $0.69 a year earlier. That’s because the company raised its production by 30.4%. Gas prices also gained 27.5%, to an average of $4.45 per thousand cubic feet from $3.49, while oil prices rose 6.1%, to $80.49 a barrel from $75.88. Peyto plans to spend $625 million on exploration and development in 2014, which will let it drill 110 to 125 wells. To put that in context, the company spent $578 million to drill 99 wells in 2013. The company’s long-term debt of $760 million is 12.5% of its $6.1-billion market cap. Peyto has just raised its monthly dividend by 25.0%, to $0.10 from $0.08. The stock now yields 3.1%.

Energy stocks: Bonavista to spend up to $600 million on exploration and development in 2014

BONAVISTA ENERGY (Toronto symbol BNP; www.bonavistaenergy.com) explores for oil and natural gas in Alberta, Saskatchewan and British Columbia. Its production is 65% gas and 35% oil. In the three months ended March 31, 2014, Bonavista’s cash flow per share gained 40.4%, to $0.80 from $0.57 a year earlier. Production rose just 2.2%, to 73,936 barrels of oil equivalent a day from 72,333. But its realized gas price jumped 55.5%, to an average of $5.07 per thousand cubic feet from $3.26, while oil prices rose 6.2%, to $79.68 a barrel from $75.05. Bonavista plans to spend $580 million to $600 million on exploration and development in 2014. Its plans include drilling 130 to 135 wells, which will let it raise its average 2014 production as high as 77,000 barrels of oil equivalent a day. For all of 2013, Bonavista spent $460 million to drill 126 wells. The company’s shares yield a high 5.1%. The company’s long-term debt of $1.0 billion is 30.3% of its $3.3-billion market cap. In the latest issue of Canadian Wealth Advisor, we look at Peyto’s forecast cash flow and whether it can continue to raise its dividend. We also examine Bonavista’s prospects and whether its high dividend is safe. We conclude with our clear buy-hold-sell advice on these two stocks. (Note: If you are a current subscriber to Canadian Wealth Advisor, please click here to view Pat’s recommendation. Be sure to log in first.) If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Does the recovery in natural gas prices encourage you to invest in natural gas stocks? Are you more likely to invest in a natural gas stock that pays a dividend? If the stock does pay a dividend, are you prepared to hold it even when natural gas prices decline?

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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