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 FP Trading Desk submits: Syncrude reached a new royalty agreement with the Alberta government Tuesday, and Canadian Oil Sands Trust (COSWF.PK), the joint venture's largest partner, will barely be scratched by the changes. As part of deal, Syncrude will have to cough up C$975-million between 2010 and 2015 because of deductions it took under the old regime but are not allowed under its new bitumen-based royalty deal. Sounds like a lot of dough, but investors don't need to sweat it, analysts said in research notes on Wednesday. Complete Story »
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 Kurt Wulff (McDep Associates) submits: The odds appear high that within 18 months to two years from now, stock prices in general, and by extension oil and gas income stocks, will be higher than today. The recent decline for the broad averages approached a half in inflation adjusted terms. Only in the extreme 1932 bear market did the decline go further, and then the additional decline was reversed by 1935. The recent decline became comparable to the next two most severe bear markets of 1974 and 2002. Since the typical bear market lasts about two years, we may need more time before the likely rebound is sustained. For the possibility of early appreciation we have two Buy recommendations: Canadian Oil Sands Trust (COSWF.PK) and Hugoton Royalty Trust (HGT). For the possibility of a delay in sustained appreciation we have Hold recommendations on two stocks we had rated Buy until September 5: San Juan Basin Royalty Trust (SJT) and Penn West Energy Trust (PWE). Dorchester Minerals (DMLP) and three smaller market cap stocks have high quality complementary appeal, subject to necessarily less stock market liquidity. Complete Story »
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Kurt Wulff (McDep Associates) submits: Buy recommendations Hugoton Royalty Trust (HGT) and Canadian Oil Sands Trust (COSWF.PK) offer particularly strong rebound potential when the current financial panic stabilizes. The two stocks have near the lowest McDep Ratios and have declined more depending upon the point from which it is measured. In fast moving markets, stock prices for low-debt entities may decline as fast as those for high-debt entities despite the lower risk for the former. We have complete confidence in the financial strength of COSWF and all the no-debt income stocks that have no commodity hedges. We have reasonable confidence in the financial strength of an income stock with a Debt/Present Value ratio of 0.25. We have low confidence in the financial strength of the income stock with a Debt/Present Value ratio of 0.49. We have low confidence that all counterparties will live up to the terms of commodity hedges since Lehman has already defaulted. Complete Story »
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Kurt Wulff (McDep Associates) submits: Five buy recommendations, ConocoPhillips (COP), StatoilHydro (STO), PetroChina (PTR), Devon Energy (DVN) and Canadian Oil Sands Trust (COSWF.PK) are financially strong, geographically diverse and well-represented in North American Natural Gas, Rest of World Natural Gas, Oil Production and Downstream. Related stocks in each group that have low McDep Ratios and low debt could substitute for, or supplement, the buys. Amidst the storm of change for financial companies, recommended oil and gas stocks meet the test of growth, inflation protection and deflation resistance. We define growth as a 7% real return on investment expected for stocks priced at a McDep Ratio of 1.0. By definition, real assets, such as oil and gas, offer inflation protection. Low debt offers deflation resistance. Complete Story »
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Kurt Wulff (McDep Associates) submits: 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. Complete Story »
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Kurt Wulff (McDep Associates) submits:  We are committed to the belief that Canadian Oil Sands Trust (COSWF.PK) is an attractive long-term investment despite suspending our buy recommendations for near-term financial market price risk.
Meanwhile, estimated Net Present Value of US$57 a unit remains reasonable should long-term oil price fluctuate around US$100 a barrel. On oil futures settlement prices as of September 11, we estimate that the current quarterly distribution of C$1.25 a unit would be maintained for the next four quarters indicating a distribution yield of 11.7% a year. Operations for the past three months at 347,000 barrels daily or 99% of capacity support our estimate for next year. If the price of oil declined to $80 for the next year, coincidentally near the economic breakeven price for new projects like Syncrude, management might take the quarterly distribution back to C$1.00 a unit. The Distribution Yield would drop from 11.7% to 9.4% a year, hardly enough of an impact to warrant a stock price decline to under US$40 a unit, in our opinion. Complete Story »
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Kurt Wulff (McDep Associates) submits: Believing that Other People’s Problems spell Opportunity for long-term investors, we reinstate five oil and gas buy recommendations including ConocoPhillips (COP), StatoilHydro (STO), PetroChina (PTR), Devon Energy (DVN) and Canadian Oil Sands Trust (COSWF.PK). Over-leveraged, weakly capitalized investors must sell in a declining market. Strongly capitalized investors can take advantage of those pressures. Strength includes the ability and temperament to withstand further declines. Yet, the bankruptcy of Lehman and the acquisition of Merrill Lynch by Bank of America (BAC) are events as dramatic as any to make the risks of further turmoil obvious to all. The five recommendations are financially strong, geographically diverse and well-represented in North American Natural Gas, Rest of World Natural Gas, Oil Production and Downstream. Complete Story »
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Kurt Wulff (McDep Associates) submits: We continue to like the same stocks after suspending buy recommendations on Friday as the recent adverse stock price trend may be suggesting more patience (see Meter Reader Flash, September 5, 2008 - pdf file). For deciding what to do with stocks now owned, we recommend overweighting natural gas, keeping a global spread of companies, large and small, and participating in income stocks. Judge the size of holdings by Enterprise Value rather than Market Cap and keep the McDep Ratio in mind. To help with the portfolio analysis, we create a new table with all covered stocks rearranged geographically. The former recommended geographic weightings, still reasonable while recast in a new look, underweight U.S. Integrated and Europe, equal weight Brazil, Russia and China and overweight U.S. Independent and Canada. We discuss below examples of current interpretations for some specific stocks. Finally, taxable investors who may have tax losses from recent purchases might realize them while preserving investment exposure by swapping shares in similar companies. Small Premium in Marathon for Restructuring Complete Story »
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FP Trading Desk submits: Rising costs at Canadian Oil Sands Trust's (COSWF.PK) Syncrude sulphur emissions reduction [SER] project are significant, but not enough to threaten the company's annual distribution through 2010, says Raymond James analyst Justin Bouchard. Canadian Oil Sands announced last Friday a 107% cost increase in the SER project from C$772-million to C$1.6-billion. Complete Story »
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FP Trading Desk submits: Dramatic declines in the commodity markets the past few weeks have some comparing it to the epic asset revaluations of the late 1990s tech bubble, and plunging real estate prices more recently. Oil is down roughly 30% and natural gas is off about 45%. This has many investors turning their focus to Canada’s energy trust sector, wondering whether their distributions are safe and for how long. RBC Capital Markets said in a Sept. 11 report: Complete Story »
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 Richard Shaw (QVM Group) submits: Where are oil prices going? We don’t know. You don’t know. Nobody knows. Short-term events could drive oil higher or lower. The current trend is clearly down, but where it stops is not evident. What is an investor to do? One reasonable thing to do is nothing, if you don’t have particular oil exposure, or if you have good yield from oil companies with well covered dividends. Complete Story »
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Kurt Wulff (McDep Associates) submits: Just as income stocks are resisting market decline relatively more, oil the commodity is also doing better than stocks in general when measured by current price to 200-day average. Both features are combined in buy-recommended Canadian Oil Sands Trust (COSWF.PK), which announced on July 29 a 25% distribution increase for the current quarter over the previous quarter. Encore Energy Partners (ENP) and Permian Basin Royalty Trust (PBT) also have estimated distribution yields around 12% a year that are responsive to oil price. The three conventional production Canadian Income Trusts are more concentrated on oil as well. Those trusts, including buy-recommended Penn West Energy Trust (PWE), have hedged away some of the gains in oil price and are applying the rest to reinvestment. The blessings of today’s oil price make it more likely that the conventional trusts will be able to sustain the current rate of distribution in their corporate form when taxation of Canadian trusts increases in 2011. Trusts with high concentration on oil are those with low concentration on natural gas. Complete Story »
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The Moneygardener submits:The general rule when buying and selling energy and commodity names is the reverse to other stocks; "buy when P/E ratios are high and sell when P/E ratios are low". This strategy would work like a charm right now, if and only if the energy and commodity bull market is coming to a close. That is, the cycle is turning and these things will come crashing down without touching the sides. You want to be selling when earnings have grown so high that when they're compared with the stock price they produce a very low P/E ratio.
Keeping with the theme of 'is oil dropping to $60/barrel?' Here are some of the Price to Earnings (P/E) ratios and yields that the market is currently offering for these names: Complete Story »
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Kurt Wulff (McDep Associates) submits: A positive trend for oil price drives investment value in buy-recommended Canadian income stocks Canadian Oil Sands Trust (COSWF.PK) and Penn West Energy Trust (PWE). Near-month futures price continues to bump against an upper limit at 40% above the 200-day average. Though the trend may point to higher price, we stick with $150 in 2010 as a sustainable level. A potential punitive windfall profits tax that would unfairly discriminate against U.S. producers may drive up oil price further to the benefit of Canadian and non-U.S. producers. With higher Alberta royalties taking effect next year in most cases, Canadian producers may be free of additional tax increases for awhile. Conversely, at some point oil price may fall back to settle around the 200-day average, currently $105 a barrel, as has happened in the past. Our protection on the downside is that at McDep Ratios of 0.90 and 0.84, the stocks are priced for oil at perhaps $90 and $84 respectively. We regard COSWF as a unique, high-quality long-term asset while we expect PWE to be a profitable, well-run conventional oil producer as it integrates recent acquisitions. Complete Story »
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Katta Murty submits:Below is a brief analysis of the beneficial effects of shifting to CNG (Compressed Natural Gas) as fuel for vehicles, instead of of power generation plants: 1. Use of CNG as fuel for electric power generation: Since nuclear power plants have become unpopular (due to security fears after 3-Mile Island and Chernobyl nuclear power plant accidents), coal burning power plants also became unpopular (due to concerns about global warming), and hydro-electric power generation has almost reached its natural upper limit. 40 years ago the US decided to use CNG as fuel for power plants built in the future. CNG is mostly methane (NH4); when burnt, each molecule of it releases one CO2 molecule and two water (H2O) molecules, so generating power by CNG is only about a third as damaging (in terms of CO2 releases) as generation from coal. Now a significant (about 20%) of our electricity comes from CNG. Complete Story »
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