Pinnacle Activity Ticker
Paramount Energy Trust responses to statements made by paul_livermore.
paul_livermore made certain statements about Paramount Energy Trust which I asked them to respond too, the following is paul_livermore's comments and the response of Paramount Energy Trust.
On PMT.UN, there is one thing you should know. The earnings return on share is only about 2.5%, So how can the company be paying an 11% dividend? The answer is that the company will borrow money from banks or issue new shares. This kind of income fund is very popular in Canada but there are plans to change the rules.
BY: paul_livermore - January 8th, 2010 - 2:13 PM
Here is an interesting maths:
In the 9 months from Dec 2008 to Sept 2009, PMT paid out $0.49 in dividends per share (consisting of 2 monthly div of $0.07 and 7 div of $0.05). On an average share count of 118 million, that cost the company $59 million in cash outflow approximately.
The increased in outstanding shares in the 9 months is 10.98 million, which at an average price of $4.75 produced new cash of $52 million. Almost enough to cover the total dividends,
N.B. some of the new shares may be issued as DIPS in lieu of dividends, but the maths work the same way.
This is PET's response:
PET has managed through this difficult commodity price environment with the help of a well executed hedging program. In 2009 we were able to crystallize approximately $168.0 million throughout the year and currently our hedge book is worth approximately $70.0 million. Strategy here has been to apply in considerable amounts to our balance sheet and to assist with our acquisitions and distribution activities.
The increase in outstanding shares in the 9 months is 10.4 million and that increase is largely due to the Profound acquisition which was announced in March 2009. The issuance (June and Aug 2009) was valued at $32.0 million using PET's 5 day weighted average unit trading price for the 5 days surrounding the announcement date of $3.21, not the suggested number of $52 million. Cash consideration paid for Profound was $27.5 million which consisted of costs associated to open market purchases, tendering of shares and acquisitions costs. This information is clearly stated in our Q3 2009 report which is located on PET's website.
The DRIP was re-established in Aug 2009 and since that time to the end of the Dec. 2009 has received proceeds of approx. $18 million in cash has issued approximately 3.0 million units. In essence this is a form of raising capital but is less dilutive than the one offs that do occur and it also provides a benefit to our Unitholders with the option of either acquiring additional PET units at a 6% to market price or receiving cash distributions with an additrional 2%.
Distributions payable from January 2009 to Sept. 2009 represent a payout ratio of 29.7% based on cash flow of $191.0 million, well within our means and totaled $57 million to Unitholders, so although similar in numbers not completely time related as suggested as we also paid out $27.5 million for the acquisition.
Sustainability to PET = Cash Flow less Capital Expenditures and Distributions.
For excess cash flow to be generated above the current distribution of $0.05/unit/month and a capital program $90.0 million PET would require for sustainability a gas price of greater than a $5.50/GJ at AECO representing a payout ratio of approximately %35-40% - this does exclude DRIP proceeds.
But if you included our 2010 our hedging portfolio and the same distribution and capital requirements, sustainability would require a gas price of $3.50/GJ at AECO representing a payout ratio of approximately 30-35% - this does exclude DRIP proceeds.
PET's typical earnings and earnings per unit are lower than the average Trust largely due to our relatively high depletion rate, which also means a higher depletion expense. The depletion rate is the inverse of RLI and because our RLI is relatively shorter than most oil and gas companies our depletion rate is higher and our earnings will be lower. It is much more common for analysts to compare price to cash flow than price earnings due to the very different depletion rates among the entities.
Paramount is also different in that we follow the successful efforts method of accounting which means much of our exploration expense, mostly the depletion expense, and unrealized gains (losses) from financial instruments which are a deduction from earnings are added into the consolidated statements of cash flow; we feel this is a much more accurate presentation of the Trust's financial performance during any given period. Again this information is presented in our web site.
PET is also pleased to announce the closing of the acquisition of natural gas producing properties in the Wostock and Ukalta areas of east central Alberta for $18 million. These assets which are located in PET's Southern Alberta core area include 6.2 MMcf/d of current production and numerous identified recompletion opportunities as well as infrastructure proximal to PET's existing operations.