November 8th, 2012 
Category: 
Today, I sold 500 shares of Eagle Energy Trust (TSX:EGL.UN) at $9.85.
In at $8.62, out at $9.85, profit= +13.81% after commissions excluding dividends.
Trade Commentary
This morning I reduced my holdings in Eagle Energy Trust across all accounts leaving me only with a 1,000 share position in my public portfolio. I am lucky to have bought under $9 a few months back so the exit has been profitable and more if I include the dividends.
The Q3 report was very disappointing; on top of growing pains distorting the sustainability ratio we get operational hiccups. That was not a pleasant surprise! As a result, production guidance took a hit and the sustainability ratio for 2012 is now too high to my liking especially with the credit line more than 75% drawn at year’s end.
Eagle is still my favorite cross border income trust but the stock was overweight in my portfolio and I had to reduce. I am still keeping a foothold in EGL.UN for a simple reason; that miss is not the end of the world. I used my O&G analysis software to annualize the cash flow for 3,600 boed in average production next year. That represents a 9% increase in production above the exit rate of 3,300 boed.
I am assuming the same capex of $43 million in 2013. I am also assuming a commodity price deck of $90 WTI – remember that they realize a $2 per barrel premium to WTI.
The sustainability ratio estimate comes around 105% (saved by DRIP proceeds) for a deficit of $2.5M that can be easily absorbed by the bank line. The DCF ratio would be estimated at around 0.7x to cash flow.
The only problem with my scenario is the risk with the price of oil which is partially mitigated through a nice hedge book. I will be back to update this post once I get hold of management.
[UPDATE] Following my discussion with the CFO, the 3,800 figure went lower to 3,600 and the sustainability ratio ticked to 105% from 102%. Overall my numbers are pretty close.
Junior dividend paying E&P companies got hit across the board today except for Mart Resources which eked out +1.1% and more impressively a +100% YTD!
What do you think of EGL.UN?
Hey Mich,
Just noticed that PRY has very low 2P Reserves.
They are only 8,4 MMboe so PRY trades for $45 per Mboe. This metric is huge.
Best,
Lee
SCS (Second Wave) for instance has almost 12 MMboe (Dec 2011) and it trades for just $14.5 per Mboe.
Hopefully PRY (Pinecrest) will triple its 2P Reserves in early 2013, although it is highly unlikely imo.
Best,
Lee
Hey Lee,
PRY will naturally be valued higher than SCS for many reasons one of which is they are masters of their own domain. CPG calls the shots when it comes to SCS.
Cheers,
Mich
I still have mine. I think this is a bump in the road more then a wrong direction. This is my only speculative stock so if I lose, that’s fair game.
I agree with you Sam which is why I kept a position.
Ah, sad that Q3 + 2013 guidance wasn’t what you wanted Mich. But you never know hopefully management isn’t being paid to be stupid and sit on their hands. So they probably recognize that they have some issues and will work on solving them; not the end of the world by any stretch of the imagination!
I personally just can’t used to an E+P paying such a high distribution while attempting to grow at the same time. To me it seems like they’re trying to do too much all at once. But it wouldn’t be a market if we all agreed with one another now would it
Besides a WIN of 13% is nothing to scoff at
good on yea!
Thanks Garmin
Management is good so I believe they will rectify the situation. I just wish they provided more information than just throw a “distribution is safe” line.
Honestly, most E&P companies right now are in the red, EGL could fund its dividend if it moves into maintenance mode. It’s just not there now. I would have liked them to start their dividend lower, ramp up growth then increase it.
I guess the Nigerian based Mart is one of a few companies that can actually fund its dividend!!! How ironic….
Cheers,
You mentioned using your O&G analysis software to annualize cash flow. Is that software something available to the public or something you have developed for your own personal use.
It sounds like it would be very useful for comparing O&G companies.
Thanks
Don,
Stay tuned as there will be a post dedicated to OGA software soon with a lot of details.
Cheers,
[...] Stock Trades: Sold Eagle Energy Trust [...]
I just hope that “distribution is safe” …. at least you get paid while waiting (not like SKW/MQL)…
My EGL.UN position is very small and just keeping it… anyway was busy and missed last report…. and don’t think it’s a good idea to sell at current price
gibor,
I reduced my position but kept a decent chunk. The dividend is safe in my opinion so long as oil doesn’t collapse below $80. If it goes below $80 the stock will be under pressure, if it goes over $90 again the stock will recover within a quarter.
that’s my opinion…
Still holding my 1000 shares, oil will go back up, always does, another big storm, another war. I hate looking at that way, but, it happens.
Still holding a 1000 shares as well. I believe the price will recover within a quarter bar any crash in the price of oil.
Not only big storm, but issues in Middle East will continue, I lived 10 years over there (Israel) and there is no solution…More issues -> better for oil prices “I hate looking at that way, but, it happens.”
P.S. I also hope that dividend investors will be attracted by very high yield of EGL.UN
Yeh, the middle east is a loony bin. I also agree with you that there’s no solution over there! Countries want to wipe each other off the map + religious strife and a so called “Arab spring” that is pushing all of these countries 1200 years back.
I am not too worried about EGL,it’ll come back.