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Royalty Trusts


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#1 PorkLoin

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Posted 24 October 2006 - 05:18 PM

My comment from Sept. 8:

I still favor oil-heavy trusts over natural gas for the next couple years, and will continue to rebalance things with that in mind. For bargain-hunting - I'd love to see Enerplus and ARC (ERF on NYSE or ERF.UN for Toronto, and AETUF on the US OTC market and AET.UN Toronto) decline enough to make their dividends 10% or so.

I have to laugh -- at the recent lows Enerplus yielded 9.943% and for ARC it was 9.996%. Fairly close to 10%.

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I didn't get any ERF and didn't get as much ARC as I now wish for. These are two of the biggest and very best trusts, conservative management and dividend payout, good reserve life, and good at controlling costs. The natural gas price decline and oil going from almost $80 to below $60 hasn't endangered the dividends. Now they've rallied back like they mean it. Oil has done little but ease off on the rate of decline and natural gas hasn't been that impressive yet. Maybe the trust pricing is telling us that it's still a bull deal for energy.

You can see from the charts that the nature of these beasts is to make panicky moves down, spike lows, "V" bottoms, etc. Barring a major bear market in energy, those are the times to buy. Natural gas went from a high over $15 in December to under $5 in September, so it could be said that the major bear market has already occurred there.

Perhaps we will have a warm winter and the large NG stocks now on hand will give us another move down in price. Combined with further price decline in crude oil, that would likely bring another great buying point for trusts. I would buy Enerplus and ARC upon a 60-70% retracement of the recent rallies, and more back near their recent lows.

For now, the move up of the last 2-3 weeks is mirrored by most trusts, and I'm going to use it to get out of weaker issues. The big bull market in trusts for six years prior to this spring allowed me to get complacent and take too much risk in chasing the highest yields.

More later.


Best,

Doug

#2 fauxpas13

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Posted 24 October 2006 - 06:36 PM

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#3 PorkLoin

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Posted 24 October 2006 - 07:15 PM

Nice chart, Fauxpas. Lots of times after so many little higher bottoms we get an energetic move up. If it busts that resistance around 8.25, more power to it. Doug

#4 mss

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Posted 24 October 2006 - 07:59 PM

Hi doug, Whats your take on UPL?? Thanks, [attachment=4878:attachment]
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#5 PorkLoin

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Posted 24 October 2006 - 08:42 PM

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Hey Scott -- a big triple zig-zag correction from the January high to the September low, now broken out above the downtrend line. It's already gone a long way in the last month, though.

Lots of oil & gas stocks acting relatively strong versus the products.


Ciao,

Doug

#6 PorkLoin

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Posted 24 October 2006 - 11:50 PM

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I'm going to stop with this chart. 4 of the original trusts have merged or been bought out, and those deals include formed exploration companies, stock shares and warrants that aren't included or reflected in the chart.

I don't own Pengrowth, Shiningbank or Thunder.

Doug

#7 SilentOne

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Posted 05 November 2006 - 07:48 PM

doug, I've been studying this sector over the weekend. I am tempted to accumulate a few names next week. Just wondering what you are thinking re: the energy trusts. I have been doing a lot of reading this weekend and come to the conclusion that I should buy accumulate for my RRSP. I know for the typical Canadian tax payer this is not wise, but as a Canadian expat (we live in the UK) I am looking for an energy play like the trusts and would want to shelter the income in an RRSP. Otherwise I pay tax on the income deducted at source in regular accounts. AET.UN, PEY.UN are the top two on my list followed by DAY.UN and FEL.UN. Going for quality first and then something a little riskier. The really high yield plays are out for me. Looking at log charts for these and possible channels, I estimate 5 yr+ trendlines to come in at $18 for AET.UN and PEY.UN just scares me as it has an incredible chart, but at $17 (thinking A=C down) it may be the place to start an entry. DAY.UN is difficult as it was already in a bull move breaking out of its downtrend. Support should be at $9 or better. FEL.UN should not see anything below $9 to be bullish or at least hope for a decent bounce into next year. Your thoughts are much appreciated.
"By the Law of Periodical Repetition, everything which has happened once must happen again and again and again-and not capriciously, but at regular periods, and each thing in its own period, not another's, and each obeying its own law ..." - Mark Twain

#8 PorkLoin

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Posted 05 November 2006 - 08:12 PM

Hi John, Here's part of an e-mail I sent to another board participant. More later on DAY and FEL. Best, Doug On the Canadian Business Online list of trusts, I see they have Daylight Energy listed as an "A." Well, I think it's probably going to have to cut the dividend, and that hurts share prices, often fiercely. Esprit got an "A" too, but it's already been bought be Pengrowth, which I don't recommend since it's costs are relatively high. With PrimeWest, there's already been a dividend cut and more may be on the way. It's very vulnerable to natural gas price decreases and not hedged enough in my opinion. I'm still bullish on energy prices for the long term, like the next 5 or 10 years, and this has me still interested in the royalty trusts, despite the governmental shenanigans. I do want to mainly be in the big strong ones that have the best chance of getting through conversion to regular corporations should it actually come to that. Three "King Kongs" -- ARC, Enerplus, and Penn West are in my top picks for stability and good management here. Vermilion and Zargon are not as big but still will survive almost no matter what IMO, and likely do relatively well, while for 95% of trusts I'm not so sure. Look at long term price charts for those last two -- VET.UN and ZAR.UN on the Toronto exchange. Huge moves up and not much of a decline even with the events of last week. They don't pay the highest dividends but in the long run they return the most. NAL Oil and Gas trust is another favorite of mine. 8.5 years without a dividend cut - the best record there that I know of. It has had a heck of a price decline lately. It's yielding 15.66% at Friday's close. My biggest holding. Went from being up 59% at this year's high to up less than 9% now. Ouch. That doesn't include dividends which have been good all along. Finally, Peyto Energy Trust, which gets a "D" from the CBO article. I disagree bigtime there. Very low-cost producer, the lowest that I know of. Only costs about $2.25 Canadian for this trust to get a barrel of energy. It's 80% natural gas but is an excellent and heavy hedger, and the trust has one of the longer reserve lifes. Very much owned by its managers too. Great returns since the trust's beginning, though it has been going sideways to down in share price for 16 months. For playing NG long term this is a good one IMO.

#9 PorkLoin

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Posted 06 November 2006 - 12:05 AM

So, was the bottom on October 24? :lol: John, on Daylight I think the possibility of a dividend cut plus the relatively small size of the trust make it a risky bet. Perhaps worthwhile, and in the long run who knows what will happen, but barring some big price gains for Oil and Natural Gas I'm sticking with the best trusts as I see them, the bigger, better managed, strongest ones financially. Daylight's production is 2/3 oil, and all in all for the next year or so I rate that as a positive, expecting supplies to remain tighter for oil than for NG. FEL.UN produces almost 3/4 NG, so I'm more negative on it than on Daylight. Small size there too. For a "riskier" play/high dividends, 17% versus Daylight's 20%, I like Shiningbank SHN.UN -- twice the size of DAY and FEL, though still only 1/5 as big as Enerplus. Good and aggresive management. For a long term play on NG I like it almost as much as Peyto. Cirrus wisely mentioned the possibility of conservative money managers, seniors, etc., thinking about the volatility and risk now in the trusts, thinking and worrying all weekend, so maybe we'll get another plunge tomorrow. I think the bad news is priced in for most trusts and going back to last week's lows would be good buys most everywhere IMO, even if just for shorter term trading. In the coming week, time permitting (which it should) I'll go through the trusts and post a "best of" list as I see it. Doug

#10 SilentOne

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Posted 06 November 2006 - 05:15 AM

doug,

Cirrus wisely mentioned the possibility of conservative money managers, seniors, etc., thinking about the volatility and risk now in the trusts, thinking and worrying all weekend, so maybe we'll get another plunge tomorrow. I think the bad news is priced in for most trusts and going back to last week's lows would be good buys most everywhere IMO, even if just for shorter term trading.


I'm expecting a retest of lows or lower lows to buy into. We'll see.

BTW, I am surprised to see PEY.TO get such a poor ranking.

cheers,

john
"By the Law of Periodical Repetition, everything which has happened once must happen again and again and again-and not capriciously, but at regular periods, and each thing in its own period, not another's, and each obeying its own law ..." - Mark Twain