NAL unitholders could benefit from strong oil price: Trust has revised distribution numbers upward given the boom in commodity prices

Money Digest, June, 2000 by Doug Hawkins

NAL Oil & Gas Trust (TSE: NAE.UN; Recent price: $7.35) is an open-end investment trust created to acquire a royalty on high-quality producing oil and gas properties from NAL Energy Inc.

Royalty income received by the trust is distributed to unitholders on a monthly basis. NAL Resources Management Ltd. has invested half a billion dollars in the oil and gas industry since the firm's inception in 1990.

NAL has made an upward revision to its year-end 1999 reserves of 1.0 million boe. Estimated reserves are now 22.4 million boe, up 4% from 1998.

NAL's development programme this year includes 39 wells at an estimated cost of $7.2 million. In Alberta, 14 new wells and one re-entry at a net cost of $3.4 million are expected to add production of 235 boepd. In Saskatchewan seven new wells at a net cost of $7.1 million are expected to add production of 445 boepd. In Ontario, 17 wells at Lake Erie at a net cost of $1.7 million are expected to add production of approximately 8mmcfd.

Production for 2000 is expected to average 5,800 boepd in total. Based on an average WTI oil price of US$25.00 per barrel, NAL anticipates cash flow of approximately $1.95 per unit. NAL plans to maintain its monthly distribution rate of $0.10 per unit and distribute extra amounts on a quarterly basis, however most of its excess cash flow will be used toward debt reduction and the development programme.

NAL forecasts a distribution of $1.33 this year, assuming commodity prices remain strong. This would provide unitholders with a cash-on-cash yield of 19%, based on current trading prices.