Pengrowth's appeal linked to oil and gas prices

Money Digest, June, 2001 by Doug Hawkins

Pengrowth Energy features healthy yield, reserve life and liquidity

Pengrowth Energy Trust (TSE: PGF.un; Recent price: $21.39; Phone: 1-800-223-4122) is an oil and gas trust with a market capitalization of $1.35 billion.

Its cash distributions paid over the last 12 months now total $4.07 per trust unit, representing the highest 12-month trailing distributions achieved in its 12-year history.

Pengrowth has estimated its net asset value to be $12.87 per unit, based on year-end independent engineering reports at a 12% discount rate. This implies that it trades at a large premium to its net asset value.

Year 2000 cash flow came in at $3.80 versus $2.50 in 1999; distributions were $3.79 versus $2.49 in 1999. The primary drivers of this solid performance were strong commodity prices, increased production from acquisitions and development programs such as Judy Creek.

Pengrowth realized average commodity prices last year of $40.37/Bbl for crude oil, $33.56/Bbl for NGLs and $4.34/Mcf for natural gas. Production was up 4% over 1999, and totalled 28,908 Boe/d -- 24% of which was natural gas. This year's production should total 32,390 Boe/d (a further 12% increase).

Pengrowth ended the year with $287 million in debt, with a debt to cash flow ratio of 1.3 times. New equity could be issued soon in support of its recent Sable Island acquisition. Pengrowth acquired an 8.4% interest in the Sable Offshore Project for $265 million. The acquisition will increase natural gas production in the portfolio to approximately 32%.

Conclusion

For investors who find the long-term outlook for oil and gas prices appealing, Pengrowth has several key features. It has an outstanding record, potential exposure to the Sable gas project, excellent share liquidity(a float of $1.3 billion), a reserve life of 14.4 years and a healthy yield of 18.7%. Approximately 40% of this year's distributions will be treated as a tax-deferred return on capital.

Doug Hawkins, MBA, is an investment advisor with Canaccord Capital, a member of major stock exchanges and the Canadian investor Protection Fund.