Parallel Energy Trust worth putting on your watch list

Jan 18th, 2012 – Comment

There does seem to be some support at $7.75 but I would want to see the selling abate before I stepped up to the plate.


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Hi Lou,

I would appreciate your opinion on Parallel Energy Trust, PLT.

Ken

 

Hey Ken,

Thanks for the assignment. Parallel Energy Trust (PLT.UN TSX) just went public in April of 2011. The issue was priced at $10.00 and raised over $400 million. The focus of the enterprise is in the United States where they have bought producing properties with low cost development potential.

The company is the second new trust that has been formed since the ‘ Halloween Massacre” of 2006. The new structure skirts the changes that crushed the domestic trust sector, by operating outside Canada. This is just another example of the creative strength of the financial community, which when regulated out of business finds another way to skin the cat. Gotta love the relentless pursuit of higher yields on distributions! Expect more of these new trusts based on foreign operations to come to market.

Unfortunately the units have been under selling pressure since they came to market. A review of the charts will instruct us on how to proceed.

 

 

The one year chart tells the tale of eroding capital but at the current price the yield on distributions is 11.5% which is very attractive.

 

 

The MACD and RSI on the six month chart are indicating that the bounce that the units caught in late December is over. There does seem to be some support at $7.75 but I would want to see the selling abate before I stepped up to the plate.

I like the business model and with a reserve life index of 11.1 years and 189 development drilling targets on their Texas land base, I think this one should be on your watch list for a trend reversal.

Management claims that they can maintain production with annual capital expenditures of between $2.5 and $3.5 million. The cap ex budget for 2012 has been set at $16.5 million so expect an increase in production. The forecast for 2012 is for an exit rate of between 4,600 and 4,800 barrels of oil equivalent per day.

Make it a profitable day and happy capitalism!

Categories: Energy
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