Twin Butte Energy Ltd. offers a patient growth generous dividend model

Aug 22nd, 2012 – Comment

The six-month chart outlines the range bound trading that has been the dominant theme since March


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Dear Lou,

Would like hear what you think of Twin Butte Energy.

Thank you for your time,

Peter

 

Hey Peter,

Thanks for the assignment. This is the first time that I will have examined the case for Twin Butte Energy Ltd. (TBE TSX) which gives me the opportunity to look under the hood and see what this ride has to offer. The business plan for TBE is to patiently grow their production and offer investors a generous dividend which currently yields 6.89%. The company has tax pools worth close to $600 million which will provide benefits into and perhaps beyond 2014.

A series of strategic acquisitions of private producing properties has provided management with a large undeveloped land base and five to six years of low risk drilling inventory. TBE is focused on heavy oil which represents 78% of output. Given the partial cash flow dividend model that management ascribes to appreciation of the shares will be driven by the price of oil more than rapid expansion of output.

A review of the charts will provide additional data that will help inform us of the prospects for the stock.

 

 

The three- year chart for crude provides a good place to begin the analysis. Crude prices peaked at $115 in April of 2011 and has been trading in a range between $80 at the low and $105 at the high end. A comparison of the three-year chart for TBE confirms that as goes the price of the underlying commodity so goes the stock.

 

 

 

 

The three-year chart depicts the high of $3.40 that was achieved in April of 2011 and the low of $1.20 reached in October of the same year. Both of these points coincided with the oil price cycle as did the advance that followed the October 2011 low. In 2012 the shares built a base independent of the price of oil as investors focused on the two acquisitions that were announced in January and June.

 

 

 

 

The six-month chart outlines the range bound trading that has been the dominant theme since March. Resistance has been established at $2.70 and support $2.40. At this point the MACD is bending lower suggesting that the pullback that started in the last week of trading might continue a bit longer. We may test support but it doesn’t appear that it will be breached.

 

If a healthy dividend and low risk production growth fits with your investor profile then TBE will fit the bill nicely.

 

Make it a profitable day and happy capitalism!

 

 

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