Stock Thoughts: Pengrowth Energy Trust
July 26th, 2006 by Grant in: Investing, Oil & Gas, Retirement, Stock Thoughts
You can’t beat a good dividend, especially in a retirement account. Tack on a consistent dividend that pays out monthly, and you’ve got a solid foundation for a happy retirement.
I’ve been watching Pengrowth Energy Trust (PGH: chart) for quite a while, and have held trust units in various retirement accounts up until recently, when the company announced that they would merge the two share classes together. Class A shares would be merged into Class B shares and the whole pot would be renamed “Trust Units” on July 27th.
This was all fine, except for the fact that the two classes of shares didn’t trade at an equivalent share price, therefore something’s gotta give, and I didn’t want to stick around and see who’s portfolio was going to pay for the wash. I took my gains and went to cash.
Well, my timing was impeccable, as the price per share has dropped to just over $22, down from nearly $25 per share. Obviously a result of the consolidation of two share structures that don’t trade at the same value.
However, the company has announced that they will acquire Esprit Energy for $830 million USD, a 26% premium to the Esprit trading price as of last Friday.
This merger will add 18,350 boe per day to Pengrowth’s bottom line, and 71.1 million boe of proved and probably reserves. This addition will bring the total production to 75,000 boe per day.
Even more attractive is that oil production will be weighted nearly equal with natural gas at
52% natural gas and 48% oil and liquids. A good mix between a top heavy oil market and a dormant natural gas market that reverse stature between heavy driving season during the summer and peak gas consumption during the winter.
All in all, Pengrowth, with its recent acquisition is starting to look attractive again. I’ll wait to see how the market plays out after July 27 when the consolidation is complete, and consider taking a position once again.
At today’s price, the company is still paying a dividend of 11.5% and pays out monthly, allowing you to take advantage of increased compounding. The one draw back is that they don’t subscribe to a DRIP program (at least through TD Ameritrade) increasing your trading costs through commissions.
Disclosure: I own no shares of PGH at this time.
More on Pengrowth:
Pengrowth Energy Website
Esprit Energy Trust
Yahoo! Finance (PGH)
Leave comments
Subscribe to Comments
Loading ...
July 26th, 2006 at 3:03 pm
What makes you think the consolidation will end on the 27th?
Just curious.
July 26th, 2006 at 3:12 pm
As the press release states:
“All Class A trust units for which an Election to Retain Class A Units and Declaration of Canadian Residency is not delivered to Computershare before 5:00 p.m. on July 25, 2006 will, without further act or formality, be automatically converted into Trust Units at 5:00 p.m. (Calgary time) on July 27, 2006.”
So the consolidation of the Class A trust units into the unitized “Trust Units” will take place at 5pm on the 27th. At that point, there is only one class of trust units.
As for what will happen to the PGH units in terms of price per share after the 27th, I don’t know, which is why I’m waiting to see how the PPS reacts to the consolidation.
July 26th, 2006 at 5:13 pm
I sure do like those CANROY’s. I like your idea to sit on the sidelines with PGH. Seems like the price might correct a little further as the units are combined tomorrow. ED
August 27th, 2006 at 10:40 am
[…] Back at the end of July, I wrote about the acquisition of Esprit Energy by Pengrowth Energy Trust (PGH: chart, web). I also boasted about my impecable forsesight (ok, so I was more lucky than good, but I’ll take it) that PGH shares would fall due to the consolidation of their Class A shares with their Class B shares to form a single unit. […]