Last Wednesday, Provident Energy (PVX: chart, web, Y!) came out with their 2007 year-end and Q407 report, and also provided an update on reserves.

All around a positive report, and I’m curious as to why the stock dropped almost a dollar in two days on a fairly bullish report. The only thing I can think of is that crude oil ($wtic: chart) dropped $6 and natural gas ($natgas: chart) prices waned almost a dollar in those same two days will a lot of money fleeing commodities.

A few highlights from the report:

• The payout ratio in the fourth quarter of 2007 was strong at 57 percent, down from 64 percent in the fourth quarter of 2006. Full year payout ratio in 2007 was 77 percent, up from 67 percent in 2006.

• Consolidated funds flow from operations increased 8 percent to $468 million ($2.04 per unit) compared to $433 million ($2.20 per unit) in 2006. Consolidated earnings before interest, taxes, depletion, depreciation, accretion and other non-cash items (EBITDA) was $545 million in 2007, an increase of 10 percent compared to $496 million in 2006.

• Consolidated upstream proved plus probable reserve life index (RLI) increased from 12.4 years to 16.9 years, reflecting the increasing quality of the assets and the sustainability of the Trust. Provident’s Canadian proved plus probable RLI increased 24 percent to 9.7 years. Factoring in the long-life midstream assets, Provident’s economic life on a consolidated basis is now approximately 18.5 years.

• On a consolidated basis, Provident drilled 159 net wells with a 99 percent success rate while in Canada 103 net wells were drilled with a 98 percent success rate. Provident’s drilling activities in 2007 were focused primarily on crude oil.

• Consolidated proved plus probable oil and gas reserves increased 111 percent to 322 million barrels of oil equivalent (boe). Canadian proved plus probable oil and gas reserves increased 37 percent to 101 million boe.

I like the fact that Provident is actively increasing their reserves at a rate of nearly 13 times the annual production, thereby procuring the longevity of the trust. I suspect that many of the CANROYS were brought down by the sell off in oil the last few days, and this only makes PVX look more attractive.

We’re moving into the lull for natural gas consumption: the period when demand drops due to increasing temperatures, and right before demand increases due to… well, increasing temperatures. With crude still above the $100 mark, it’s more attractive to use natural gas to generate electricity. Consequently, you’re seeing the price of both the commodity and the associated stocks drop.

If PVX continues to drop below $10, it’s going to be tough to not pick up a few more shares.

Tags: commodities | crude oil | natural gas | PVX

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