Last week Provident Energy Trust (PVX: chart, web, Y!) announced that while they had successfully closed the sale of their U.S. oil and gas business, they would also be cutting the monthly dividend to $0.09 Canadian, or about $0.07 USD.

Although that certainly smarts, I can’t say that I’m surprised.

Provident has traditionally been a very conservatively managed trust.  They look to increase their reserves with the smallest amount of risk (i.e. expanding production through infield drilling and acquiring proven reserves), and they really don’t take off any more than they can manage, and manage well.  A case in point was the divestiture of its equity interest in BreitBurn Energy Company L.P for a total sale of about $305 million USD.

Provident has been beaten down lately with the rest of the markets, commodities in particular.  As fast as oil prices rose, they fell even faster.  I suspect that the price action from most Canadian trusts came as a result of big money fleeing the market to increase liquidity, and money was pulled from even the most attractive places.  No stock is/was safe.

The good news behind all this is that fundamentally the trust looks fairly robust.  Funds flow from operations in Q3 were up 44% from the same quarter of last year.  Production from the Canadian side of the O&G business was up just slightly (~1%) from the same quarter year over year.

Interestingly, the payout ratio was down to 61% for the third quarter, as compared to 89% from Q3 last year.  For the nine months ended September 30, the POR was just 53% compared to 88% for the same period last year.

So why the dividend cut?

Just like any business in this economic climate, PVX is facing the same pressure economically as the mid-majors in the U.S.  The forecast for oil prices in the next 6 to 12 months is anyone’s guess, and while things were looking up as of the end of the third quarter, they aren’t so bright going into Q4, and I suspect the results from this quarter, reported next year, will be less than palatable.

Provident believes that capital spending must be aligned with prevailing economic conditions. To this end, the Board of Directors has adopted a conservative capital budget of $165 million. Provident has an extensive inventory of quality opportunities available for additional investment. Provident will review its capital program throughout 2009 to determine whether any combination of work program results, commodity prices, equity and debt market conditions or other material factors merit changes to the capital budget. -Source

It’s clear that Provident is getting a head start on the budgetary aspects of this downturn in the oil and gas industry, however I believe that they are savvy enough to capitalize on these bad times. In a lot of respects, they already have.

The company has a new development they’re calling the Pekisko play in Northwest Alberta, consisting of a 100% working interest in about 54,000 acres of undeveloped land.  What’s interesting about this is that that acreage is right next to existing company operations.  So they know the geology and they know the local reserves.

In fact, they drilled two horizontal exploratory wells that production tested more than 250 bpd.  Not bad, even for $50 oil.  In all, the reserves are estimated at 2 million barrels of proved plus probable oil based on these two offset wells.  In all the company has about 300 drilling locations in the play, so they’ll be busy for a while.

In all, I’m not really worried about my stake in PVX, sure the distribution cut is a bummer, but again I’m not surprised.  The potential that keeps presenting itself to the company is still attractive, and the fact that they capitalize on their opportunities is a sign of a well-run oil and gas company, regardless of the market or industry conditions.

I look for oil prices to hover between $40 and $60 for about the next six months or so, and then go up as the economic conditions strengthen.

Energy, Investing, Oil & Gas, Royalty Trusts Candadian Oil and Gas Trusts, dividends, DRIP's, oil, PVX

I’ve been perplexed by the market these last couple weeks, so much that I’ve started wondering if what we’re seeing happen right now is actually for real.

Is this a complete melt down of our financial system that would cause a collapse of the stock market, or could this be the most golden of all buying opportunities?

By in large, I think the stock market will be ok, so long as the government doesn’t try and step in and strong arm a fix for this mess that stems well beyond the stock market.  So is this a buying opportunity then?  Yes, I think so.

I thought I was doing pretty well when I bought more Provident Energy (PVX: chart, web, Y!) last week at $7.30 per share.  I felt otherwise when the price dropped below $5 per share by the end of the week.

So what’s happening here?  Obviously there is a huge demand for cash by institutions.  Normal Joe investors like you and me don’t have the pull to chop 50% off the top of any stock, let alone the entire market.  Hedge funds and institutional investors do, however.

I think what we’re seeing is a demand for cash by lenders, which is forcing those who don’t have cash to find it quickly.  So you’re seeing a run on many stocks that isn’t completely justified.  At least not to the extent they’ve been beaten down.

Consequently, this has pulled the market cap down well below what is reasonable.  For normal Joe’s like you and me, this means that there are some golden buying opportunities out there right now in companies who carry little to no debt, and are going to do just fine given enough time.

So what about my Provident?  The yield is up around 22% as of the close last Friday, and it’s been years since it’s been this cheap.  Obviously PVX is tied to the oil and gas market, which has also been beaten to a pulp lately.

But we’re on the verge of winter, which should stabilize the price of natural gas and heating oil, and should provide some stability to the natural gas players, of which PVX is one.

Honestly, I’m in the stock for the dividend, as I suspect most are.  So far, they’re holding the line at $0.12 Canadian for the October distribution, and will report Q3 operating results on November 12th.

Investing dividends, oil and gas, PVX, Stock Market

My Provident Energy Trust (PVX: chart, web, Y!) has been on the slide since the beginning of November. I can’t figure out why.

The only conclusion I can come to is that it’s attributed to end of year tax selling, but that theory only makes marginal sense. After all, PVX is continuing its CDN$0.12 monthly dividend, and fundamentally, I don’t see why they’d drop the distribution any time soon. Crude oil ($wtic: chart) is still North of $90 per barrel, and natural gas ($natgas: chart) is holding above $7 per MCF.

So it’s tough to tell why the stock has dropped nearly 30% since its high of $13.55 back in the first part of November.

However, I extended the chart out a few years today, and noticed a pattern. The stock price has dropped significantly in between late October and late November nearly every year since the inception in 2002. To further exploit the pattern, over the past three years, the stock starts its way upward after the beginning of the year and peaks somewhere around July.

I’m not sure how I’m going to play this. I’ve held PVX for its healthy monthly dividend, and haven’t really considered trading it based on the chart. However, it would be tough to miss out on a 30% gain that I can see coming…

What do you think? Would you play this trend?

Investing, Market Trends, Oil & Gas, Royalty Trusts crude oil, dividends, Market Trends, natural gas, Provident Energy, PVX, royalty trust