Argent Energy Trust (TSE:AET.UN) suffered a drop in unit price quoted on the TSX of (as at 11:18 a.m. EDT Wednesday October 16, 2013) of ~15%. The victim of skittish markets thanks to the U.S. government’s Laurel and Hardy act on the so-called “debt ceiling”, there is no fundamental justification for a decrease in value, as far as the company’s financial statements are concerned.
You can chalk it up to over-reaction to a missed earnings quarter and a dry hole, but the value proposition remains intact.
As of Oct 16, 2013, the consensus forecast amongst 5 polled investment analysts covering Argent Energy Trust advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Oct 15, 2013. The previous consensus forecast advised investors to hold their position in Argent Energy Trust.
The company announced the acquisition last week of oil and gas producing assets in Wyoming from a private owner for CA$105 million. Argent will become the operator of the majority of the assets, which currently produce over 1,000 boe/d consisting of 95% oil and NGLs. The company expects to finance the acquisition through its existing credit facility augmented by a bought-deal debenture offering for $60 million.
Netbacks in the area of Wyoming where the company’s new acquisition is located average above US$40 per barrel, and the decline rate is between 11 and 13% annually.
Argent issued a statement yesterday saying,
“Argent unitholders can be assured that there are no material operational or financial events impacting the Trust’s business beyond what was disclosed last week. Argent remains on track to achieve its 2013 average annual production guidance of 5,700 boe/d and 2013 exit production guidance of approximately 7,000 boe/d. Upon completion of the previously announced acquisition, increased credit facility and convertible debenture offering, Argent will have spare capacity of approximately US$90 million on its US$160 million credit facility. Furthermore, Argent’s current distribution level remains intact and the Trust has no current plans to reduce the level of distribution throughout 2014.
Argent today announced that the cash distribution to be paid on November 25, 2013, in respect of the period from and including October 1 to October 31, 2013, for unitholders of record on October 31, 2013 will be $0.0875 per trust unit. The ex-distribution date is October 29, 2013. The annualized distribution of $1.05 per trust unit represents a cash-on-cash yield of approximately 12.22% based on the closing price of the trust units on the Toronto Stock Exchange onOctober 16, 2013 of $8.59.”
It is noteworthy that insider trading reports indicate that management were buyers in the market yesterday in the $9 per share range.
Investors are sensitive – perhaps overly so – to hiccups in earnings and development of assets, and the impact they might have on future distributions, as a result of similar situations that caused price tumbles with other energy trusts.
Parallel Energy Trust (TSE:PLT.UN) have experienced a decline since their post-IPO high of $11 in May 2011 to today’s price in the range of $3.85, with a commensurate degradation in distributions paid.
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