Canadian Oil

[kraftdinner]

We really won't have a clear picture of the company until we get the 4th quarter numbers which I expect to be better than the 3rd quarter. We have the 2nd quarter for Prairie Schooner and the 3rd quarter for True. It is my impression that gas prices recieved for the 4th quarter will be about 7.00 or a little more compared to the 6.00 True averaged in the 3rd quarter. I don't have concerns about their debt, they are guiding for 1.5x debt to cashflow which I can live with. Existing royalties (20M) and taxes under the proposed laws (18.5M) are both more than the interest charges ($14.2M).Somwhere, I'm not sure where, I got the impression the company is expecting annualized cashflow of $100M - maybe from the news release where they cut the distribution in December. With the current payout and that cashflow they could even increase their capex program somewhat. One of the other things about the 3rd quarter numbers for True is that Schooner's assets and liabilities got added to the sheet but only included 9 days of production.

Assuming no hedges, using Schooner's 2nd qtr, True's 3rd quarter, 19000 boed production, using the pricing and sensitivities from the October presentation...

The $47 oil doesn't effect them too much as their October presentation used $50 oil. A $4 gas price would effect them greatly however, when combined with $47 oil and an 0.85 dollar they would have to cut their distributions to about 0.07 (under the trust structure) assuming no growth in production. The interest expense is not all that onerous when compared to the money spent on capex and operations, if prices got that low they could halve their $80M 2007 capex and still be solvent with current distributions. I don't know how much capex would be required to only sustain production.

With the current commodity prices, distributions and assuming no hedges they are still paying out a little more than they are taking in, they would need to cut the distribution to 0.10 to balance things out with their $80M capex program. Under the proposed changes, capex, current prices and no hedges they could pay a dividend of about $0.07 a share (per year).

They do have hedges on gas though to the end of March, and hedges on oil to the end of June.

Shares: 69,471,086
Current price: 6-66
Current Market Cap: $462 million
Current Assets: $1.3 billion
Current Liabilities: $518 million
Current Equity: $778 million
Current Payout: $100 million (annualized)

Screw the analysis, I'm still going with the music.
http://ca.geocities.com/kdsstocks/beast.mp3