July 15, 2011
Written By Patrick McKeough
“Peyto Exploration & Development Corp. (PEY) produces and explores for oil and natural gas in Alberta. The company changed its name from Peyto Energy Trust after it converted from an income trust to a dividend-paying stock on December 31, 2010. Peyto Exploration & Development’s average daily production of 31,531 barrels of oil equivalent (including natural gas) is weighted 88% toward gas and 12% to oil.
“In the three months ended March 31, 2011, Peyto’s cash flow rose 9.8%, to $0.56 a unit from $0.51 a year earlier. The shares trade at 9.4 times the company’s forecast 2011 cash flow of $2.35 a share. Peyto’s long-term debt of $450 million is a low 15.5% of its $2.9-billion market cap. Before it converted, Peyto paid a monthly distribution of $0.12 a unit. However, it has since cut its payout to $0.06 a share. It has tax pools that it can use to offset the new tax until 2014, but the lower payout lets Peyto put more of its cash flow toward increasing production. As well, the payout is now a dividend, so it benefits from the dividend tax credit if you hold your shares outside of an RRSP or a RRIF [Canadian retirement accounts]. Earlier this year, Peyto raised its planned 2011 capital spending by 30%, to between $300 million and $325 million. Since the first quarter of this year, production has risen to over 35,000 barrels per day. Peyto Energy & Development Corp. is a buy.”
Patrick McKeough, Canadian Wealth Advisor, 7/11