Pengrowth Energy Trust (NYSE:PGH) is a Canadian energy trust that is in the midst of evolving into a more conventional exploration and production company. A recent acquisition that gave the company extensive inventory in an emerging play in Western Canada will fit this new strategy.
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Pengrowth Energy Trust reported average production of approximately 75,500 barrels of oil equivalent (BOE) per day in the second quarter of 2010. About 50% of this production was oil and other liquids, and the company reported reserves (P+P) of 295 million BOE at the end of 2009.
Pengrowth Energy Trust is organized as an income trust in Canada, but due to a change in Canadian tax laws, the company has elected to convert to a corporate model in 2011. Pengrowth Energy Trust also has a tax pool of approximately $3 billion to use to offset taxes in future years.
Pengrowth Energy Trust is setting up to grow its production and reserves going forward and incorporate more unconventional plays into its asset base. In July 2010, the company announced the purchase of Monterey Exploration, which has a large prospective inventory exposed to the Montney resource play.
Pengrowth Energy Trust now has acreage in the Groundbirch project area, which is being actively developed by the exploration and production industry. Murphy Oil (NYSE:MUR), Royal Dutch Shell (NYSE:RDS.A, RDS.B) and EnCana (NYSE:ECA) are all allocating capital to develop the Montney here or in nearby areas.
Pengrowth Energy Trust is targeting the Upper Montney at Groundbirch and has 21 sections to work on. The company estimates that it has 105 gross horizontal drilling locations targeting the Upper Montney.
A typical well into the Upper Montney in 2011 will cost approximately $5.5 million, produce at an initial rate of 4.2 million cubic feet per day of natural gas and have an estimated ultimate recovery of 5.0 billion cubic feet.
The area is seeing so much activity that TransCanada Corp (NYSE:TRP) is adding capacity here to transport the increased natural gas production. The company expects the pipeline to be in service by the end of 2010.
While Pengrowth Energy Trust is most excited about the prospects at Groundbirch, the company also has other properties it is putting capital into. At Carson Creek, the company is developing a natural gas play with a high liquids content. Pengrowth Energy Trust drilled nine horizontal wells to date and is putting $27 million in this play in 2010.
Pengrowth Energy Trust has interests in 35 net sections in the Cardium play, which is seeing heavy development from other exploration and production companies. Pengrowth Energy Trust is also busy with acreage prospective for the Horn River shale and has two oil sands leases in Alberta.
Pengrowth Energy Trust may also be attractive to investors seeking income. The stock has a current yield of 7.5%, and the company so far has not announced any plans to cut the dividend to fund higher capital requirements.
Pengrowth Energy Trust is converting to a corporation in 2011 as the company reacts to a tax law change in Canada. The company recently announced an acquisition that gives it exposure to an emerging natural gas play in Canada. (For related reading, take a look at the Oil And Gas Industry Primer.)
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