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.
IN PICTURES: Baby Buffett Portfolio: His 6 Best Long-Term Picks

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.

Higher Growth
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.

Other Plays
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.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Africa

    Learn more about the iShares MSCI South Africa fund, which is an NYSE-listed exchange-traded fund offered and managed by BlackRock.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  1. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!