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Penn West for Energy Sector Income

By    |   Tuesday, 01 Nov 2011 04:48 PM

Penn West Exploration (PWE), formerly known as Penn West Energy, changed corporate structure at the beginning of 2011 due to changes in Canadian tax rules. The new structure makes sense and, despite the second half of the year swoon in share price, PWE deserves a look from investors looking for income in the energy sector.

Penn West was formerly a Canadian income trust, a business structure similar to a U.S. master limited partnership, which allows profits to pass through to shareholders as dividends without corporate taxes.

The rules changed in Canada, however, so on Jan. 1, 2011 the company converted from a trust to a corporation. As a trust, PWE had been paying monthly dividends. Now dividends are paid quarterly. Its shares trade under the symbol PWT on the Toronto exchange and PWE on the NYSE.

Penn West Exploration is an energy exploration and production company focused on developing the company's Canadian properties for the production of oil, natural gas and shale oil. The current focus is increased production of natural gas liquids and light oil for the resulting higher profit margins.

From January 2010 to the end of 2011, Penn West management projects an increase of liquids production to 66 percent of output, up from 57 percent. Light oil will be 51 percent compared to 39 percent two years earlier.

Supporting dividend

Penn West management lays out the company's short term business plans based on the current price of oil. At $65 oil, the focus is on protecting the balance sheet, no exploration for new sources, maintaining current production levels and supporting the dividend short term.

At $85 oil, the current dividend rate is secure, productions will be expanded and selective exploration will be undertaken. At $105 oil, exploration goes full force and enhanced oil recovery programs are initiated. The dividend is expected to stay at the current level, even with higher energy prices.

Penn West Exploration has a significant portion of expected 2012 production hedged at $80 to $105 per barrel. The current dividend rate is 27 cents Canadian quarterly (roughly the same in U.S. dollars at recent exchange rates).

The company reports next on Nov. 4.

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Penn West Exploration (PWE), formerly known as Penn West Energy, changed corporate structure at the beginning of 2011 due to changes in Canadian tax rules. The new structure makes sense and, despite the second half of the year swoon in share price, PWE deserves a look from...
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Tuesday, 01 Nov 2011 04:48 PM
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