Investor FAQ
What is an income trust?
Income trusts are essentially mutual fund type entities that are structured to own the debt of an underlying operating company that carries on an active business, or a royalty on income generated by the assets thereof. Many trusts including Penn West contain both the debt of the operating company and a royalty interest on the underlying assets of the operating company. The income trust structure was developed to distribute a percentage of cash flow to investors prior to incurring corporate income taxes. An income trust can generally avoid paying ordinary income tax by paying (or making payable) a portion of its cash flow (including net realized capital gains and dividends) to unitholders, thus avoiding all or a portion of the tax that can be associated with corporate entities. The projected life of distributions and the sustainability of distributions will vary with the nature of the business underlying the income trust. Distributions are provided to investors each month or quarter.
When and why did Penn West become a Trust?
Penn West Petroleum Ltd. converted to Penn West Energy Trust on May 31, 2005, with the units commencing trading on June 2, 2005. Penn West's first distribution as a trust was on July 15, 2005.
Penn West Petroleum Ltd.'s Board of Directors, with concurrence from its financial advisors, decided to convert the Company to a income trust after a review of strategic alternatives led the Board to believe the conversion would provide the best opportunity to enhance the value of Penn West shares over time. On May 27, 2005, shareholders of Penn West Petroleum Ltd. approved the proposed Plan of Arrangement for the conversion of Penn West into Penn West Energy Trust.
What are some of the risk factors associated with an investment in an oil & gas income trust?
Oil & gas income trusts are sensitive to similar risk factors as other oil and natural gas equity investments. Commodity-price risk is a major factor; as oil and natural gas prices rise and fall, distributions to unitholders could also vary. Other risk factors to consider include production rates, length of reserve life, well productivity, environmental liabilities and netbacks are important when assessing the quality of an income trust's asset base. Investors must also evaluate the ability of management to acquire attractively priced oil and gas properties and to capitalize on development opportunities in its existing portfolio of oil and natural gas properties.
What makes Penn West different from other trusts?
- Upon conversion to a trust, Penn West Energy Trust became the largest income trust, on a production basis, in North America.
- On conversion, there was no spin-off or exploration company formed that reduced the exploration, development or farm-out opportunities of the trust
- Penn West has an excellent balance sheet with a low debt-to-cash flow ratio
- Penn West has the largest land base of any other oil & gas trust
Penn West is implementing an enhanced recovery program on the multibillion barrel Pembina Cardium oil field utilizing waste CO2 that is currently being emitted into the atmosphere by heavy industry in Alberta.
What is Penn West's Reserve Life Index?
As at December 31, 2008, Penn West's reserve life index, on a proved plus probable basis, was approximately 11.1 years.
What is Penn West's daily production mix?
Penn West's production of crude oil and natural gas liquids ("NGL's") as at December 31, 2009 was approximately 60% of total production with natural gas making up the remaining 40%.
What is Penn West's distribution amount as a percentage of funds flow and how often is it distributed?
For the year ending December 31, 2009, Penn West distributed approximately 52 percent* of its funds flow to unitholders with the remainder reinvested in exploitation and development projects. The distributions are paid monthly.
Where is Penn West traded?
Penn West trust units and debentures are listed on the Toronto Stock Exchange under the symbols PWT.UN, PWT.DB.C, PWT.DB.D, PWT.DB.E and PWT.DB.F and Penn West trust units are listed on the New York Stock Exchange under the symbol PWE.
*Payout ratio is calculated as distributions paid divided by funds flow.