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Enterra captures trust struggles
Gary Park For Petroleum News
In better times, Enterra Energy Trust would probably have more friends in the investment community than it needed.
With properties in northeastern British Columbia, across the lower half of Alberta, in the southwestern corner of Saskatchewan and in Oklahoma, along with production of 7,800 barrels of oil equivalent per day in Canada and 5,000 boe per day in Oklahoma, it is a player in all of the right places.
But these aren’t the best of times for Canada’s trusts, as they struggle to survive in the toughest circumstances — miserable gas prices, Alberta’s grab for higher royalties and the Canadian government’s unbending resolve to remove trusts from their tax shelter in three years.
Several recent blows Just consider some of the blows Enterra has absorbed in the past year:
• A year ago it cut cash distributions to unit holders by 50 percent and in late September suspended payouts for at least six months.
• It lost its chief financial officer in September; two board members resigned in apparent disagreement with the trust’s strategic direction; and Chief Executive Officer Keith Conrad decided to step down this year for reasons that weren’t specified.
• Investment dealer Peters & Co., in its annual review of energy stocks for 2007, listed Enterra as the worst performing trust, with a loss of 82 percent, compared with the trust sector’s average loss of 7 percent. Over the past 52 weeks, Enterra’s units have traded in a range of C$9.68 to C$1.00.
For all these signs of a losing fight, Enterra has not given up grooming itself for whatever comes.
Just before Christmas it reached an agreement with its lenders that it hopes will provide “much needed financial stability.”
As a result, two current lien debts of C$148 million and C$40 million will mature on Nov. 20, 2008.
Don Klapko, senior executive management consultant, said the lenders accepted Enterra’s “go-forward business plan” which the management team is committed to executing in hopes of rebuilding investor confidence.
The agreement required a selective asset disposition targeting total debt reduction of C$50 million.
Sales will go to debt reduction The lenders didn’t have long to wait for the first action. Enterra entered the New Year with deals to sell oil and gas properties with three counterparties for gross proceeds of C$430.93 million, while closing an earlier sale of assets for C$5.34 million.
The four sales involve total production of 1,450 boe per day, evenly split between oil and gas on a boe basis.
Proceeds will be largely directed to the debt reduction program and represent “significant progress” in executing the portion of Enterra’s business plan aimed at paying down debt and restoring cash distributions.
It all sounds like an echo of Conrad’s advice of a year ago, when he said trusts should stay flexible so that they can react to whatever governments might impose on them.
Anyone looking for a barometer to the future of Canada’s trusts and juniors in 2008 might be well advised to track the fortunes of Enterra.
Peter Knapp, president of Bryan Mills Iradesso, which tracks the financial and operating results of Canadian oil and gas companies, doesn’t hold out much hope for trusts and juniors, doubting they will have much success trying to raise money.
However, he believes companies do have an opportunity to set themselves apart from their peers.
But, for those weighed down by debt, Knapp said there is little choice: They will either get taken over, do a merger or dispose of assets.
Other analysts say there is little hope for those involved in conventional oil and gas operations to drill their way to survival, leaving only the oil sands and resource plays as a way to build reserves and production over the longer term.
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