More BPT Trouble?

As I mentioned a few weeks ago during my assessment of the BP Prudhoe Bay pipeline corrosion issue, it seems that the skeletons are starting to come out of the BPT closet. This site does a good job of aggregating recent articles and press releases.

To summarize, BP is replacing the corroded pipeline segments with pipe that is half the diameter of the old pipe. A quick review of high school math means that this reduces the volume of oil that the pipe can carry by 75%! Why would anyone want to do that unless the Prudhoe Bay field is not producing as much oil as it once did?

In fact, that exact reason was alluded to by a BP representative when the corrosion story first broke. It was stated that slow moving oil causes sediments and sludge to settle out of the oil slurry. This sediment provides a feast for bacteria that in turn generate chemicals which degrade the pipe.

Makes sense. If the field is running dry, then the oil that is being extracted would not be moving as fast. Therefore, if you do have to spend to replace/repair the pipeline, there is no reason to spend more cash on pipe than what is needed.

Seems recent events continue to plague the Prudhoe Bay field.

I expect BPT to decline at least 25-35% as these scenarios continue to unfold. The class action / investor fraud lawsuits cannot be far behind. BPT moves from my probation list to my watch list. I no longer intend to establish a position.

Disclosure: I do not own shares of BPT.

CANROY Merger Fever!

It seems that every CANROY I choose is either in the process of completing a merger or recently completed a merger. This trend continues with Pengrowth Energy Trust (PGH). Back in July, Pengrowth announced that it intended to purchase Calgary-based natural gas trust Espirit Energy Trust. This pair should produce a balance between Pengrowth's focus on oil and Espirit's focus on natural gas.

Given Pengrowth's current share price of approximately $23 per share, the monthly distributions represent an 11% return. Assuming the merger is approved, the addition of Espirit and its natural gas reserves, combined with the approaching winter heating season should protect or increase the monthly distribution (meets my goal of decreased volatility). Also worth noting, Pengrowth has approximately 10 years worth of proven reserves which means we could actually hold this stock for several years (meets my requirement of decreased portfolio churn). As I recently mentioned with Penn West, I will be looking for any price dips as an opportune time to start my position.

Update on Pengrowth / Espirit merger

Disclosure: I do not currently own PGH.

Dave Chappelle is on the Money

You may wonder how Dave Chappelle possibly relates to politics and American Society. However, read on and you will see.

We were fortunate enough to have a friend who was able to get us two tickets to this show. It was worth the $90 per ticket. As always, the Borgata (in Atlantic City) provided a great venue for this act.

Dave walked on stage and stated that he was late because his bus broke down. He mentioned that it was 123 degrees in the bus, and that it had affected him. I would agree because Dave seemed slightly out of it as he began his routine.

He started off by stating that if anyone ever offers you $50 million dollars, just take it! This was a clear lead into the Comedy Central / escape to Africa situation. That led into Dave becoming more serious, mentioning that there are wars in Iraq and Afghanistan, strife in Sudan, and... Lance Bass is gay. Dave used that as his first shot in a salvo against mainstream media. As we have mentioned before, American news media never focuses on the real stories. Instead, the propaganda machine is used to distract us and fill us with fear as to manipulate us for 'their' purposes.

Dave mentioned the Natalie Holloway situation stating that it was unfortunate that one white girl had gone missing, but thousands of black people had gone missing and no one ever looked for them. That led to his first completely hysterical statement of the night, "Realize that in two hundred years, I am the first black person anyone has ever looked for!" - again, an obvious reference to the media frenzy that surrounded his escape to Africa.

After discussing his heritage - that his mother is half-white - Dave talked specifically to the whites in the audience by telling all of them that they were only posing as white, that the true whites were the super-rich who controlled everything. "You know who I'm talking about. You drive around and see their large, gated estates. And even their landscapers are WHITE! When I am in a house like that, I can't help but ask, 'How did you get your money?' 'Well Dave, you see, my family owns the patent for fire.'" Another example of what makes Dave's routine so funny - it's absolutely true!

Dave once again came back to politics with a reference to George Bush. The audience reacted. It was at this time that Dave made one of the most profound statements of the night, "I watch politics like some of you watch wrestling. It's all an act. If you believe what you see on TV, then you are crazy."

Dave stated that he had definitive proof that Iraq did not have weapons of mass destruction. The proof: we invaded Iraq. He pointed out that the United States did not dare mess with someone capable of fighting back. It is interesting to point out that North Korea flaunted its nuclear arsenal at the same time, yet North Korea still exists as a sovereign, albeit it twisted, 'terrorist state.'

"Truth is, the American Lifestyle is unsustainable. We are a broke nation. Wouldn't it be nice if the President would just on TV and tell the truth? 'America, I am before you tonight to inform you that we are broke. In order to keep living our lifestyle, we need to rob someone. We are going to rob Iraq.' And the sad thing is, most Americans would still respond with, 'Let's roll!'"

"It's all just a dirty game. Worst part is, I can't even tell you about the game. Like Fight Club, the first rule of the game is that you do not talk about the game."

Other Chappelle Links
Dave's Wikipedia entry
Dave's Official Site

Another Hit!

Second stock from my old trust-based portfolio: Petrofund Energy Trust (PTF). No worries, though since it was bought by Penn West Energy Trust (PWE) on June 30, 2006. That being said, we will discuss Penn West instead of Petrofund.

Penn West, with its acquisition of Petrofund, has doubled its debt load. However, it has also doubled the assets of the company. In addition, the properties and development efforts underway should continue to be quite profitable through 2010 (meets my goal of decreased portfolio churn).

Around the recent closing price of $40 per share, Penn West is returning slightly more than 9% via its monthly distribution. I intend use upcoming price dips as a time to establish my position. It is important to note that elections are nearing and energy prices typically drop before elections. And who says politics and big business aren't related?

Here is a great blog that provides some more background on Penn West and CANROY's as a whole.

Disclosure: I do not currently own PWE.

Can I Pick the Winners or What!?

Update:
Adding fuel to what I said below, CNN is running with this story.

Original post:
And you have to know that I am talking about BP Prudhoe Bay Royalty trust (BPT). After years of price appreciation and a great dividend, we get hit with pipeline corrosion and a shutdown while more than two thirds (16 miles) of the 22 mile pipeline is replaced. BP officials state that repairs are almost underway, pipe and welders are being delivered to the site, and the outtage could only last a few months.

That is what we have all heard and read about at this point.

Personally, I would love to suggest NOW as a buying opportunity for BPT, but I think that may be too hasty. For those of you who love volatility, then by all means, jump in now and play the short term rebound. However, I am looking for this stock to fall again in the next few weeks or few months. Why? All of the subtext indicates that there will be a second announcement - containing more bad news. Any combination of the following:

1. The repairs are going to take longer than expected (which means zero production, $0 dividend for a longer time period).
2. There will be lawsuits or simply mention of lawsuits (the rumor mill has already started here) against BP for neglience in the area of proper diagnostics and preventative measures in the area of pipeline maintenance. Could that spread to others in the industry?
3. And rounding out this trifecta of pain - oil spills / environmental issues. This region is always a hotbed for environmental protection, especially if big oil has to replace large sections of pipe quickly.

There you have it. A collection of delays and/or possible lawsuits which could continue to impact the near term volatilty of this stock. Long term, we know this stock is still good - there is still oil in Alaska, and we need it now more than ever. Also, chances are high that oil will be more expensive (due to increased demand) once the pipeline comes back online... which could translate into a higher dividend assuming the pipeline repairs do not cost too much.

Would I select BPT for my model portfolio? You bet... but not at the moment. It will go into my probation list while we wait for news. Assuming we will get hit with another gut punch if any of the above comes true, I would consider another large price drop as a potential buying opportunity.

Disclosure: I do not currently own BPT.