Enterra Energy Trust (NYSE:ENT) Last Trade: 9.33 52wk Range: 9.13 - 24.84 Avg Vol (3m): 322,764 Market Cap: 418.11M P/E (ttm): 4.52 EPS (ttm): 2.06 Div & Yield: 1.44 (15.43%) The yield (15%+) caught my attention. Since it's trading at it's 52 week low, I imagine people are betting that the dividend is soon going to be cut. The company recently--- "confirmed that it has in place a series of collars to minimize the impact in fluctuations in crude oil and natural gas prices." Sounds great *if you believe them*. With a 15.4% yield, it would seem like a nice place to park some cash. Obviously, if they cut the dividend it's gapping straight to $6.00. Any thoughts on ENT?
Barron's 10/16/06 Enterra's Woes Mount By VITO J. RACANELLI ENTERRA ENERGY TRUST'S ROCKY SHOWING last week was viewed by some investors as a sympathy move following the meltdown in JED Oil, an oil-and-gas explorer formerly affiliated with Enterra. JED, which plunged as low as 4 Wednesday from 11 Tuesday, before recovering to 6.68 Friday, said that the wells on its most important property weren't producing nearly as much as expected. JED suspended production there, owing to low natural-gas prices. While the news on JED (ticker: JDO) is partly behind the slide in Enterra (ENT), many more factors figure into what has been a long, grim decline at the Canadian oil and gas trust, whose units trade at 8.80, versus 24 last October. And difficulties remain. Energy trusts -- hot investments last year -- are exempt from corporate taxation, if they pay out most of their cash flow in the form of distributions, or dividends. Their typically double-digit stock yields are popular with income-seeking investors. JED's woes aside, Enterra's problems have more to do with factors like the collapse in the price of natural gas -- about 60% of its production now -- as well as its urgent need to refinance about $300 million in high-coupon debt. U.S. gas prices have fallen to about $5 per million BTUs from $15 last winter. Enterra's management has had to cut the monthly distribution, or dividend, to 12 cents a unit from 18 cents, as well as terminate overly generous revenue-sharing deals with JED and JMG Exploration (JMG), the two of which once did nearly all of Enterra's drilling. JMG, whose stock slid last week from 7 to 4.30, and JED were once closely tied to Enterra through cross-linked directorships and shared executives. [chart] Triple Trouble: Over the past year, slumping gas prices, among other concerns, have hit shares of Enterra, JED and JMG. This raised questions about whether Enterra could negotiate exploration deals at arm's length with JED and JMG. Last December, Barron's suggested that Enterra had given away too much oil and gas upside to them, and that its units were significantly overvalued, compared to peers'. Since then, Enterra had cancelled those deals and untangled most of the cross-directorships. Reg Greenslade, JED's current chairman, stepped down from the same position at Enterra on March 31. On the other hand, Enterra still plans to employ Petroflow Energy (PEFWF), a firm in which Enterra CEO E. Keith Conrad controls a 14% stake, to do exploration. Some critics, who are short the Enterra units, estimate that they are worth as little as $4 or, at most, $7, unless natural-gas prices rise significantly and Enterra can refinance its $300 million in debt without significant equity dilution. Some $200 million of that debt -- which carries a rate of 4.5% above Libor (the London Interbank Offered Rate, now 5.37%) matured on Sept. 20, and the rate escalates by one percentage point in each of the next three months that it is unpaid. Enterra's in a fix, because it used that loan to partially fund the $293 million purchase this year of Oklahoma exploration properties now viewed as its most promising. The gas-price drop suggests that the land's worth has fallen to perhaps $150 million. "But the loan hasn't gone down," notes Robert Mullin, a senior portfolio manager at Marathon Resource Investments in San Francisco. He adds that "The longer they go before doing something, either a refinance or equity issuance," the fewer the options the trust has to successfully finance that debt. Marathon increased its short position on Enterra recently, but covered its JED short below $6. Enterra's Conrad wouldn't comment for this article. In an August conference call, he declined to guarantee that the current dividend is indefinitely supportable. James Glickenhaus, a partner in New York investment-fund manager Glickenhaus & Co., which has about 3.2 million Enterra units, acknowledges the debt problem and concedes that the former drilling deals with JED and JMG were "wacky." But he says that Conrad has gotten onto the right track by cutting the payout ratio to 60% to 70%, from the previous nearly 100%. The dividend is "very solid, and likely they will be raising it," Glickenhaus contends. He wouldn't say whether the firm has bought shares during the drop, but was adamant that "we're not selling." He calls Enterra a "screaming buy" -- if it can solve the debt problem and if gas prices rise. Those are big ifs. A reasonable scenario would be for Enterra to refinance via $150 million in new debt and $150 million in equity. At the current price of 8.80, that could mean as much as a 40% increase in shares outstanding. This would painfully dilute current unit holders, and would make another dividend cut likely.