Parallel Energy cuts payouts
Units in Parallel Energy Trust plunged more than six per cent Wednesday after it announced it was suspending its distributions to unitholders and would initiate a strategic alternatives review that could result in its sale.
Parallel is one of a handful of Canadian companies set up as cross- border income trusts about four years ago. They funnel taxfree earnings from their oil and gas holdings to investors, just as the Canadian energy trusts once did, but the wrinkle is that their producing assets must be in foreign countries such as the United States.
The Calgary- based trust has been hit hard by lower oil and gas prices. It chopped its monthly distributions in half from five cents to 2.5 cents per unit in November and then further cut it to a penny per unit in January.
It reported a $ 183- million net loss in the fourth quarter of 2014, mainly due to an impairment provision on oil and gas assets of $ 185 million, compared with a profit of $ 9.9 million in the same period a year earlier. Production fell from 7,220 barrels of oil equivalent per day ( two- thirds oil and liquids) to 7,100 boe/ d, more than 90 per cent from its key West Panhandle Field in Texas.
Investor relations manager Curtis Pelletier said Wednesday the company can’t discuss its current financial situation because it is taking part in an annual credit facility review process which is expected to wrap up by April 27.
In its news release, Parallel said it expects a reduction in its borrowing base of $ 190 million US, which had $ 39.5 million left on it as of Dec. 31.
“There will be a reduction in the amount of Parallel’s borrowing base when the facility is renewed; however, Parallel continues to anticipate that the available amount of the credit facility will be above the expected usage of the credit facility and that the trust will have sufficient liquidity to fund its operations,” it stated.
Units closed down 6.25 per cent or $ 2 to $ 30 each on Wednesday.
“In our view the suspension of the distribution to preserve liquidity makes sense and improving the capital structure is key to remove the current leverage overhang on Parallel units,” wrote Shailender Randhawa, an analyst for RBC Dominion Securities, in a note.
“However, we see no easy solutions as its portfolio is light on noncore assets and any monetization would have to improve the trust’s net liquidity position.”
In an annual filing, the trust said it had 54 employees in the Calgary head office, the Tulsa, Okla., operations office and in operating areas.
Another Calgary- based trust, Argent Energy Trust, announced March 31 that it had called off a strategic alternatives process launched in October after receiving a number of bids but none that were at an acceptable level.
It said it would continue to try to sell assets to pay down its credit facility of $ 108 million US, would suspend all monthly distributions and would cut its 2015 capital budget to $ 12 million US.
Eagle Energy Trust, established in 2010, held a special meeting of unitholders in December at which they approved a plan to begin buying assets in Canada using funds from the sale of Permian Basin assets in the U. S. last year. The firm then spent $ 100 million on Montney properties in Alberta.
In our view the suspension of the distribution to preserve liquidity makes sense and improving the capital structure is key.