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The Bullish Case for Penn West Energy



August 04, 2010 – Comments (0) | RELATED TICKERS: PWE , ERF , PVX.DL

The Bullish Case for Penn West Energy


If I were a politician, I would change my last name to Honestman. Now there's a name you can trust!

Even though they are about to become rarer than an honest politician, I believe that investors can still find trustworthy names among the Canadian royalty trusts (or "Canroys") before new tax rules take effect in January 2011.


All the while, Penn West piled multiple landmarks of strategic growth atop those lofty cash dividends by completing five acquisitions in less than three years. It is precisely that proven ability to achieve significant growth despite a hefty cash flow drain from those dividends that I believe makes Penn West a name Fools can trust through the conversion. When the company sets the new dividend later this year, I expect a sensible balance between growth and income to prevail.


Following a strategic joint venture with China Investment Corp. (CIC), Penn West's Peace River oil sands project has effectively been fast-tracked for large-scale development by a massive injection of foreign capital. CIC picked up a 45% stake in the project, a 5% stake in Penn West units, and a substantial obligation to fund capital expenditures at the project. Now that oil has broken above $80 per barrel once more, we may find key oil sands plays like Peace River and the Fort Hills joint venture between Suncor Energy (NYSE: SU), Teck Resources (NYSE: TCK), and Total come back into focus.

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