This thread has been helpful in sending me back to look carefully at some of PWE's filings. I hadn't really done this before I bought- I saw that Bruce Berkowitz owned it as a major part of his rather concentrated portfolio, and resolved to have a look. Then the sector crashed along with much of the market in August, so I just went ahead, thinking I might add more later, or lower if that should happen. As it turns out, it has jumped up a bit.
Like I said, absent big financial warning signs, I think price of commodity and amount, quality and type of reserves are key drivers in these trusts. The Canadian Trusts are different from US royalty trusts which have also been around 25 years or so, in that none of the older US trusts do any exploration, or buy land or leases while the Canadian ones do. So in actual fact, the US trust is a liquidating vehicle by design. After long ownership in several of these, I can see that the reserves in the good ones are very conservatively stated. Just a like a good frugal cook can keep getting soup from an old bone, these trusts-SJT, PBT, and others keep getting hydrocarbons out of the ground long after one might think that was about played out. The trouble is that it takes a while to get sorted out what is quality and what is promotion. When I was first going into the area a little more than 20 years ago, several good sized and highly popular trusts had huge write downs to their reserves, essentially wiping them out over night. Not sure but I think one was Horizon, out of Houston. So I was very conservative, and when it seemed that a trust was trading at 1.5or so it's SEC 10% value of reserves, I sold it. Well most of what I sold have been like the Volkswagens full of clowns at a circus. Those clowns just keep coming and coming!
Anyway, back to PWE. The balance sheet is pristine, at least by E&P standards. Less than 1/3 of capitalization is borrowings. The trust seems to be managed to use bank borrowings as a swing factor in balancing uses and sources of cash. In each year of trust history, uses and sources of cash were kept in strict balance, so that there was no net change in cash on hand. Dividend re-investment is a steady buy not large source of cash, and dilution. It pales compared to dilution in US corporations due to management options exercise. Then borrowings are either increased modestly, or some debt is retired to bring uses/sources into balance.
Add this to what appear to me to be good diversified resources and a good land base, I think this is likely a keeper.
Ha