Following Up on Our Oil & Gas Trust Picks – Zargon Energy Trust and Trilogy Energy Trust

Article Excerpt

ZARGON ENERGY TRUST $27 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264-9992; www.zargon.ca; Shares outstanding: 16.9 million; Market cap: $457.4 million) has oil and gas production assets in Alberta, B.C., Manitoba and Saskatchewan. Zargon’s production is weighted approximately 55% toward natural gas and 45% to oil. In the three months ended December 31, 2006, Zargon reported cash flow per unit of $0.98, down 30% from $1.40 a year earlier. Production fell 3.3%, to 8,366 barrels of oil equivalent per day, from 8,651 barrels. The lower cash flow came mostly from lower oil and natural gas prices. Zargon now trades at around 6.9 times cash flow. The company’s debt of $30 million is equal to just 18% of shareholders’ equity. Zargon’s monthly distribution of $0.18 gives the units a yield of 8.0%, even though it flows just 50% of its cash flow through to its shareholders. Some oil and gas trusts pay close to 100% of their cash flow out to unitholders to maintain high…