February 22, 2008 / 5:27 PM / 10 years ago

UPDATE 1-Penn West profit up before Canetic deal kicks in

(Adds comments on natural gas price outlook)

CALGARY, Alberta, Feb 22 (Reuters) - Fourth-quarter profit at Penn West Energy Trust PWT_u.TO rose 3 percent despite slightly lower production, as oil prices surged, Canada’s biggest conventional oil and gas income trust said on Friday.

Penn West, which closed its C$3.6 billion ($3.5 billion) takeover of Canetic Resources Trust after the quarter ended, earned C$127 million, or 52 Canadian cents a unit, up from year-earlier C$123 million, or 44 Canadian cents a unit.

Cash flow, the money trusts use to pay distributions to their unitholders, rose 14 percent to C$347 million, or C$1.43 a unit, from C$303 million, or C$1.22 a unit.

Revenues were C$644 million, up 11 percent from C$578 million.

Penn West announced in October it was buying Canetic, solidifying its position as the top oil and gas production trust one year after Ottawa said it will remove the tax advantages the investment vehicles have enjoyed.

Chief Executive Bill Andrew has said he expects to maintain the trust structure at least until the tax rules change in 2011, and possibly beyond.

On Thursday, the company announced it will pay a distribution of 34 Canadian cents a unit for February and Andrew told investors that the board has decided to maintain that level of payout at least through the end of the second quarter.

In the fourth quarter, production averaged 128,024 barrels of oil equivalent a day, down 1 percent from the year before. The drop was in natural gas output, which fell 7 percent to 328 million cubic feet a day.

Year-end production capacity, including the contribution from Canetic, was 206,000 barrels of oil equivalent a day.

Penn West sold its oil and gas for an average C$55.44 per barrel of oil equivalent, up 18 percent from the fourth quarter of 2006.

Gains in oil prices ranging between 30 percent and 34 percent were offset by a 9 percent drop in average natural gas prices to C$6.34 per thousand cubic feet, the company said.

After more than a year of weak prices, Canadian gas has strengthened to more than C$7 per thousand cubic feet since the start of 2008 due to cold temperatures in major consuming and producing regions and large draws on inventories.

A Penn West executive said the trust is optimistic that higher prices will persist, but cautioned that gas might be in the midst of a speculative bubble and prone to a selloff in the spring with storage volumes still above the five-year average.

“We sort of feel that the natural gas markets this year have been more of a supply story than a demand story,” David Sterna, vice-president of marketing, said on a conference call.

“We see incremental supply coming on through additional drilling, mostly south of the border in the United States, and we also see additional production coming on through certain infrastructure debottlenecking, like the Rockies Express pipeline and Independence Hub.”

Penn West units were up 37 Canadian cents at C$28.77 on the Toronto Stock Exchange.

$1=$1.01 Canadian Reporting by Jeffrey Jones; Editing by Rob Wilson

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