Michael Bowman Eagle Energy Inc EGL-T SELL Dec 15, 2014

12.5% dividend is rather high. Will struggle to maintain that dividend. Be cautious. Large dividend signals concern.

One of his largest positions. Had some operational issues. But the bar was set incredibly low by the street. He has confidence in the management. They need to deliver on their promised production levels of 3000 barrels per day. The dividend at 12.4% has raised alarm bells in the street, but he believes it is sustainable. They have some debt. They have the drip program but the payout ratio is close to 100%.

Market is sceptical of their ability to sustain the 12.4% distribution. He believes the dividend will be sustained. This is a trust that has US assets. Tax treatment would be different if this held Canadian assets. Sufficient upside in their properties to sustain production for a long period of time.

Yield of 14% and generally this is a red flag. Had some production difficulties and were in a “show me” situation. Generally, when a stock is in a penalty box, it will stay there for 3-4 quarters. To overcome this, the company decided to produce 3000 barrels of oil per quarter, which they have done for three quarters. Also, made an acquisition using lines of credit, rather than through dilution. He has conviction in the management team. Feels the yield is sustainable.

Biggest risk with this trust, would be the outlook for light oil in the coming year and 2015. Because of the large production out of the Bakken and Eagleford shale, we could be seeing pretty good discounts on light oil pricing benchmarks versus Brent pricing. 12.5% dividend would be an alarm bell for him.

A cross-border trust that was set up because they can take advantage of the SIFT rules. Their Texas assets are pretty boring, but are solid low decline. Because of their location, they avoid transportation problems. Doesn’t own this as a growth stock but as a high paying sustainable dividend model. They are going to do small acquisitions from time to time that will help. 13% dividend yield.

Principally an oily asset base. Had a tough go proving to the market that the dividend is sustainable. This is obviously why the yield is so high. There is a little bit of risk to the dividend. When oil prices have been incredibly robust, this is probably more secure than when oil prices were to sell off a little. There seems to be a negative tone to the cross-border trusts. Feels the dividend is 80% safe. If you like oil, probably not a bad place to be.

There is skepticism about their ability to pay the 19% dividend, and perhaps the prudent thing is to trim the dividend. The big change for them was their shareholder sanction to acquire some Canadian assets. Their asset base in the US is principally oil. The Dixonville acquisition was a pretty good move. It has a low decline and everything that a trust would like to own. The next step for them is to take a hard look at their balance sheet and to decide if they can hold onto that dividend.

He stayed away because they went to the states to make acquisitions. He did not know why the Americans would not already take these assets. He stays away from it.