Harvesting Gains in the Oil Patch

If Harvest Energy Trust (NYSE: HTE  ) were a mythological beast, it would be a chimera. You know -- one of those lion/she-goat/dragon-looking things. Allow me to explain.

The first thing you'll probably notice about this Canadian high-yielder is that it sports the hefty cash distribution characteristic of fellow royalty trusts Penn West Energy Trust (NYSE: PWE  ) and Pengrowth Energy Trust (NYSE: PGH  ) . With a $0.30-per-share monthly distribution to unit holders, Harvest currently offers about a 16% yield.

Unlike the other oil- and gas-producing trusts, however, Harvest also boasts an integrated company structure. This means that, like profit factory EnCana (NYSE: ECA  ) , Harvest engages in refining and marketing as well as exploration and production. The company's North Atlantic refinery generates high free cash flows, making Harvest's operational profile quite attractive relative to its upstream-only peers.

In addition to sporting this combination of features, which should tantalize anyone seeking a conservative investment in the oil patch, Harvest possesses a notable asset portfolio. First off, its liquids/natural gas split is an unusual breakdown of around 70/30. And around 40% of its oil assets are amenable to CO2 floods, a means of recovering additional oil from older fields.

Harvest is active in the Lloydminster heavy oil play that put Devon Energy (NYSE: DVN  ) in oil heaven, and there's about a billion barrels of in-place (though not fully recoverable) bitumen in its oil-sands lands. Finally, it's worth casting a Foolish eye at Harvest's Saskatchewan acreage, a fair amount of which is prospective for a prolific pool of oil that has boosted exceptional explorer EOG Resources (NYSE: EOG  ) south of the Canadian border.

In 2007, Harvest replaced a bit more than 100% of its production, which is unimpressive when compared with the reserve additions that certain galloping gas guys have achieved. It's also low compared with the folks at Arena Resources (NYSE: ARD  ) , but they're working off of a much smaller production base. Harvest looks just fine stacked up against the big boys. In fact, it looks more than fine. I suggest that you keep this one in mind.

Related Foolishness:

  • This royalty trust constituted part of my winning Foolish Fantasy Football team.
  • Some say the oil-sands players need to join hands.
  • This fellow Canadian outfit may be the best international stock for 2008.

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