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One of last year's hottest initial public offerings is quickly becoming a dud.
At the height of the commodity bubble in 2011, Parallel Energy Trust went public with a spiffy structure. Because the company holds U.S. assets, it was allowed to pay out a majority of its cash flow as distributions to unitholders -- much like the old income trusts.
But just two months after going public, Parallel started to dwindle. Over a year later, the stock is off 43 per cent from its $10 IPO price.
The key problem: operational setbacks. These have dogged the company for the past few quarters, and they weighed on the producer's latest earnings release on Tuesday. A problem at Parallel's Carson field has affected two-thirds of its current production, and it could hit next quarter's production by as much as 20 per cent.
Already frustrated, investors sent the stock about 7 per cent lower.
The big question is the strength of Parallel's coveted distribution, which was initially set at 7.5 per cent. The units currently yield north of 16 per cent.
National Bank Financial analyst Amy Chang believes the distribution will survive over the next few years, but not for the best reasons. Ms. Chang notes that proceeds from Parallel's dividend reinvestment program should be enough to cover the company's cash shortfalls.
The good news for investors who like distributions but whose patience with Parallel's management is growing thin is that there's another option on the market. Argent Energy Trust closed its $212-million IPO just last week.
Tim Kiladze