I am not entirely sure what the hedging strategy will be after the merger. HTE is broadly hedged on the oil side, but completely unhedged on natural gas. Viking, on the other hand, inherited most of their hedges from the firms they took over.
I, for one, would prefer a flexible approach based on judgments of unfolding circumstances rather than a rigid policy approach. I, for one, will not be asked about my preference. Lou
I will hold onto Viking until the merger and beyond. I actually like the realities of the merged entity. The assets of the company and the financial strength of the balance sheet suggest payout sustainability for the long term. Here is Harvest's management comment on the sustainability of their $0.35 payout:
"Harvest's 2006 hedging program would enable us to sustain the current monthly distribution level of $0.35 per unit, finance a significant capital program, and generate an annual payout ratio of approximately 75% even if crude oil prices should drop to U.S.$40 per barrel for all of 2006."
HTE is paying market price fo VKR shares so if they were fairly valued then the price is right. On the o ther hand VKR distribution is being cut 20% and HTE's increased by 10%. Had VKR cut its distribution by 20% the stock would have tanked. My guess is that VKR saw it wasn't sustainable and bailed out at market as opposed to way below market. VKR unit holders will not like the dist cut since the 15+% was a main attraction for VKR. On balance at most a slight positive for HTE (bigger co and larger reserves in exhange for a slightly higher POR and higher dist)and worse a slight negative. For VKR avoids a disaster but it won't be perceived as a great deal.