Aggressive holding PennWest Energy Trust (TSX: PWT-U, NYSE: PWE) has trimmed its distribution again, this time from a monthly rate of CAD0.23 per unit to CAD0.15. Full details and rationale in management’s words are outlined in a press release posted on the trust’s website.

Coupled with the general selloff in the overall market and energy sector in particular, the news is taking the shares down today, wiping out some of the rebound we’ve seen since early this month. Nonetheless, it’s very much in line with the action in other trusts over the past several months.

Simply, lower energy prices have tightened up cash flow. Even as oil prices have stabilized in the past couple of weeks, natural gas has continued to weaken. And there’s the strong possibility prices will go lower still as we enter “shoulder” season between winter heating and summer cooling. That’s left energy producer trusts’ management with a stark choice: Either borrow to fill the gap or else trim capital spending and/or distributions.

In PennWest’s case, management has elected to instead continue cutting the debt left over from a string of acquisitions the past couple years and to divide the pain between capital spending and distributions. That is a significant difference from the strategy now being followed by Advantage Energy (TSX: AVN-U, NYSE: AAV), which this week announced it would convert early to a corporation.

This week, CEO Andy Mah confirmed with me that the primary reason for the move was to free up cash for developing Advantage’s Montney play. And as a smaller company with much greater financing needs, there was little room for a distribution.

As for Penn West, per yesterday’s press release, output for 2009 will be lower than in 2008, largely due to planned asset sales to reduce the debt load of roughly CAD4 billion. But it is still in line with what management had been projecting earlier. The lower dividend rate will free up cash and add financial flexibility, should energy prices fall further from here.

Again, Penn West is putting the pieces in place to survive this downturn in energy prices, while staying positioned to ride a price recovery as demand ultimately returns to normal and the consequences of ongoing supply destruction come home to roost. But no one should expect anything but sideways price action and potentially more dividend cuts with Penn West or any other trust as long as energy prices remain this week.

Prices are low, and trusts like Penn West trade for a fraction of the value of their reserves in the ground, even at these low prices. No level of dividends should be considered “safe” given the current volatility in energy prices. But payouts will remain generous for many trusts.

Again, the play here is energy prices. If you own energy producing trusts from here, you’re betting on a rebound. If you want safe yields, you’re better off with the Conservative Holdings. But this dividend action notwithstanding, my view remains we’re going to go a lot higher, probably a lot sooner than anyone thinks. I’m sticking with Penn West Energy Trust.