CAUTION: BEFORE YOU INVEST IN ANY CANADIAN TRUST OR U.S. BASED MLP MAKE SURE YOU CHECK OUT THEIR OIL/GAS MIX. MAKE SURE A LOT OF THEIR 2010 GAS PRODUCTION IS HEDGED. - Dan
The Canadian energy trust segment's days are numbered ahead of a change in the country's tax laws effective January 1, 2011, but according to The Canada Report that doesn't mean some players won't still pay healthy yields as growth-oriented corporations. According to a report in Forbes earlier this month, the newsletter thinks Baytex Energy (NYSE: BTE - News) is a potential "survivor" trust after CEO Derek Aylesworth said its effective post-conversion tax rate will be between 10% and 12%, noting that will "have no effect on distributions."
It will be interesting to see whether the same holds true for other Canadian energy trusts moving forward. The rest of The Canada Report's "survivors" are traded over-the-counter in the U.S. on dangerously low volume. However, a look at the Canadian Energy Trusts Index shows that investors haven't shied away from trusts trading on domestic exchanges.
Over the last month, Enterra Energy Trust (NYSE: ENT), Sweet-16 Portfolio's own Precision Drilling Trust (NYSE: PDS), and Provident Energy Trust (NYSE: PVX) have all shot up by 10% or more. Meanwhile, Penn West Energy Trust (NYSE: PWE) is the sector's only loser for the period, slipping by -1%.
Some energy trusts will likely go the way of Advantage Oil and Gas (NYSE: AAV), which dropped its dividend upon converting from Advantage Energy Trust in 2009. Thankfully for income-oriented investors, there are still plenty of MLPs, royalty trusts, and REITs that will maintain their beneficial tax status moving forward. [AAV is a former Sweet-16 member. The trust units sold down sharply when they announced conversion to a C-Corp last year. I believe the AAV shares are worth at least $10/share so you should check it out. - Dan]
Though its days may be numbered, the Canadian Energy Trusts Index remains one of the top-10 yielding tickerspy Indexes, dishing out average annual distributions of 5.5%.
Canadian Trusts
Canadian Trusts
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
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prince_jake_33
- Posts: 242
- Joined: Mon Apr 26, 2010 2:21 pm
Re: Canadian Trusts
Roger Conrad of Canadian Edge Likes the Deal 19-May-10 11:07 am In his "Maple Leaf Memo" released today he concludes his discussion as follows:
"But prior to last Thursday what's known as the Seal oil sands play hadn't been factored into Penn West's production potential. The high costs of oil sands development and the volatile energy markets precluded any serious moves. The CIC's cash and future capital commitment will lift the assets from the "explore" to the "production" phase of the equation.
Another benefit of the CIC's infusion is that Penn West now has the flexibility to spend more on the Cardium play. More debt repayment and balance-sheet strengthening are also likely. As of March 31 Penn West's long-term debt was CAD2.75 billion, down 28 percent from year-earlier levels. The CIC also committed to buying 23.5 million Penn West units at CAD18.48 per for gross proceeds of CAD435 million.
This is a significant transaction for Penn West, a company that has already undergone a rapid transformation; asset sales have streamlined the operational focus while providing cash to pay down debt. The deal with the CIC will help Penn West lift output and cash flow by giving it the wherewithal to strengthen existing production while getting new reserves closer to market.
This is good news for investors concerned about the trust's post-conversion distribution policy. As we forecast in the May CE, a cut is likely. But Penn West management "will do what it can to minimize it when the time comes. Rising oil prices will help a lot to achieve that goal, which, ironically, does leverage Penn West somewhat to what happens to the economy."
"But prior to last Thursday what's known as the Seal oil sands play hadn't been factored into Penn West's production potential. The high costs of oil sands development and the volatile energy markets precluded any serious moves. The CIC's cash and future capital commitment will lift the assets from the "explore" to the "production" phase of the equation.
Another benefit of the CIC's infusion is that Penn West now has the flexibility to spend more on the Cardium play. More debt repayment and balance-sheet strengthening are also likely. As of March 31 Penn West's long-term debt was CAD2.75 billion, down 28 percent from year-earlier levels. The CIC also committed to buying 23.5 million Penn West units at CAD18.48 per for gross proceeds of CAD435 million.
This is a significant transaction for Penn West, a company that has already undergone a rapid transformation; asset sales have streamlined the operational focus while providing cash to pay down debt. The deal with the CIC will help Penn West lift output and cash flow by giving it the wherewithal to strengthen existing production while getting new reserves closer to market.
This is good news for investors concerned about the trust's post-conversion distribution policy. As we forecast in the May CE, a cut is likely. But Penn West management "will do what it can to minimize it when the time comes. Rising oil prices will help a lot to achieve that goal, which, ironically, does leverage Penn West somewhat to what happens to the economy."