Special Report:: What's Ahead For Canadian Energy Trusts?

Click here to Share this report! Special Report: What’s Ahead For Canadian Energy Trusts?
| 1
DECEMBER 2010
Special Report:
What’s Ahead For
Canadian Energy Trusts?
Euro Pacific Capital’s response to a changing regulatory environment.
Euro Pacific Capital specializes in international investments. International investing may not be suitable for all investors. To find out more about the
above company, and to see if this investment may be suitable for you, CLICK HERE.
You can also call one of our investment consultants directly. They can give you share price information and help you determine if these equities
88 Post
meet your particular investment objectives andRoad West,
risk tolerance. Call3rd Floor
toll-free: | Westport, CT 06880
1-800-727-7922.
ph: (800) 727-7922 | fax: (203) 662-9771 | www.europac.net
Euro Pacific Capital | (800) 727-7922 NY
Branches: New York, | Los Angeles, CA | Newport, CA | Scottsdale, AZ | Palm Beach, FL
| www.europac.net
Click here to Share this report! Special Report: What’s Ahead For Canadian Energy Trusts? | 2
Peter Schiff
Company Profile President & Chief Global Strategist
Peter is one
of the few
Founded in 1980 and today headquartered in Westport, Connecticut, non-biased
Euro Pacific Capital is a full service broker/dealer, member FINRA/ investment
SIPC, that has historically been recognized for specializing in advisors (not
foreign markets and securities. Through its direct relationships with committed
foreign trading desks, the firm’s clients may gain access to narrower solely to the
spreads as compared to domestic market-makers of foreign short side of the market) to have
securities, thereby helping to reduce overall transaction costs. correctly called the current bear
market before it began and to have
We are a small, boutique firm, offering customized brokerage positioned his clients accordingly.
services to individuals, corporations, pensions and institutions. As a result of his accurate forecasts
We have offices in Los Angeles and Newport Beach, California; on the U.S. stock market, economy,
Scottsdale, Arizona; New York City, New York; Palm Beach, Florida; real estate, mortgage meltdown,
and Westport, Connecticut. credit crunch, subprime debacle,
commodities, gold and the dollar,
The firm develops investment strategies for its clients consistent with he is becoming increasingly more
the macroeconomic philosophy of its founder and president, Peter renowned.
Schiff. Peter believes that the dollar is in a long term decline due to
excessive public and private debt, loose monetary policy, and over- Peter has been quoted in many of
regulation. We believe that long term value can be found outside the nation’s leading newspapers,
the U.S. in non-dollar securities and that investors should include including The Wall Street Journal,
some precious metals and natural resources in their overall portfolio Barron’s, Investor’s Business Daily,
allocation. The Financial Times, The New York
Times, and The Los Angeles Times
Combine our full array of services with our no nonsense investment and appears regularly on CNBC,
advice, and we believe that all investors will find a home here for a CNN, Fox News, Fox Business
portion of their portfolios. Network, and Bloomberg TV.
Euro Pacific Capital… Scanning the globe for you.
Peter Schiff’s New Book: How An Economy Grows And Why It Crashes
For those who would normally prefer to watch paint dry than delve into economic theory,
Peter Schiff's new illustrated book, How an Economy Grows and Why It Crashes, offers
an enjoyable introduction to the subject.
With wit, humor, and over 150 original illustrations, Peter and Andrew Schiff offer a
straightforward story of fish, nets, savings, lending, trade, job creation, and inflation.
The allegorical tale of a small, primitive, island nation discusses the roots of economic
growth and the reasons economies decline.
LEARN MORE ABOUT THE BOOK
Euro Pacific Capital | (800) 727-7922 | www.europac.net

What’s Ahead for
Canadian Energy
Trusts?
Is the Party Over?
After years of angst in Canada’s oil patch, the percentage for investment in their own growth
income trust model, which had been the bedrock and development. Although the system worked
of the industry for decades, will finally be laid to well for income investors, it created a two-tiered
rest on December 31st. The attractive dividends energy industry (divided between developers and
that were enabled by low corporate taxes will be producers) which arguably imposed some structural
effectively legislated out of existence. While many inefficiency on the industry.
investors may be feeling that a great party is
coming to an end, there are reasons to believe that It has been persuasively argued that the elimination
the new era will provide fresh momentum in the of this imposed bifurcation will spur investment in
energy sector as former income trusts return to the exploration, development and technology. The net
corporate fold. effect of such spending may be to increase well-
drilling activity and encourage strategic acquisitions
Rather than selling Canadian energy trusts in an and partnerships. There is some evidence that
immediate response to the changing regulations, these moves are already underway.
investors should understand, and consider, that the
internal changes in preparation of the regulatory In the meantime, trusts currently converting to
changes have been long underway at many firms. corporate structures are trying to strike the right
Due to these steps, and other economic factors, balance between how much of their earnings to re-
many former energy trusts may be poised for long, invest and how much to pass through to investors
prosperous, and sustainable futures. as taxed dividends. The good news is that those
trusts-turned-corporations that succeed should be
In truth, the distinct legal structure of income trusts, healthier long-term investments than any of their
which allowed the companies to pass tax-free trust-based predecessors. Investors should pay
earnings through to unit holders (the equivalent to attention to those firms that find the best solutions.
shareholders), did not come without a downside
forEuro
thePacific
Canadian energy industry.
Capital specializes The
in international structure
investments. Themay
International investing world
not bewill continue
suitable to crave
for all investors. energy
To find and,
out more about the
left trusts with a strong incentive to pay out a high currently, Canada has it in abundance.
degree
You canof earnings
also call one of rather than consultants
our investment retain a healthy
directly. They can give you share price information and help you to determine if these equities
meet your particular investment objectives and risk tolerance. Call toll-free: 1-800-727-7922.

A Look Back at
The Halloween Surprise
The whiff of optimism in the air today is far
different from the scent of betrayal that wafted
through the hallways of oil and gas trusts on
October 31, 2006. That was the day Canadian
Finance Minister Jim Flaherty stunned the
markets with his “Halloween surprise.” His
decision that income trusts would be taxed as
corporations as of January 1, 2011 resulted
in one of the worst days in the history of the
Toronto Stock Exchange. Anticipating lower
dividend payouts and falling share prices,
investors stampeded towards the exits. When
the dust settled, share prices for trusts had
fallen more than 30% in a single day.
In the ensuing years, the shock and anger have been influenced by these rules.
subsided and companies have drawn up transition Energy trusts themselves became a
plans. With no alternatives, trusts have assessed staple on the income investor’s buffet.
the new rules of the game and have adjusted to Trusts typically had low operating costs and
the new conditions. Today, as we approach the paid sparse or no corporate tax. The income flowed
deadline, the stronger companies have already directly through to the trust unit holders who were
converted toward corporate structures or have laid taxed individually. These attractive distributions
significant groundwork. Many of the weaker ones were sought by tax-deferred retirement plans and
have been simply taken over by those who have. individual investors searching for income and
stability. Based on the share price premium that
To understand the great apprehension that has trusts were awarded, many larger energy producers
accompanied the transition, it helps to understand converted to trusts. When they did, their priorities
the history of trusts in the Canadian energy sector. changed. Yield and payout ratios became their
guiding lights.
The regulations that made trusts possible were
enacted in 1985. To a large extent, the shape of With the bigger companies focused on distributions,
the entire Canadian energy sector since then has other energy corporations, mostly the smaller ones,

A Look Back at the Halloween Surprise Cont’d.
focused on exploration and development of new

properties. These firms were reluctant to be bogged
down by the administration of mature properties,
and didn’t face heavy dividend expectations from
shareholders. Instead, they were encouraged to
spend money on development.
Those that invested wisely and developed reliable

properties became instant takeover targets for
trusts looking for earnings. Explorers and producers
would take assets to a high level of maturity and
then sell them to the trusts, which enjoyed a
favorable cost of capital because retail investors
were paying a premium for the expected yield.
After selling out to trusts, managers of the former
“juniors” would often jump ship and look to start
newer ventures, thereby repeating the process.
Over the years, this tiered system became

entrenched. Although it wasn’t necessarily the most
efficient way to structure the industry, it was the
most efficient way to structure the industry given
the regulatory landscape.
However, in the never ending courtship of yield-

hungry unit holders, yields on trusts were often as possible for trusts on the prowl for buyouts.
exaggerated due to the inclusion of the return of Presenting the best image as possible for a near
capital in payouts. To maintain high payouts, some term buyer often came at the expense of long term
trusts liquidated assets and took on debt. Such development plans. And frequently, as the buyouts
moves often proved unsustainable over the long got bigger, the talented developers of these hard
term. But with the tax-free pass through of earnings charging juniors took their windfalls and left the
as the sole criterion of success, oftentimes industry. This kept the best of the young blood out
unreasonable payouts were offered. As trusts of the top echelons of the oil patch where their
depleted their assets, they would often need to capabilities could have been valuable.
raise capital to buy the new assets they needed to
increase, or even to maintain, distributions.
On the other side of the coin, producers often

structured themselves to be as tempting a target

There’s Always A Catch

While the Canadian industry had adapted well to the trust regulations, there was one
problem: government coffers were left out of the cash-flow bonanza. Everyone was happy
except those guarding the Canadian Treasury and, in particular, Mr. Flaherty, who insisted
the tax department was losing an estimated C$500 million annually in revenue.
The issue came

to a head in the mid-
2000s when larger
corporations outside
the energy sector,
like communications
giants Telus and BCE,
and national airline
Air Canada, made
known their intention to
convert to the income
trust model. Even
independent energy
stalwarts like Encana
began to seriously
consider the model.
Flaherty put a halt to

such corporate dreams
by stamping a 34% tax
on distributions for new was going forward. These trusts would need to
income trusts (dropping to 31.5% in 2011). Existing convert to (or often, back to) conventional oil
trusts were allowed four years under the old rules and gas companies. This ushered in a period of
to consider their options before they too would fall elevated uncertainty across the sector as trusts
under this punitive tax umbrella. and investors evaluated how best to prepare for the
changeover.
Investors and executives appealed to government
members and ministers, all the way to Prime
Minister Stephen Harper, but to no avail. Energy
trusts would not be exempt and the new law

Transition Uncertainty
In the two years that followed the carnage
of the Halloween Surprise, unit prices of
energy trusts largely rallied. In no small
part, these results were helped by surging
oil and gas prices. By the time oil prices hit
record levels by mid-2008, most energy
trusts had erased the losses from 2006. But
in the 3rd and 4th quarters of 2008, when
oil and natural gas prices plummeted, unit
prices for the entire sector took a nosedive.
When a number of trusts cut dividend
distributions — a few more than once —
investors were treated to a jarring wake-up
call that times were changing.
The recovery in energy prices since 2009 has In essence, conversion pathways boiled down to a
provided some relief for trusts, allowing most of few key strategies:
them to modestly raise payouts over the past 12 to
18 months. With current cash flow stabilized, trusts • Acquiring exploration companies with
then focused more intently on conversion strategy impressive or promising assets.
over this past year. Some trusts that felt they had • Assembling unconventional (read: unprofitable)
sustainable yields converted early. Those that did properties and investing in breakthrough
were no longer bound by growth-limiting legislation technologies to help unlock hidden potential.
and were able to become first bidders on attractive • Cutting exploration and development costs via
acquisition targets. three-dimensional seismic surveys and next-
generation mapping technology.
Late-converters, which may have missed out on • Looking to be acquired by a converting trust.
choice land and company acquisitions, have gone
back to the drawing board to microscopically re- All these strategies (except the last) involve
examine their property portfolios. Legacy assets spending money. Companies that have been
containing unconventional resource plays drew making such moves have had less ability to raise
renewed interest. With their backs to the wall, many distributions back to pre-2008 levels. But given
trusts have turned to the engineering and scientific the conspicuous lack of yield in other sectors of
communities to help unlock the potential of fields the market (bonds), these relatively lower payouts
that had previously been considered exhausted. haven’t encouraged investors to quit the asset
class.

Transition uncertainty cont’d.
Until the Halloween

Surprise, most trusts 140 Dividend Yield WTI vs. Dividend Yield 20%
West Texas Intermediate 18%
paid unit holders 120 (Dollars per Barrel) 16%
between 60% and
100 14%
80% of cash flow (also
12%
known as the “payout 80
10%
ratio”), a rate that was 60 8%
typically much higher
40 6%
than corporations.
4%
After the Halloween 20
2%
Surprise, most trusts 0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
resisted any quick
changes. Having
already seen their unit energy sales and with more earnings withheld for
prices drop, they were reluctant to impose any corporate conversion, average yields plunged in the
further pain on their investors. But by early 2007, sector. An analysis of the top 10 largest petroleum
trusts had generally dropped that ratio to 50% or trusts by market capitalization found that yields
lower – still on the high end, but within the range of dropped from more than 18% in Q4 2008 and Q1
a typical blue chip company. They remain at these 2009 down to less than 6% in Q3 2010. To be fair,
lower levels. much of this drop was attributable to the recovery
in share prices throughout 2009 and 2010 (yield
In general, investors interested in growth should moves inversely to price). So as share prices
cast a wary eye on public corporations with payout recovered from their 2008 lows, effective yields fell.
ratios of higher than 50%. High payouts could But the absolute size of the payouts went down
be a red flag that not enough capital is being severely in 2009, before recovering modestly in
directed toward future growth. In the days of trust 2010.
dominance, very high payout ratios were tolerated
because investors were specifically seeking Of course the size of payouts has much to do with
present yield, even at the potential cost of future energy prices, and in that relationship payouts tend
growth. Given the changes in investor expectations to echo income. Higher revenue generally takes a
that will go along with the conversion, such an few months to translate into greater payouts, and
approach will no longer be successful. vice versa. The peaks in yield in 2008 followed the
peaks in oil prices by about six months. Investors
The real action for trusts can be seen in the should note that yields of the biggest trusts are
yield percentages themselves. On this front, the currently low in relation to energy prices. The graph
movement has been fast and furious. above plots theses yields against the market price
of petroleum.
The forthcoming change in trust structure and the
drop in energy prices after 2008 doubly affected One of the fundamental differences in the new
distributions. With less revenue coming in from regime is that former trusts will not be able to use

Transition uncertainty cont’d.
dividends as a tax shield. When commodity

prices were high in the past, the trusts
tended to immediately increase distributions
so as to minimize retained earnings and
reduce taxes. Not any longer. If commodity
prices do rise, companies will be slower to
raise payouts, and will do so only if they feel
the increase is sustainable. It is likely that
in the near future, capital expenditures will
increase before payouts. But when payouts
do start ticking upwards, we feel that it will
be an indicator that companies believe the
increases will be sustainable.
The good news is that despite all these

pressures, yields have currently stabilized new drilling and exploration technology. Much
at levels that are still attractive. According to an is known about how some Canadian producers
analysis by the Toronto Globe and Mail earlier this have been able to extract petroleum from bitumen
year, the overall average payout reduction has deposits usually referred to as “oil sands.” Less
been 33% from the peak in 2008 – a significant discussed is the new process of hydraulic fracturing
haircut, but not the drastic scenario that many known as fracking.
observers had feared three years ago. Thanks
to the cuts put through in 2009, as well as the
increasing production figures and the recovery
in energy prices, many trusts have indicated that
additional cuts will not be needed. Compiling data
on 79 trusts that have either already converted to a
corporate structure, or have taken steps along that
path, the Toronto Globe and Mail found that almost
half of the companies have already announced that
payouts will not be cut in 2011.
In fact, due to the development of “tax pools,”

reserves of tax deductions and credits that many
companies have booked in recent years, some
trusts won’t face further pressure to cut distributions
until 2012 or 2013.
Eventually new revenue will be needed, and, to a

very large extent, those earnings will come from

What’s A Frack?
Multi-stage fracturing, known as “fracking,”
is a game changer. If it hadn’t come along,
many more income trusts would have faced
considerable difficulty in the transition. The
process allows drillers to more quickly and
methodically capture oil or natural gas deeply
embedded in rock. The process is particularly
useful for natural gas.
Just a few years ago, much of this fuel would

have been considered unobtainable. This includes
deposits caught behind, or within, rock formations
that don’t have the viscosity and porosity needed
for oil or gas to pass through. Through multi-
stage fracking, which involves very high pressure
injections of water, a substantial amount of the
untapped reservoir can be accessed, leading to
unprecedented well flows from otherwise dormant
properties. This can be done without further
exploration or drilling.
Yet fracturing, and another new process called
Bakken Action
One notable area of consolidation has been around
an area called the Bakken Formation. This vast
agglomeration of shale and hard rock runs under the
Canadian provinces of Manitoba and Saskatchewan, as
well as the US states of Montana and North Dakota.
There is an estimated 503 billion barrels of oil on both

sides of the border, making it the hottest onshore growth
area in North America after Canada’s oil sands.

What’s a frack? cont’d.
“horizontal drilling,” can

be very expensive – from Total Oil Production
$2.5 million per well and 2,850
Total Oil Production in Canada (mb/d)
up. In 2006 and 2007, even
2,800
when natural gas prices
were more than double 2,750
today’s $4 per MMbtu
(one million British thermal 2,700
units), trusts wouldn’t jump
on this unconventional 2,650
technology because their
2,600
low-risk, steady-reward
structure didn’t force their
2,550
hand. Today, despite lower
prices, firms feel they must 2,500
frack or get off the plot. In
other words, companies 2006 2007 2008 2009 2010 *
willing to invest in this new
* estimated
technology will be able
to outbid the laggards for
promising properties.
The use of new technology, and the more

aggressive attitude adopted by company
management has led to an overall increase in
energy production in Canada. It is estimated that
by the end of 2010, crude oil production in Canada
will have increased more than 8% above the levels
seen at the end of 2006.

Hedging
Their Bets
Most trusts are expected to present their budgets and
projected yields once they can assess the 2010 oil and natural
gas price movements. Even with the lower payout ratios,
some conservative former trusts are highly hedged to
ensure capital will be available to maintain distributions
even in case of a steep drop in oil and gas prices (tax
pools play a role in this). While energy prices may see
some volatility in the years ahead, there are many
reasons for investors to believe that prices will stay
strong over the long term. Much of the growing
demand that supports high prices is coming from
emerging economies in Asia and South America.
Current data show ongoing strength in those
economies. In addition, there is ample evidence of
widespread monetary expansion in many of the world’s
leading economies, including the United States, China,
and the eurozone. Expanding money supplies tend to push
commodity prices higher over the long term.
Industry Optimism interest, among Asian buyers in particular. In 2009,

Korea National Oil Corp bought Harvest Energy
Talk is cheap, but optimism can be more Trust for $4.1 billion. Earlier this year, China
accurately measured in drilling activity. The Investment Corp invested C$1.25 billion for a 45%
Petroleum Services Association of Canada expects interest in Penn West Energy Trust’s northern
that 11,350 wells will be drilled in all of 2010. This Alberta heavy oil property. Later, Penn West
represents a 35% increase over the 8,450 wells partnered with Mitsubishi Corp of Japan in a C$850
drilled in 2009. The organization forecasts that million natural-gas joint venture. Each of these
12,250 wells will be drilled for 2011 – but they allow partnerships further helps insulate the Canadian
for even higher activity if global demand remains energy sector from the effects of an ongoing US
high. Roger Soucy, outgoing President of PSAC, recession. These large investments provide some
called 2010 “a turnaround year for the industry.” indication that the sector remains an attractive
destination for international capital.
The Canadian oil patch continues to attract global

Are US Trusts A
Viable Alternative?
With the dissolution of the Canadian
trust sector per se, some American
investors may wonder if the
US energy trust sector
will emerge as a viable
alternative. There are
reasons to doubt this. US
trusts have always served
a different investment
purpose than their
Canadian counterparts.
They are unable to
finance acquisitions
and development,
so they behave like
derivative investments
on particular oil and
gas assets, rather
than vital corporate
concerns. They carry
no debt, but typically
have a lower payout
and dividend due to
their finite existence.
By contrast, Canadian energy trusts were holding that would factor into the comparison of US
always able to finance new acquisitions and trusts. Canadian energy companies use, hold, and
generally behaved more like traditional joint- pay dividends in Canadian dollars. For investors
stock corporations, albeit with different legal looking for alternatives to U.S. dollar holdings,
consequences in tax law and unit holder liability. Canadian investments would offer a source of
currency diversification.
There is also the currency impact on an equity

Takeaway
While initially derided as a mere tax grab, the abolition of
trusts may actually be a blessing in disguise. Very rarely do the
distortions created by government tax policies create benefits
for an economy. While the Canadian trust structure offered
advantages to certain classes of investors, it also had many
unintended side effects. Canada may be better off without it.
The good news is that there is now forming a relative basis.*

what appears to be a viable intermediate class
of former trusts that offer attractive dividend In the following pages
yields alongside feasible growth strategies. With we have detailed
streamlined operations from discovery to maturity, some particular trust
and a renewed emphasis on R&D, converted trusts investments that appear
are drawing enthusiasm from a whole new class of to have prepared well for
investors. the transition and offer what
we believe may be good prospects
As the conversion date nears, many investors are for investors.
adopting a “wait and see” approach. But as this
report details, the bulk of conversions, acquisitions, Industry regulation requires that recommendations
and other preparations happened in the years after be suitable based on the investment horizon,
the 2006 announcement. Stronger players in the financial situation, and risk tolerance specific to the
field have not waited until the night before the big individual. As a result, we must withhold the names
test to brush up on their calculus. of these companies. However, existing or potential
Euro Pacific Capital clients can discuss this report
Many former Canadian Royalty trusts still offer specifically with any of our investment consultants.
solid yields. With interest rates for many income
investments, such as corporate and government * Dividend yields change as stock prices change, and companies may
debt, at very low levels, the yield that can be found change or cancel dividend payments in the future.
in the Canadian energy sector remains attractive on
Why don’t we provide the company names?
Under FINRA Rule 2310, broker-dealers are required to make sure that every investment recommendation
is suitable for each client’s unique investment objectives and risk tolerance. The company overviews
provided here are meant to give an indication of the type of recommendations a Euro Pacific Investment
Consultant may make, depending upon your unique investment goals, risk tolerance, and profile. If you
have questions
Euro Pacific about the
Capital specializes companies
in international described
investments. in thisinvesting
International report,may
or not
think they may
be suitable for all be suitable
investors. foroutyour
To find more about the
portfolio, please call (800) 727-7922 and a Euro Pacific Investment Consultant will assist you, with no
obligation to one
You can also call buyoffrom us.
our investment consultants directly. They can give you share price information and help you determine if these equities

Company 1
This company is
in energy services.
It pipes crude oil,
natural gas, and
synthetic crude
produced from tar
sands. It converted
to a corporation
earlier in the year
and maintained its
dividend at the same
level. It plans to keep
its dividend at the
same amount for the
next three years. Its
dividend is about 50%
higher today than it Company #1 Stock Chart, December 2007 – December 2010 (Bloomberg, December 2010). Prices in CAD.
was 10 years ago.*
The company spent over half of its capital budget

on increasing its capacity to the tar sands in
2010. Its pipeline network transports about 50%
of Alberta’s conventional crude oil and about
20% of the region’s natural gas liquids. Two
pipelines under construction are expected to be
revenue producing in mid 2011.
■■ US$3.5 billion in market cap.
■■ 7.3% yield.
Dividend yields change as stock prices change, and

companies may change or cancel dividend payments in the
future.
* Past performance is not a guarantee of future results.

Company 2
This company
produces only natural
gas. It is at the forefront
in its niche because it
has the lowest cost of
production, and this
company is profitable.
Its cost per barrel of
production currently is
below US$4 while many
competitors are over
US$10. It has employed
multi-stage horizontal
fracking and doubled its
daily gas production per
well. Company #2 Stock Chart, December 2007 – December 2010 (Bloomberg, December 2010). Prices in CAD.
North America can be sold and shipped like crude

Unfortunately, it is physically impossible at the
oil. European natural gas prices are almost twice
moment to build a pipeline from North America to
what they are here. A port in British Columbia is
China. Instead, gas is frozen and shipped. This is
slated to be ready in 2015.
called liquid natural gas (LNG). As more LNG ports
open around the world, the excess gas here in
This company will convert by New Year’s and plans
to cut its dividend in half.
• US$2.2 billion in market cap.
• 4.1% yield (post-cut).

companies may change or cancel dividend payments
in the future.
Growing Demand: This graph from ExxonMobil shows gas demand potential is
strongest in Asia.

Company 3
This company’s
production
includes both oil
and gas, with less
than 50% of oil and
the balance of gas.
It uses multi-stage
horizontal fracking
to enhance its
production in each of
its locations. Of the
wells it plans to drill
in 2011, a majority
will be horizontal.
Management is
a big key to the Company #3 Stock Chart, December 2007 – December 2010 (Bloomberg, December 2010). Prices in CAD.
company’s success.
The CEO and CFO
have been with the company since its inception in
• US$6.8 billion in market cap.
1996.
• 4.8% yield.
Its Bakken production is ~8% of the company’s
total, but will receive ~29% of the 2011 well drilling.
This company will convert by New Year’s, and
future.
plans to pay the same amount of cash as a
dividend as it does as a trust.

Company 4
This
company
produces
conventional
oil and gas in
Alberta and
Saskatchewan,
with one of its
locations among
the largest
conventional
pools found
in the last half
century. The
entire field,
across the USA Company #4 Stock Chart, December 2007 – December 2010 (Bloomberg, December 2010). Prices in CAD.
and Canada, is
one of the most abundant oil finds in North America
• US$11.2 billion in market cap
since Alaska’s Prudhoe Bay.
• 6.4% yield.
The company is aggressively acquiring companies
and developing oil land. Oil reserves have about
doubled over the last three years.
future.
The company has already converted to a
corporation and did not change the amount it paid
as a dividend.
Its production is ~90% light oil and ~10% natural

gas. Half of its production is from its largest
conventional pool.

Company 5
Though this
Company produces
conventional oil and
gas, it also specializes
in other oil production.
Not as easily flowing, the
heaviest oil is found in tar
sands and must be boiled
in a factory to separate
the oil from the sand.
Sometimes it must be
heated in the ground to a
point where it will begin
to flow. Once flowing, it
comes out of the ground
via wells. Company #5 Stock Chart, December 2007 – December 2010 (Bloomberg, December 2010). Prices in CAD.
currently pays as a trust.

Producing heavy oil requires different production
than light oil. For example, multi-stage hydro The majority of its production is heavy oil, with the
fracking is useless. Heavy oil is found in layers. A remainder being light oil and natural gas. A small
vertical well intersects a layer at a certain depth. percentage of production comes out of the North
That layer flows until exhausted, then another Dakota Bakken.
layer is accessed in the same well and production
continues. Or if known at the time of drilling, the
company can drill many laterals into different heavy
oil layers at the same time. Unlike the Bakken oil, • US$4.9 billion in market cap.
which is two miles underground, heavy oil is near
the surface. This company spends less to obtain • 4.8% yield.
more potential oil than its light oil competitors.
This company also has oil leases in the North
future.
Dakota Bakken, which is a conventional light oil
play.
This company will convert by New Year’s and plans

to pay a dividend in an amount equal to the cash it

Risks In Investing In
Canadian Oil & Gas:
• Prices of oil & gas can fall.
• Unknown environmental issues could arise, raising the cost of operations.
• Potentially promising energy fields could turn out to be dry.
• Financing could be tight or unavailable when needed, reducing potential revenue.
• Drilling, pipelines, and other well services may not be readily available, causing the company to lose
expected revenue.
• The US dollar could rise in value, resulting in foreign currency losses.

Special Report:: What's Ahead For Canadian Energy Trusts?

Uploaded by

Copyright:

Available Formats

You might also like

Special Report:: What's Ahead For Canadian Energy Trusts?

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Special Report:: What's Ahead For Canadian Energy Trusts?

Uploaded by

Copyright:

Available Formats

Click here to Share this report! Special Report: What’s Ahead For Canadian Energy Trusts?

Company Profile President & Chief Global Strategist

Euro Pacific Capital… Scanning the globe for you.

Euro Pacific Capital | (800) 727-7922 | www.europac.net

What’s Ahead for

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Euro Pacific Capital | (800) 727-7922 | www.europac.net

A Look Back at the Halloween Surprise Cont’d.

focused on exploration and development of new

Those that invested wisely and developed reliable

Over the years, this tiered system became

However, in the never ending courtship of yield-

On the other side of the coin, producers often

Euro Pacific Capital | (800) 727-7922 | www.europac.net

There’s Always A Catch

The issue came

Flaherty put a halt to

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Transition uncertainty cont’d.

Until the Halloween

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Transition uncertainty cont’d.

dividends as a tax shield. When commodity

The good news is that despite all these

In fact, due to the development of “tax pools,”

Eventually new revenue will be needed, and, to a

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Just a few years ago, much of this fuel would

Yet fracturing, and another new process called

There is an estimated 503 billion barrels of oil on both

Euro Pacific Capital | (800) 727-7922 | www.europac.net

What’s a frack? cont’d.

“horizontal drilling,” can

The use of new technology, and the more

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Industry Optimism interest, among Asian buyers in particular. In 2009,

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Euro Pacific Capital | (800) 727-7922 | www.europac.net

The good news is that there is now forming a relative basis.*

Why don’t we provide the company names?

Euro Pacific Capital | (800) 727-7922 | www.europac.net

The company spent over half of its capital budget

■■ US$3.5 billion in market cap.

Dividend yields change as stock prices change, and

* Past performance is not a guarantee of future results.

Euro Pacific Capital | (800) 727-7922 | www.europac.net

North America can be sold and shipped like crude

• US$2.2 billion in market cap.

• 4.1% yield (post-cut).

Dividend yields change as stock prices change, and

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Euro Pacific Capital | (800) 727-7922 | www.europac.net

Its production is ~90% light oil and ~10% natural

Euro Pacific Capital | (800) 727-7922 | www.europac.net

currently pays as a trust.

This company will convert by New Year’s and plans