Canadian energy trusts pare payouts

The trickle is turning into a torrent as Canada’s energy income trusts buckle under a two-pronged slump in commodity prices and uncertainty in the capital markets.

In two days four oil and gas producers announced drastic cuts to their monthly cash distributions and a majority is expected to follow suit.

They were joined by Precision Drilling Trust, Canada’s largest service company and a barometer on the industry as a whole.

In chopping 39 percent off its payout it blamed a “persistent decline in natural gas and oil price trends,” adding that “we only do as well as our customers.”

Of those “customers,” the slashing was deep: Enterra Energy Trust, which produces 13,000 barrels of oil equivalent per day in Alberta, British Columbia and Oklahoma, made a 50 percent cut; Shiningbank Energy Income Fund cut by 36 percent; Progress Energy Trust 29 percent and Advantage Energy Income Fund 17 percent.

The betting is that Fairborne Energy Trust, Pengrowth Energy Trust, PrimeWest Energy Trust, Provident Energy Trust, Thunder Energy Trust and Trilogy Energy Trust won’t be far behind.

For Shiningbank, which has already opted out of a C$496 million takeover of Rider Resources because of the federal tax ruling, it was the third cut in the past year.

That lends weight to the view of analysts who say trusts were in trouble long before they faced a change in their tax status.

Now Shiningbank’s payout is estimated at 63 percent of its cash flow, compared with the trust sector’s average 69 percent, which itself is a long cry from the early days when trusts were counted on to distribute upwards of 90 percent. Those making cuts all insist they need to keep more cash to improve their “financial flexibility” and their ability to take advantage of any opportunities that arise at such a volatile time.

The opportunities are forecast to include a lively round of consolidation as weakened trusts look for mergers or get taken out.

—Gary Park