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Canadian trusts start making moves
Gary Park For Petroleum News
Canadian income trusts are starting to make their moves as they come to terms with the end of their tax-free status in 2011.
But the scorecard so far offers no clarity on what direction trusts intend to take.
One trust has decided to bolt back to the corporate world; one is sticking with an announced merger; and one has abandoned a planned takeover.
The most decisive response has come from True Energy Trust, which is reverting back to a corporate structure only 14 months after leaving that environment for the trust sector.
A mid-sized operation, with 600 drilling locations spread across 780 square miles in Western Canada and production of 11,500 barrels of oil equivalent per day, True said Jan. 15 it sees a better future as a “growth oriented, dividend paying, intermediate exploration and production company.”
Its initial dividend will be 2 cents per share, per month, paid on a quarterly basis. As a trust, it currently pays 12 cents per unit per month, which is only half what it was in September, before the Canadian government turned the trust world on its head by announcing trusts would be taxed at the same level as corporations.
True said a review of the long-term future facing trusts persuaded it that converting back to a corporation before the changes take effect in 2011 would be the “best opportunity to enhance unit and asset value over time.”
For starters, it plans to hike its capital budget for 2007 to C$120 million, allowing it to build reserves and production.
Undeterred by the government changes, Crescent Point Energy Trust has resumed plans for a C$640 million merger with Mission Oil and Gas.
A scheduled December vote of investors was postponed pending the release of government guidelines governing the operation of trusts over the next four years.
Those rules essentially restrict trusts to doubling their size between now and 2011 without paying any penalties.
Crescent Point makes case for merger But Crescent Point Chief Executive Officer Steve Saxberg said the trust will make a case for the merger to be excluded from the rules because the deal was announced Sept. 11, seven weeks before the government decided to put trusts on the same tax footing as corporations.
If the transaction is completed, Crescent Point will increase its production by about 6,000 barrels of oil equivalent per day to 26,500 boe per day.
FirstEnergy Capital analyst William Lacey told the Calgary Herald that Crescent Point should be entitled to the same treatment as Pengrowth Energy Trust, which got a federal green light to proceed with its C$1 billion purchase of ConocoPhillips Canada assets — a deal that also predated the tax change decision.
He said Crescent Point should be able to preserve its dry powder for other opportunities; otherwise it would be treated differently from Pengrowth.
So far, the only deal to collapse has been a C$496 million takeover by Shiningbank Energy Income Fund of Rider Resources, boosting the trust’s output by 8,800 boe per day to 35,000 boe per day.
The two parties said there was no certainty on the timing or content of draft legislation to cover the tax changes.
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