Canadian gas players stumble

The latest downswing in natural gas prices, combined with the impact of a robust Canadian dollar, is spreading a sickening feeling among trusts and junior producers in Canada.

Paramount Energy Trust said a “precipitous” decline in Canadian gas prices has forced it to chop another 29 percent off its monthly cash distributions, just four weeks after it raised C$250 million from the sale of subscription receipts.

Under fire for that sequence of events, Paramount President Sue Riddell Rose argued not many people could have forecast the sudden and drastic dive in gas prices on futures markets — the result of a cooler than anticipated summer and an absence of disruptive storms on the Gulf Coast which has allowed gas in storage to climb.

As a result, Paramount fears soft gas prices will stretch into 2008, despite some fleeting hopes of a return to more normal drilling activity in Western Canada and a buildup of prices leading into the fall and winter.

Gordon Tait, an analyst with BMO Capital Markets, said the prospects of weak gas prices persisting through the summer points to more distribution cuts, without which trusts would face even deeper problems at a later stage.

FirstEnergy Capital analyst William Lacey said in a research note that Advantage Energy Income Fund, Fairborne Energy Trust, Pengrowth Energy Trust, PrimeWest Energy Trust and Trilogy Energy Trust are on his list of trusts at greatest risk of cutting distributions.

On a similar front, junior producer Kereco Energy has been making a course correct to head off a gas storm and enhance the value of its assets.

Company Chief Executive Officer Grant Fagerham said Kereco is open to a merger, acquisition or asset spin-off into a stand-alone entity, but outright sale is not on the list because of his conviction that gas prices will rebound over the longer term.

—Gary Park