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United States looks good to Canadian trust
Gary Park For Petroleum News
What was supposed to be the year of consolidation among Canada’s income trusts is slow to make its appearance, while the sector ponders its future.
One of the few hints of action has come from Harvest Energy Trust, which is threatening to fold its tent and look for friendlier confines in the United States.
Chief Executive Officer John Zahary said the Canadian government’s plan to drag trusts from their tax shelter and make them start paying on the same terms as other corporations has turned Harvest’s attention south of the 49th parallel.
“We’re all figuring out the implications of the tax changes,” he said.
What is clear is that Harvest will not remain a trust “going forward, so you either become a Canadian corporation or restructure your business in the U.S.,” he told the Globe and Mail.
Zahary said the government’s failure to define its tax proposals makes it difficult for trusts to plan.
Because there is no clarity on the rules “we and others are considering the possibility of becoming a foreign entity with Canadian assets.”
Harvest 54 percent owned by foreigners For Harvest the prospect of a more welcoming environment in the United States is enhanced by the fact that foreigners (mostly Americans) own 54 percent of the trust.
Zahary said he has had an “earful” from non-Canadian unit holders about the federal flip-flopping.
“Stability and certainty are things capital markets look for and we’ve had a lot of uncertainty and instability,” which will eventually deter foreign investors, he said.
That could translate into challenges raising money needed to support capital spending.
Some analysts are dubious about the benefits to trusts of relocating to the United States, when they might be better off participating in mergers and acquisitions, which could flow from trust conversions to corporate ranks.
At the very least, trusts are being urged to wait for legislation.
But if Harvest heads south it will set off a huge ripple.
It is one of the largest trusts, forecasting 2007 production of 66,000 barrels of oil equivalent per day.
As well, it pulled off a surprise last fall by acquiring a 106,000 bpd refinery in Newfoundland for C$1.6 billion.
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