Taqa oil deal needs reviewing by Diane Francis

"Quite frankly ? the United States is so difficult for anybody to invest in because of [such rules as the] Patriot Act," Peter Barker-Homek, chief executive of TAQA, or Abu Dhabi National Energy Co., August 2007

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Where does Taqa North Ltd., a foreign company, come off talking about snapping up Canadian energy companies while a review about foreign ownership is underway and won't be done until June?

Abu Dhabi's Taqa boasted last week that it had been given the go-ahead to look for more acquisitions by Jim Prentice, the Industry Minister. It wants to become one of Canada's biggest energy companies.

And I don't want it to. Neither do most Canadians if asked.

Circumventing government reviews is unacceptable to most Canadians, and it is strange that the company cites Mr. Prentice as encouraging takeovers. He is the minister who imposed a chill on foreign buyouts in the fall, announcing that a review was going to be undertaken.

So what gives? Is this guy just testing our limp, wimp Tory government? Read more...

Related:
East woos West in oilsands
Taqa on prowl for more Canadian acquisitions

The NDP are needlessly setting themselves up

By Brent Fullard

This evening [November 24] I attended an NDP public gathering in Hamilton hosted by four NDP MPs, which constitutes about 13% of the NDP’s caucus. The subject matter of the meeting was the Security and Prosperity Partnership. The NDP has been holding a number of similar meetings across the country on this matter and I learned they are planning to roll out their position on the SPP in a more prominent way in two weeks time. The NDP are to be applauded for giving the SPP greater visibility, since the self described modus operandi of the SPP is “evolution by stealth” and the supposedly innocuous jelly bean agenda, as Stephen Harper prefers to call it.

NDP Peter Julian described for the audience of 120 or so people the top ten things that Canadians need to know about the SPP. I only took note of the seven items described by Peter Julian that best serve to highlight the inherent contradiction between the NDP being against the SPP and being for the income trust tax:

(1) Policy is the product of the CCCE
(2) Absence of Public Consultation
(3) It is secret
(4) Blacked out documents released under Access to Information re SPP
(5) Censorship by government about SPP s greatest on issues relating to energy resource issues
(6) “Quality of life issues” are involved
(7) Energy sovereignty being threatened and compromised

Virtually every point that Peter Julian made in his presentation on the negative aspects of the SPP afforded me with a segue into the topic of income trusts. I waited to hear the questions that others in the room where asking first before asking my question. The questions were being asked in groups of five or so questions and then answered by Peter Julian. I asked my question immediately following a question from a gentleman who was pointing out the “faith based” nature of the Harper government and a question from another gentleman about the recent rash of foreign takeovers. I started off by making the point that a large portion of the takeovers, $65 billion in the last 12 months to be precise, can be explained by the faith based tax policies of the Conservative government that are, in fact, being supported by the NDP. I also pointed out that the NDP themselves are practicing their own brand of faith based policies, as bad as those of the Conservatives, because the NDP are writing letters to their constituents that read:

“I am confident that government estimates of future tax leakage are solid”

I then held up the 18 pages of blacked out documents provided under the Access to Information Act and asked the four NDP MPs in attendance where they derived their confidence from, if not simply blind faith. Blind faith on a matter that can be factually determined..

Peter Julian attempted to respond to my question in purely partisan terms, describing how this or that was either the fault of either the Liberal or the Conservatives. I told him he was wrong and that the blame he is trying to lay at the Liberals feet had nothing to do with the Liberals and everything to do with the alleged insider trading activity undertaken by Serge Nadeau, Director General of Tax Policy in the Department of Finance. I then pointed out that the Liberals are to be commended for doing what the NDP are condemning the Conservatives for not doing in the case of the SPP , namely Public Consultation. I pointed out to Peter Julian that had it not been for Ralph Goodale’s public consultation round in 2005, we would never have known that Mark Carney and Company in Finance were leaving out the 38% of taxes that are paid by average Canadians who hold their income trusts in RRSPs.

I indicated to the audience that the $65 billion in takeovers will be costing all Canadians, since it is all tax paying Canadians who will pay for the loss of $2 billion a year in taxes, a figure that will soon rise to $7.5 billion a year. On the point being made about the SPP and sovereignty I pointed out that the NDPs support of this income trust tax has left the 20% of Canada’s oil and gas production that is held in trusts and the 80% of Alberta’s energy infrastructure held in trust s highly vulnerable to foreign takeovers Witness Abu Dhabi’s purchase of Prime West for $5 billion. This, Peter Julian shamelessly or perhaps naively attempted to blame the Conservatives for.

All of this to make one simple point. This was a meeting that took place in Hamilton with a roomful of people who were predominantly Labour, as evidenced by the fact that everyone referred to one another as “brother”. During the evening about 25 questions were asked. Two received applause, one of which was my question. Many in attendance came up to me afterwards to learn more. Therefore the issue of income trusts is not going away and even die hard NDP supporters are receptive to others like myself when we raise completely valid questions such as “where is the NDP’s proof of tax leakage?”

As such, the NDP is setting itself up if it goes into the next election without answers to these questions, as they can be assured that they will be facing these most embarrassing questions in most every all candidates meeting that are held in ridings across the country. The NDP need not wear this egg on their face, since they need only point to the source of the false tax leakage information: Mark Carney and his compliant cohorts in the department of Finance. No reason why the NDP can't look smart by exposing the fraud taking place in the Department of Finance on behalf of the CCCE. Failure on the part of the NDP to do so will prove politically costly. Over to you Thomas Mulcair. You are operating with a blank slate. No need to feel bound by the superficial understanding of this issue that was brought to bear by former NDP Finance Critic Judy Wasylycia-Leis. Better to embarrass her than to embarrass yourself and your entire party in the process. In fact, no one needs to be embarrassed as the source of the misleading information insn’t Judy Wasylycia-Leis per se. But rather Mark Carney and his false methodology behind alleged ax leakage. Meanwhile, The 2.5 million income trust investors will prove a formidable challenge to your party’s ambitions. Keep in mind, there only were 2.5 million Canadians who voted NDP in the last election which was the NDPs best showing ever

PS: I gave Peter Julian his own set of 18 pages of blacked out documents and challenged him to come back to me with the NDPs proof of tax leakage. Before doing so he might want to read the attached report entitled “Tax Revenue Implications of Income Trusts" which showed no tax leakage, and that was before Harper reduced corporate tax rates from 22% to 15%, the effect of which Dennis Bruce of HLB Decision Economics has determined has now made income trusts responsible for $200 million in NEGATIVE tax leakage per annum

“Halloween massacre‘‘ still horror story for oilpatch one year later

TORONTO _ Major oil patch players say Finance Minister Jim Flaherty‘s “Halloween massacre‘‘ has turned into a full-blown horror story a year later, with oil and gas income trusts more prone to foreign takeovers and less able to access capital.

“We‘re not just a bunch of spoiled brats concerned because a toy has been taken away. This is something that is an enormous mistake,‘‘ said John Dielwart chief utive of Arc Energy Trust.

Dielwart, whose company was among the first to adopt the popular investment model, has been one of the most vocal opponents to Flaherty‘s plan to impose a 31.5 per cent tax hike on income trusts by 2011.

Dielwart said Flaherty made a big mistake in interfering in capital markets, which helped a $100-billion energy trust sector.

“It wasn‘t a gimmick, it wasn‘t based on artificial tax advantages. It was based on a very solid business model,‘‘ he said. “This was, if not the optimal model, it was pretty darn close.‘‘

Eilat warns that Canada‘s oil and gas sector _ owned and operated and run by Canadians _ will get back into foreign control “and I don‘t think anybody wants that.‘‘

One key example is PrimeWest Energy Trust, which Abu Dhabi-based state-owned energy firm TAQA is proposing to take over for $5-billion.

“We‘re going to see a lot more of them fall into foreign hands,‘‘ said Ross Freeman, a partner in Calgary‘s Borden Ladner Gervais LLP, but he adds that most of the activity won‘t happen until the four-year grace period comes to an end.

“The vast majority of the royalty trusts are still out there. They‘ve hung in there. They‘re trying to take advantage of the remaining grand fathering period. But they‘re under increasing pressure to do something and certainly there‘s a lot of pressure from overseas,‘‘ Freeman said.

He says the biggest losers from the income trust decision have been junior producers.

“Killing income trusts was a very, very severe blow, not just to the income trusts themselves, but to the whole junior sector, and that‘s where the impact, I think, was grossly underestimated by a lot of people,‘‘ he said.

With the weakening of that structure, juniors are getting less investment and fewer are being “gobbled up‘‘ by other trusts.

“The amount of financing the juniors were able to be doing just crashed. They just couldn‘t get investors any more,‘‘ Freeman said.

The majors, on the other hand, are doing ok, he said.

“They were never in the model of distributing their cash flow. They were not a yield investment. Even the very largest ones pay only very modest dividends. So clearly they‘ve been the winners of all of this.‘‘

They majors have also done well in the face of the income trust decision because it‘s brought their operating costs down, Freeman said. The cost of drilling has plummeted by more than 50 per cent over the past year, leading to the creation of far fewer wells.

“From an oil and gas company‘s perspective, that‘s a positive, it‘s cheaper to drill. Not so good if you‘re a drilling contractor,‘‘ he said.

Les Stelmach, an analyst with Bisset Income Fund agrees larger players may not have so much to lose in the short term.

“They‘re large, they have diversified asset portfolios, so they‘re less sensitive to changes in commodity prices or changes to royalty rates. They‘re certainly a viable business 2011. For smaller trusts, they, too can be very viable,‘‘ Freeman said.

He says smaller energy companies can also remain viable if they carve out the right course.

“The crux of the matter is they can‘t pay as much for property so they‘re less likely to be as acquisition focused as they were in the past,‘‘ he said, adding producers that have carved out specific niches will do better than ones that rely solely on acquisitions.

As the chief of one of the so-called “majors,‘‘ Dielwart said he disagrees that the bigger companies aren‘t taking as much of a hit. He said his company saw a 25 per cent decrease in capital from pre-Oct. 31, 2006 levels.

He also takes issue with the argument that values have somewhat recovered since the initial blow. Arc Energy units are trading about $7 below what they were a year ago, which Dielwart blames on the income trust decision.

“One one who suggests that values have recovered are just not doing their homework,‘‘ he said.

Meanwhile, ripples are being felt south of the border, too.

A Chicago couple, saying Flaherty‘s move has cost Americans and Canadians billions of dollars in lost investments, is using a provision of NAFTA to challenge the Conservative government‘s move.

“The Halloween 2006 income trust decision by the Government of Canada has had a massive financial impact on thousands of investors in Canada and the U.S. and we believe that it breached Canada‘s NAFTA obligations,‘‘ Marvin Gottlieb said in a statement Tuesday on behalf of himself and his wife.

“Because of this decision, more than $30 billion has been lost by individual investors in Canada and more than $5 billion has been lost by energy trust investors, including Elaine and me, in the United States.‘‘

Source: Oilweek Magazine - Canadas Oil and Gas Authority

CAITI responds to 'Trust Treat' by Terence Corcoran in October 27th National Post.

October 27, 2007

Letter to the Editor

Mr. Doug Kelly
Editor in Chief
National Post

Evidently my efforts of the last 12 months have struck a nerve. The truth has a habit of doing that. Especially when there are so many who are attempting to suppress it.

Meanwhile Terry Corcoran lives in a world of his own vindictive and narrow minded creation. Back in December he had this falsehood to say in your paper;

“Before our seniors rush off with the thought that the income trust issue is a call to re-fight the Second World War, they should know that Fullard is employed by the Canadian Association of the 50 Plus (CARP). CARP in
recent years got into bed with investment firms selling income trust products to its members. If I were running CARP, I'd be fighting mad, too -- at somebody.”

That was an outright falsehood and which had no basis in fact and that, once Mr. Corcoran learned was untrue, lost total interest in correcting as well as his total sense of journalistic zeal and was not man enough to retract the statement

Now we are to learn in today’s ranting tirade by Mr Corcoran that:

“One source familiar with the Fullardmort operation says CAITI now receives no money from his original deep-pocketed backers and is just spending his own dime and time cranking out ugly political commentary.”

Yet another falsehood perpetrated by Terry Corcoran that has no basis in fact. There are others, such as the time he promised to publish an opposing view of mine in response to an article in your paper that was centered around the views of CAITI, and then reneged after we had agreed to a word count and a deadline. He claimed that the original opinion article was “more right” than my rebuttal. Subsequent events have proven how correct indeed I was as evidenced by the foreign takeovers of all the income trusts such as Prime West by Abu Dhabi and TransAlta Power by Li Ka-Shing.

Mr. Corcoran has failed in his fundamental duty as a reporter, in that he did not speak with myself or anyone at CAITI before printing these two falsehoods. Meanwhile who is doing the fact checking at your newspaper before the printing of such slanderous articles?

I expect a full retraction and apology on the part of your paper for the falsehoods that Mr Corcoran is perpetrating about myself and our association and for reasons known only to himself, and perhaps his friends in the PMO.

Thank you,

Brent Fullard
President and CEO
Canadian Association of Income Trust Investors
www.caiti.info

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Dear Sirs

Terence Corcoran's personal attack on Brent Fullard in his column today is in extremely poor taste, unbefitting a national newspaper. From the schoolyard name-calling to the expression that he would like to see Mr Fullard "vaporized" -- surely this is not journalism. Clearly the man has some deep-seated personal issues with Mr Fullard, and is using his position at the National Post to wage a personal vendetta.

As to the rest of his column, I find it ironic that the accusations hurled Brent's way, of fulminating, of being overly partisan, can all be applied equally to Mr Corcoran himself, whose froth and fury spew from his column on a regular basis.

And what on earth does he mean by an "alleged" organization? There is nothing "alleged" about the Canadian Association of Income Trust Investors. It is as real as the National Post, and its membership is composed of many thousands of individual trust investors who were betrayed, even set up, by Stephen Harper's broken promise to "never raid seniors' nest eggs".

Yes, the anniversary of that stunning reversal is approaching. And, as Mr Corcoran laments in his opening paragraphs, there are sure to be many column inches devoted to the issue. Including, seemingly his own. Clearly the standards he applies to others do not hold when it comes to himself.

And what of the standards of the National Post? Highly opinionated columnists spark interest and fuel debate, but when they call for the vaporization of those they disagree with, they are getting dangerously close to uttering death threats.

Mr Corcoran owes Brent Fullard an immediate and sincere apology.

Sincerely,

Val Fullard
Communications Director
Canadian Association of Income Trust Investors
www.caiti.info

visit our new blog at: C A I T I - O N L I N E

Flaherty was pilloried unfairly according to Keith Woolhouse - Brent Fullard responds

Evidently this reporter thinks its preferable that Middle Eastern oil sheiks (Khalifa bin Zayed al Nahyan of Abu Dhabi Energy) and Hong Kong billionaires (Li Ka-Shing of Cheung Kong Infrastructure) own these companies with "internal problems" like Prime West Energy Trust and TransAlta Power, rather than Canadians who are trying to provide retirement income in a protracted low interest environment.

I guess that fact that these foreign buyers will not pay the draconian 31.5% double taxation or be limited by Flaherty's growth restrictions and yet Canadians will be, is the reporter's idea of tax fairness and leveling the playing field.

Why can the government sponsored pension plans like the federal civil servant's own Public Sector Pension Plan own Thunder Energy Trust without being taxed, and yet the average Canadian holding that very same trust in their RRSP is?

The only internal problems at hand are the internal thought processes of this reporter. Meanwhile the real problem facing these trusts is the external problem brought down upon them by a double talking, double taxing two faced government.

Good thing this government has friends/shills in the press who are happy to practice yellow journalism, since no civilized and fully informed society would let this kind of egregious policy of gross unfairness to ever go down. Do you suppose if this reporter knew that once these trusts are all relieved of their "internal problems" by foreign private equity and government sponsored pension plans that Ottawa's tax collection will be reduced by an ANNUAL amount of $7.5 billion. That's the equivalent of a 1.5% GST increase.
Brent Fullard, October 25 2007

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High-yield income trusts offer choice, but not for faint of heart

Keith Woolhouse, Citizen Special
Published: Thursday, October 25, 2007

It was at this time last year that federal Finance Minister Jim Flaherty was set to rock the markets with his Tax Fairness Plan that effectively slammed the door shut on corporations converting to income trust status and gave existing trusts a four-year window to convert back.

The ensuing hue and cry from investors was predictable as the S&P/TSX composite index plunged and most trusts lost around 22 per cent of their value.

Flaherty was pilloried, unfairly so, as it turns out. The sector's recovery and ensuing acquisitions have largely vindicated him. Those who still believe otherwise may argue that unit values and the distribution rates have suffered. That's a moot point. Most of the still depressed companies have internal problems.
Read the Complete Article

Related:
Perpetuating the Big Lie
Conservatives signal foreign takeovers OK until next year

Energy Trust Takeover Keeps Canada's Conservatives in Tough Spot

Yet another round of his ongoing royalty trust blunder was played by Canadian Prime Minister Stephen Harper this week as he stated any protectionist legislation regarding royalty trust acquisitions by foreign buyers would be put off until next year.

Because last year's bombshell that Canada would change the way it treated royalty trusts was fraught with political risks, not only did the ruling Conservatives pull it off with surprising ease, they've dodged all the bullets since. This latest one, however-- the announced takeover of PrimeWest Energy Trust (PWI) by Abu Dhabi's national oil company-- may be a tougher bullet to dodge. Here's a quick summary of the big royalty trust political events of the last year, capping with the latest:

1) Late last year-on Halloween, fittingly-the minority Conservative government in Canada announced a plan to prohibit the creation of any new royalty trusts and to force all existing trusts to convert to normal corporations by 2011, a 180-degree reversal from every promise it made on the topic, both pre- and post-election.

• The Political Risk: barely a year earlier, in late 2005, the then-ruling Liberal government simply floated the idea of changing the tax status of royalty trusts and voters revolted, particularly retirees who relied on the hefty dividends the royalty trusts paid. In fact, it became one of the key issues which toppled the tenuous ruling coalition and helped to sweep Conservatives into power for the first time in 15 years.

• The Political Solution: when the time came for the Conservatives to go back on their word in late 2006, they didn't just float an idea-they had a plan. That strategy consisted of well-crafted baubles for senior citizens, tax breaks for the retirement set carefully planned to mute the uproar that would have been expected. The plan worked; while CARP (Canada's AARP) eventually came out against the proposal, its reaction was slow and half-hearted, due in part to its happiness with income splitting and other tax goodies they were given.

2) The next big challenge was the budget process in the Spring of 2007, during which the Conservatives needed to pass the "Tax Fairness Plan" that contained the royalty trust tax change they had proposed months before.

• The Political Risk: because the budget process is by definition a confidence measure in Canada's parliamentary system, the government can fall and new national elections can result if an officially tabled budget doesn't pass. Being a minority ruling coalition (Conservatives have the most seats in parliament but not a majority of them), the Conservatives need the votes of at least one of the minority parties in order to pass its budget and avoid national elections.

• The Political Solution: Conservatives bought the votes they needed from the Bloc Quebec, which received a huge package of tax transfers from other Canadian provinces in return for their support of the budget. Thus, the Halloween proposal became enacted law.

3) Finally, the announcement on September 24th that TAQA, the Abu Dhabi national energy company, would be acquiring PrimeWest Energy Trust posed yet another challenge for the Conservatives.

• The Political Problem: shortly after the Conservatives announced their proposed change to the royalty trusts and the stocks got clobbered as a result, energy trust CEOs warned that they had been made sitting ducks for acquisition by foreign buyers. At the time, Finance Minister Flaherty brushed off the claims as self-serving propaganda on the part of the energy trust CEOs who opposed the tax change proposal, but TAQA's bid for PrimeWest-at a 30% premium-proved the trust CEOs correct. The Conservatives' tax law change had perhaps set the stage for the selling of Canada's vital natural resources to foreign buyers.

• The Political Solution: this one clearly has the Conservatives in a quandary. At first, Prime Minister Harper reacted swiftly, using the Middle-Eastern origin of the buyer to float the idea of blocking the deal on national security grounds. However, this deal was TAQA's 3rd takeover of the year in Canada, and one of those purchases has already closed; if it wasn't a national security issue then, why would it be now? Since that wouldn't make sense, he then backed off and said such protectionist legislation would be coming soon, but that the TAQA deal would be reviewed based on existing laws, preserving its ability to complete the PrimeWest deal. Even this solution wasn't ideal however, as it would keep the topic of the TAQA deal in the news, reminding Canadians that the energy trusts were indeed trading at fire-sale prices as a direct result of the change in their tax status.

Ultimately, there has been no political solution to the PrimeWest takeover, and this week's announcement by Canada's Conservatives that no such national security takeover legislation would be crafted until next year shows clearly they don't quite know how to make this problem go away. They must be hoping the topic will die down, that they'll have time to quietly pass such legislation at some point in the future.

Will this work? Maybe, but the fact still remains that the TAQA takeover of PrimeWest signaled clearly that Canadian energy trust assets are very inexpensive. In reality, a foreign acquirer might actually step up any similar plans in hopes of getting a deal done now, before any new legislation that would block such foreign buyers is tabled next year.

Regardless, the royalty trust tax change was a huge mistake, and the lack of any clever political play in the aftermath of the PrimeWest takeover shows that Harper, Flaherty and their team will have an increasingly difficult time covering up that fact.

Note: click here to listen to my podcast interview with Roger Conrad about current energy trust valuations in general and the PrimeWest takeover, in particular.

Disclosure: Author has a long position in PWI

Source: Seeking Alpha

Kurt Wulff on Primewest takeover bid

Excerpt from McDep Associates research report:

Political Irony in Tax “Fairness”

Investors know to run the other way when political leaders talk about the “fairness” of proposed changes. Canada’s minority government ended the royalty trust tax advantage after 2011 to stem an imagined loss of revenue. Instead the measure discriminates against individual investors who want to exercise some control over their retirement in favor of institutional investors who can use opaque techniques to avoid taxes.

In the current takeover, we understand from the Financial Post that the buyer may set up the purchase as a 100% loan and then make distributions as interest. Apparently, interest payments would not be subject to corporate tax or to withholding tax on payments to non-Canadian entities.

Read the complete McDep report

Harper and Layton’s made in Abu Dhabi policy of raiding seniors’ nest eggs

CLICK FOR FULL SIZE IMAGE

Harper's Happy Halloween leads to unhappy hollowing out and diminished futures for virtually all Canadians

Ottawa and Calgary events planned on October 31st

I want to bring to your attention two very important event based initiatives on the part of two CAITI members, who are seeking your involvement to assure its success.

In less than three weeks it will be Halloween 2007. The first anniversary of our misfortune at the hands of Stephen Harper. We probably all remember how and when we heard the news about Stephen Harper's broken promise to never tax trusts and to never raid seniors nest eggs. Turns out, never was short lived. Those were our nest eggs he happened to be raiding that particular evening and in the weeks and months ahead.

His reasons were dubious at the time, and have only become more dubious with the passage of time. Correction. His reasons have actually been proven to be baseless. Apart from the losses we have all experienced, Harper's actions are causing great harm to our country, its economic foundations, and its tax base. Of the 25 largest foreign takeovers in Canada over the course of the last 5 years, 7 are linked to the trust taxation. From a policy that has only been around for 11 months! Two of these deals really stand out.

The first is BCE. We all know that BCE and Telus and their announced plans to convert formed the sole rationale cited by Harper for the breaking of his promise. He said taxes would be lost. How was that even possible when neither BCE nor Telus were even paying corporate income taxes? Now BCE has been taken private under a mountain of debt by foreign private equity and a tax advantaged government sponsored pension plan. Why can they own what we can't and not be subjected to the same rules or even the same logic. How is that "leveling the playing field" How is that "tax fairness"? These parties are actively pushing us aside. Harper favours them to us. The net effect? The true irony? Canada will lose $793 million a year in taxes from BCE relative to it being an income trust. Harper has us in a race to the bottom.

Meanwhile we have a middle eastern oil company, Abu Dhabi Energy acquiring the undervalued Prime West Energy for $5 billion. We have foreign big oil buying up our energy trusts. More will soon follow This is a complete reversal of what trusts were able to accomplish over the past ten years, namely the repatriation of a large number of Canadian energy assets from foreign owners. Harper has turned that upside down. In the process, major taxes are being lost, as well as an essential investment choice and lost capital. In the end the price tag wil be $7.5 billion a year in lost taxes. Each and every year

All of this is to say, there is a rare opportunity near at hand to demonstrate your dissatisfaction with this grossly flawed policy. There are two events planned for Halloween by two very dedicated CAITI Members. David Marshall from Cornwall who is organizing a gathering in Ottawa, and Mike Beath who is organizing a gathering in his home town of Calgary. We can easily arrange to have these events covered by the media to heighten their effectiveness. Before doing so however, we have to assure ourselves that there will be sufficient attendees. For those attending the Ottawa gathering, David has arranged for all attendees to gain entry to the visitors gallery of Parliament to watch Question Period in person. It's quite the event, and Question Period in the House of Commons is the very center of Canadian politics. Transportation will be provided from Toronto to those wishing transportation, returning that same day. The departure point will be Yorkdale Shopping Mall, adjacent to Highway 401. For those wishing bus transportation, please let David know. To indicate your intention to participate, simply contact David or Mike at the co-ordinates below.

I am personally asking you to attend. I will be attending the Ottawa event. If there are other CAITI members who wish to organize similar events in their local areas, please let us know at contact@caiti.info and we will assist in getting the word out.

Many of you may not reside in close proximity to either Calgary, Ottawa or Toronto. In that case I would encourage you to ask a friend or relative who does, to attend in your place.

A strong attendance will provide physical evidence that neither we, nor this issue, are going away quietly and conveniently, which won't be lost on the media. Limited numbers will however convey the opposite message. Please strongly consider attending if at all possible.

Thank you very much,

Brent Fullard
President and CEO
Canadian Association of Income Trust Investors
www.caiti.info

647 505-2224 (cell)

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Ottawa, Ontario: October 31 - Gathering and Question Period Attendance

• Meet at the Justice Building on Wellington Street, rear of building, 12:30PM to 1:00PM
• Arrive on Parliament Hill 1:00PM
• Remembrance Gathering on Parliament Hill 1:00PM to 1:30PM
• Attend House of Commons visitors gallery for Question Period entering at 1:30PM
  

Ottawa Event Co-ordinator:

David Marshall
phone: 613-938-0810
email:
grumpymarshall@sympatico.ca

Ottawa Meeting Place Map - click on blue placemark for further information

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Calgary, Alberta: October 31- Gathering:

• Meet at 2:00 PM.

Stephen Harper's Constituency Office
Suite A203, 1600 90th Ave. SW
On west side of Glenmore Landing Shopping Centre, which is on northwest of 14th St

Calgary Event Co-ordinator:

Bruce Benson
phone: 403-285-8491
email:
BruceBenson@shaw.ca

Calgary Meeting Place Map - click on blue placemark for further information

The environment has now turned quite good for Private Equity

"Private Equity found a very difficult environment for about a year and a half with the Income Trust market. The Income Trust market bid up all sorts of properties and it was very difficult for private equity to compete. With the change in the tax laws coming down the pike, opportunities are out there again and we are seeing a lot of deals. The environment has now turned quite good, not particularly good for Income Trusts, but good for Private Equity."
Richard Schmeelk CAI Private Equity, New York, Sept 25, 2007



Richard Schmeelk describes the effect the Conservative 'Tax Fairness Plan' has had on the Canadian income trust and energy market.

Who is Richard Schmeelk?

Dick Schmeelk, based in New York, was a founding partner of CAI Private Equity in 1989. Throughout his career, Mr. Schmeelk has been involved in Canadian-U.S. financial matters. During his tenure at Salomon Brothers, the firm was recognized as the leading U.S. investment banking firm serving the Canadian public and private sectors.

Mr. Schmeelk had senior responsibility for Salomon Brothers' relationships with the Government of Canada, seven Provinces and a number of other public sector entities. He also advised many corporations including Bell Canada, Canadian Pacific Limited, Imperial Oil Limited and Northern Telecom Ltd. Source: CAI

What is Private Equity?

Equity capital that is made available to companies or investors, but not quoted on a stock market. The average individual investor will not have access to private equity because it requires a very large investment. Source: Investopedia

Related:
The lambs lie down on Bay Street
Income Trusts and Canada’s Energy Sovereignty . . . . Past, Present and Future.
Trust Takeovers to October 1st, 2007
Primewest Energy Trust -Bought for Nothing Down & No Income Taxes
New low looms for Canadian IPO market, PwC survey shows
U.S. Crude Oil and Total Petroleum Imports Top 15 Countries - EIA

Harper Says Using Current Rules to Review PrimeWest Takeover

Oct. 3 (Bloomberg) -- Canadian Prime Minister Stephen Harper said he'll toughen foreign-investment rules to consider national security, a decision that won't apply to Abu Dhabi National Energy Co.'s planned purchase of Calgary-based PrimeWest Energy Trust. More...

Related:
Treating the symptoms. Two Jims in a Jam!
Primewest Energy Trust -Bought for Nothing Down & No Income Taxes
Trust Takeover Transactions
Pending Transactions

Primewest Energy Trust -Bought for Nothing Down & No Income Taxes

The TAQA deal structure uses two corporations, both private, one to lend the funds and the other to own the equity. This permits the entire amount of cash flow to be pulled out of Primewest and directed thru the Canadian corporation to a non-resident entity to eliminate Canadian income tax. Flaherty has just signed an agreement with the US permitting interest payments to leave Canada without withholding taxes. His intention is to extend this agreement with other major tax jurisdictions. The withholding tax removal by Flaherty validates the use of debt by non-residents to purchase Canadian resident businesses.
Source: IncomeTrustResearch.com

Primewest - The First of the Majors to Go

The first of the large cap Canadian energy trusts is in process of being acquired by TAQA North Ltd. a subsidiary of Abu Dhabi National Energy Company for $C26.75 per unit. The update reviews the pricing of the deal and provides valuation parameters for Bonterra, Pengrowth, Canetic, Trilogy, Fairborne, Arc, PennWest, Enerplus and Crescent Point.

Our valuation approach has been to establish a lower end value based on the price a purchaser would pay for the proved plus probable reserves. This price is $2.50 per mcf for natural gas and $18 per bbl for conventional oil and $1 for undeveloped oil sands reserves. The Primewest transaction provides an arm’s length actual transaction for the large cap energy trusts to compare and validate our valuations. As an additional benchmark I consider the cash flow that was being used to pay distributions, which is now available to the purchaser to fund the before tax interest cost on borrowings should they decide finance the transaction. The cash flow from distributions is adjusted, if necessary for the potential need for distribution reductions. This number is supported by our revenue and cost per boe analysis which has been the backbone of our valuation methods for 3 years.

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The estimated replacement cost values have been listed on a table accessible under Energy Trusts on the front page of IncomeTrustResearch.com. These values have been available since Q4-06 following the release of the income trust taxation legislation.

On a replacement cost approach we valued PWI.UN at $23-$24 including the reserves acquired following the merger with Shiningbank. Just prior to the acquisition announcement units were trading at $20 which makes the offer appear to be at a large premium. Alberta oil and natural gas producer values declined last week following the announcement by the provincial government of a report recommending an substantial increase to crown royalty rates. As are result of the decline from the pending royalty review the offer from TAQA appears somewhat generous and the timing is very interesting.

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TAQA is a foreign purchaser with government ownership that could run afoul of Canadian regulators. Primewest has been very active in the Canadian trust lobby with senior executive George Kesteven as the President of the Canadian Association of Income Funds. It was just a matter of time until one of the major Canadian energy trusts would enter into a sale transaction to escape the impact of the trust legislation. It is interesting that Primewest who have been an aggressive advocate against the trust tax are the first to go, giving the appearance they are testing the waters and just before a possible federal election.

On a mcf basis TAQA paid $2.15 or $13.30 per boe. Primewest reserves are 70% natural gas and by this measure they paid less than the $2.50 going rate. The distribution which was being paid to unit holders totals $435M annually and is at risk of a 30% reduction. Even at the reduced amount the distribution would fully pay the interest on a 6%, $5B loan. TAQA is buying Primewest for nothing down should they choose to borrow the funds or they can use the distributions for reinvestment.

By our estimates TAQA paid a 13% premium to our replacement cost value and on a free cash flow basis the deal was priced at a 6% cap rate. As a result of this transaction we are including a free cash flow based value using a 6% loan rate to determine how much debt the purchase price can support. This establishes an upper end value. The TAQA deal structure uses two corporations, both private, one to lend the funds and the other to own the equity. This permits the entire amount of cash flow to be pulled out of Primewest and directed thru the Canadian corporation to a non-resident entity to eliminate Canadian income tax. Flaherty has just signed an agreement with the US permitting interest payments to leave Canada without withholding taxes. His intention is to extend this agreement with other major tax jurisdictions. The withholding tax removal by Flaherty validates the use of debt by non-residents to purchase Canadian resident businesses.

Another interesting aspect of the deal is that Primewest is weighted to natural gas where prices have been weakest in comparison to oil. The purchasers have elected to buy the commodity with the weak price trend in expectation of better days ahead, if not this year then within 3-5 years. TAQA has deep enough pockets with $800B in assets to be patient with the $5B purchase of Primewest. There is also the uncertainty about the Alberta government’s review of crown royalties that could increase royalties by up to 50%. This is another risk that TAQA is prepared to accept. Despite reports in the Globe that TAQA is flush with cash and is overpaying for Primewest, the numbers do not support this conclusion. TAQA appears to know exactly what they are doing and have made a very good purchase that includes bargain priced reserves and an excellent management team.

We are in the process of updating the table on energy trust values which reconfirms the lower end value ranges and adds an estimated upper end cash flow based value. The buzz from the Primewest deal will likely fade setting the stage for another possible purchase. If unit prices approach the lower end replacement cost values accumulation is recommended.

Pennwest has agreed to buy Vault Energy Trust paying $14 per boe, $2.33 per mcf including land. Vault is 68% weighted to natural gas. The metrics on this transaction are attractive to Pennwest and supportive of our $2.50 per mcf natural gas value benchmark.

We will be updating the replacement cost and cash flow based values for all energy trusts and advising as updated.

Recommended Prices by Trust

As comparables, replacement cost values for PWT, ERF and CPG are $30, $48 and $17-18 respectively. Our next most favourably priced recommendations are Pennwest Energy (PWT.UN)at $30.25 or lower, Enerplus (ERF.UN) at $48 or lower, Crescent Point Energy Trust $20 or lower.

This also brings into play Peyto Energy (PEY.UN) with a replacement cost of $20 and current price of approx. $18.50

Bonterra Energy Trust (BNE.UN)

Replacement cost value is $25 per unit, and on a cash flow approach using a 6% cap rate they are valued at $30 per unit. Crown royalty costs jumped in Q2 due to retroactive adjustment, however they still have one of the lowest crown royalty rates in the energy trust sector. Recommended at $28 or lower.

Pengrowth Energy Trust (PGF.UN)

At $18 per boe, total enterprise value is $4B net of debt , approx. $17 per unit at replacement cost. On a cash flow distributions should be reduced by 75% which still allows for approx. $250-$300M of free cash flow providing firm support to the $17 per unit replacement cost. Recommended at $18 or less.

Canetic Energy Trust (CNE.UN)

Canetic made a several expensive acquisitions to quickly build reserves during 2004-2006 when reserves were expensive. This has increased their average FD&A to $25 per boe among the most expensive of the energy trusts. On a replacement cost Canetic is worth $10-$11. Free cash flow is thin and we expect up to 80% cut in distributions which is supporting the $15 value. Appreciation above the $15 level is expected to be limited.

Trilogy Energy Trust (TET.UN)

On a replacement cost Trilogy is worth $7.50 per unit and free cash flow provides a value as high as $12 per unit. There appears to be considerable upside appreciation based on the $8 price as of Sept-25-07

Fairborne Energy Trust (FEL.UN)

On a replacement cost Fairborne is worth $6 per unit and free cash flow provides a value of $4 per unit. FEL is expected to cut distributions by up to 80%.

Arc Energy Trust (AET.UN)

Replacement value $20 per unit and cash flow is $26. Cash flow value includes a reduction of distributions by 30%.

PennWest Energy Trust

On a replacement cost for conventional reserves PennWest is worth an estimated $30 plus up to $6 additional for the 1B bbls of potentially recoverable oil sands reserves. On a cash flow basis after reducing distributions by 30% their value is estimated at $40 per unit. The recent acquisition of Vault Energy added 27M boe of reserves at a favourable cost of $14 per boe included land leases and increases total reserves by 5%.


A complete list of energy trust with estimate replacement cost values is accessible from the front page of IncomeTrustResearch.com under Energy Trusts.

Related:

Canadian Energy Too Cheap to Ignore - greenfaucet.com

Jim Flaherty's Folly - Diane Francis

The Abu Dhabi Put - The Motley Fool

Garth Turner returns to Ontario and invites you to a Town Hall Meeting in Owen Sound

Garth Turner to host Owen Sound Town Hall meeting

MP wants voter input on federal issues – Income trusts, economy, real estate, Afghanistan, the environment

Voters, taxpayers and constituents in the Owen Sound region will get a rare chance on Thursday September27th to send a message directly to Parliament when outspoken MP Garth Turner hosts a public Town Hall meeting locally. While residents are free to raise any topic they wish, the Conservative government’s decisions to tax income trusts, and raise personal income tax – breaking specific promises by Prime Minister Stephen Harper – are likely to spark a hot debate.

The income trust move is believed to have cost more than two million investors, most of them seniors, more than $20 billion in lost retirement savings. That is the greatest private loss ever to result directly from one government action, and came as a shock to voters after Mr. Harper promised repeatedly in the last election campaign that he would never impose such a tax.

Turner says many homeowners and investors are also concerned abut the real estate meltdown in the United States, and the potential for that to affect people here. He will address those concerns in a presentation, “What every Homeowner and Investors must know.”

MP Turner, ousted by Stephen Harper last fall for his opposition to several Conservative positions, has been a champion of jilted investors, and will bring an action plan to the meeting for those anxious to know what their alternatives are. Turner joined the federal Liberal caucus in February, after sitting as an Independent member of Parliament for four months, for the west GTA riding of Halton.

“I have heard from many people in Ottawa, and across the country, very unhappy that their Conservative MPs, like Bruce-Grey-Owen Sound’s Larry Miller, have refused to call such a meeting,” Turner says. “They seem only too happy to hide in Ottawa these days where Mr. Harper has rewarded severely muzzled his caucus and taken actions which seriously call into question his stated goal of having an open and accountable government.”

Turner says Mr. Flaherty and Mr. Harper need to explain to Ottawa residents not only why income trusts were taxed, but also why so many Canadian companies have been purchased as a result recently by foreign firms. Garth Turner, a noted personal finance author before going to Parliament, says he is also concerned by the government’s move to raise income tax and bring in an inflationary budget with record spending which has increased loan and mortgage rates later this year. He said that is endangering the economy, as the United States falls into recession.

Attendance at the Owen Sound meeting is free, and all are welcome to attend.

BRUCE GREY SIMCOE

Owen Sound, Ontario

Thursday, September 27th, 2007 at 7:00 pm
Owen Sound Legion – 1450 2nd Avenue West

A social ‘meet-&-greet’ event will precede the meeting, in the same location.

For more information contact:
Esther Shaye
(905) 693-0166
esther@garth.ca

Garth Turner to host Burlington public meeting

MP brings action to restore income trust losses

Voters, taxpayers and constituents of the Burlington federal riding will get a rare chance June 14th to send a message directly to Parliament when outspoken MP Garth Turner hosts a Town Hall meeting in Burlington. While residents are free to raise any topic they wish, the recent Conservative government decision to tax income trusts - breaking a specific promise by Prime Minister Stephen Harper - is likely to spark a hot debate.

The move is believed to have cost more than a million investors, most of them seniors, more than $25 billion in lost retirement savings. That is the greatest private loss ever to result directly from one government action, and came as a shock to voters after Mr. Harper promised repeatedly in the last election campaign that he would never impose such a tax.

MP Turner, ousted by Stephen Harper last fall for his opposition to several Conservative positions, has been a champion of jilted investors, and will bring an action plan to the meeting for those anxious to know what their alternatives are. Turner joined the federal Liberal caucus in February, after sitting as an Independent member of Parliament for four months, for the west GTA riding of Halton.

"I have heard from many people in Burlington very unhappy that their MP, Mike Wallace, has refused to call such a meeting," Turner says. "Mike seems only too happy to hide in Ottawa these days where Mr. Harper has rewarded him with a position on the finance committee. It's a shame how the trappings of power can make a good MP forget who sent him down there."

Turner says Mr. Wallace and Mr. Harper need to explain to area residents not only why income trusts were taxed, but also why so many Canadian companies have been purchased as a result recently by foreign firms. Garth Turner, a noted personal finance author before going to Parliament, says he is also concerned by the government's move to raise income tax and bring in an inflationary budget with record spending that could sell increase loan and mortgage rates later this year.

The Burlington meeting is being sponsored by the Canadian Association of Income Trust Investors, a non-partisan, national group representing the interests of individual citizens. It is open to everyone and is free of charge.

The meeting will take place on Thursday, June 14th, at the Burlington Seniors Centre, 2285 New Street. Start time is 7 pm. For more information, please contact Esther Shaye at (905) 693-0166.

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For a list of all town hall meetings planned click here