powered by GlobeinvestorGold.com

Glenn MacNeill

In this Issue

Original thinking

Glenn MacNeill

TORONTO (GlobeinvestorGOLD)—The rising number of commercial or industrial companies that have converted to income trusts have taken attention away from the original income trusts—the oil and gas royalty trusts.

Oil and gas trusts may be more risky than the commercial and industrial trusts, but if you are suddenly flush with $200,000 in cash following the untimely demise of your 104-year-old great uncle, then you may find that you can tolerate a bit more risk in your portfolio.

And while the fluctuations in commodity prices add a level of unpredictability to their distributions, increasing their perceived risk, oil and gas royalty trusts have an additional bonus: a historical track record. Many oil and gas trusts were established more than 10 years ago.

That said, why not take your new money and examine a new oil and gas trust.

Bonavista Energy Trust is a new trust created from an older, more experienced energy company. Bonavista Petroleum Ltd. converted to the royalty trust structure earlier this year, and now benefits from the company's proven management team, which had a solid understanding of their asset base well before considering taking on trust status.

Bonavista has daily production of more than 34,000 barrels of oil equivalent per day, among the largest production levels in the oil and gas royalty trust market. With such a large production base, and with average to high commodity prices, Bonavista should be able to maintain distributable income in the foreseeable future. Bonavista is currently paying out 25 cents per unit each month and trading at $18.80 in recent days. The unit price is up 7 per cent in the last month.

One of Canada's largest and oldest conventional oil and gas royalty trusts is ARC Energy Trust. In operation since 1996, ARC has become the 14th largest oil and gas producer in Canada. ARC is highly regarded for its consistency of distributions. ARC has paid out $12.14 of cumulative cash distributions to unitholders since inception, which is an average of almost 12 per month per unit. ARC also sets aside money every month to fund future development projects and invest to replace production. Current levels of distribution are at 15 per unit per month and as of November 17, 2003, its trailing 12-month cash distributions, including the November 17, 2003 payment, totaled $1.76 per trust unit.

So if it's an income trust you are after, and the idea of investing in mattresses or coffee does not do anything for you, consider investing where income trusts began, where old is new again, the oil and gas sector.

Glenn MacNeill is Vice President of Investments for Sentry Select Capital Corp.

Back to top