Royalty Trusts
Royalty trusts are investment products that profit from royalties on the sale of production from natural resource companies such as oil and gas. They are a form of income trust. Income trusts are a type of investment trust that holds income-producing assets. Canada offers special tax treatment for income trusts. They flow their income through to their unitholders, without paying much if any corporate tax. Investors pay tax on most of the distributions as ordinary income (although some distributions qualify as a tax-free return of capital).
Pat McKeough responds to many personal questions on stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.
This week, …read more »
PEYTO ENERGY TRUST $17.17 (Toronto symbol PEY.UN; Units outstanding: 121.9 million; Market cap: $2.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 8.4%; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 23,775 barrels of oil equivalent (including natural gas) is weighted 86% toward gas and 14% to oil.
At current production rates, Peyto has …read more »
ZARGON ENERGY TRUST $19.63 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264-9992; www.zargon.ca; Units outstanding: 23.7 million; Market cap: $465.2 million; Dividend yield: 11.0%) has bought privately held Oakmont Energy for about $9.45 million. The purchase price consists of 336,000 Zargon units, plus Zargon will assume about $3.45 million of net debt (including adjustments and transaction costs).
Oakmont produces about 280 barrels …read more »
ARC ENERGY TRUST $20.54 (Toronto symbol AET.UN; Units outstanding: 275.0 million; Market cap: $5.6 billion; SI Rating: Speculative; Dividend yield: 5.8%) reports 17.6% higher revenue in the three months ended June 30, 2010, to $276.7 million from $235.2 million a year earlier. Cash flow per unit rose 45.5%, to $0.64 from $0.44. Increased production and higher oil and gas prices …read more »
PENN WEST ENERGY TRUST $19.68 (Toronto symbol PWT.UN; Units outstanding: 452.7 million; Market cap: $8.9 billion; SI Rating: Extra Risk; Dividend yield: 9.1%) is the largest oil and gas trust in North America. It produces an average of 163,700 barrels of oil equivalent per day (weighted 59% to oil and 41% to natural gas).
In the three months ended June …read more »
ARC ENERGY TRUST $19.86 (Toronto symbol AET.UN; Units outstanding: 250.9 million; Market cap: $5.0 billion; SI Rating: Speculative; Dividend yield: 6.0%) produces oil and natural gas in western Canada. Its average daily production of 67,207 barrels of oil equivalent (including gas) is weighted 46% to oil and 54% to natural gas.
In the three months ended March 31, 2010, ARC’s revenue …read more »
PEYTO ENERGY TRUST $13.25 (Toronto symbol PEY.UN; Units outstanding: 120.9 million; Market cap: $1.6 billion; SI Rating: Extra Risk; Dividend yield: 10.9%) produces and explores for oil and gas in Alberta. Its average daily production of 19,133 barrels of oil equivalent (including natural gas) is weighted 83% toward natural gas and 17% to oil.
At current production rates, Peyto has proven …read more »
ARC ENERGY TRUST $19.84 (Toronto symbol AET.UN; Units outstanding: 235.9 million; Market cap: $4.7 billion; SI Rating: Speculative) produces oil and gas in western Canada. Its average daily production of 62,824 barrels of oil equivalent (this measurement includes natural gas) is weighted 49% to oil and 51% to natural gas.
In the three months ended September 30, 2009, ARC’s revenue fell …read more »
Starting in 2011, Ottawa will impose a tax on distributions of income trusts, including royalty trusts. This will put trusts on an equal tax footing with regular corporations.
Many trusts are converting to corporations as a result. Some are even cutting their distributions. However, as we noted in a recent issue of Canadian Wealth Advisor, two royalty trusts have an …read more »
TRUE ENERGY TRUST $0.84 (Toronto symbol TUI.UN; SI Rating: Speculative) (403-264-8875; www.trueenergy.ab.ca; Units outstanding: 78.5 million; Market cap: $65.9 million) plans to convert itself into a conventional corporation by late October.
The trust’s long-term debt now stands at $110 million. That’s still a high 166.9% of its market cap. But the trust reported cash flow of $10.5 million, or $0.14 a …read more »
