Former trust charts new path

Article Excerpt

Pengrowth quickly became Canada’s largest oil and gas income trust after it was formed in 1989. As a trust, it paid out most of its cash flow to its unitholders. That left it with little to invest in exploration or growth projects. At the start of 2011, Pengrowth converted to a corporation in response to the federal government’s new tax on income-trust distributions, which came into effect on January 1 of this year. Unitholders received one common share for each unit they held. Now that it is a corporation, Pengrowth is using some of the cash from its conventional properties to expand into more risky areas, such as oil sands and shale gas. However, these projects have strong long-term potential, and their cash flows will help Pengrowth maintain its high dividend yield. Moreover, Pengrowth has tax pools that it can use to offset the tax it is now liable for, as a corporation. So it should be able to maintain…