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March 22, 2007

Canada is For Sale.....Part 2
by Meridian

In a recent blog I took aim at the Harper Government in Canada for their mean spirited actions towards a class of investments in Canada called Income Trusts (similar to Master Limited Partnerships in the USA). I pointed out that many Oil & Gas companies in Canada structured themselves as Trusts several years ago. Investors seeking the very decent distribution yields on these Trusts were ready and willing to allocate their investment dollars to these Trusts. (As a former Broker...I can now tell you I was all too ready to assist these investors so as to collect generous commissions!!). In any case, Mr. Harper seriously tripped up the Trusts in a cruel Halloween surprise that has all but crippled the ability of Trusts to raise additional capital to grow. An Oil & Gas company with a depleting asset base must raise capital to acquire new properties or to acquire up and coming junior companies that possess good property and production. I finished my last blog by heaping shame on the Harper folks and suggesting that Canadian oil and gas Trusts are now effectively for sale and will be subject to takeover attempts from larger US firms, foreign energy firms and perhaps even private equity concerns. So much for Canadian energy autonomy. This week the Harper crew issued its Budget. I watched the TV set with rabid enthusiasm, fully expecting to hear some kind of a reprieve for the Trusts in response to the cries of foul from Canadian investors. But I heard nothing. Instead I heard more nastiness. Turns out Mr. Harper has a bit of a "green" streak in him. Seems he favors "green" energy. On that note, he is moving to take away the accelerated tax depreciation bonus for oil sands projects. So effective now, any company seeking to begin development of an oil sands project will be able to use accelerated depreciation on capital costs only for another 2 1/2 years (until 2010).

Just what Mr. Harper is thinking...I do not know. But clearly he has lost touch with the Canadian oil and gas industry. This is not only foolish but also dangerous. If a lack of investment capital is going to be the prevailing theme for the Canadian energy sector, I can assure you there is plenty of foreign capital eagerly waiting on the sidelines. Foreign capital that will snap up Canadian energy assets at firesale prices.

Yes indeed. Canada is for sale.....How sad....How truly sad.....

I will be following this and other developments in the Canadian energy sector each week in my newsletter called Energy Central. I publish this letter for the good folks at www.themarkettraders.com. Take a visit to the site. You will be impressed.

www.themarkettraders.com

Copyright © 2006-2007 Meridian

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