Maple Leaf Memo
RSVP: Gov. Brian Schweitzer
A bolo-tie wearing agronomist, he’s made a national name in the US touting a synthetic fuel process developed in the 1920s by Franz Fischer and Hans Tropsch at the Kaiser Wilhelm Institute and advanced in post-World War II America by scientists extracted from Germany as World War II wound down. He’s taken Fisher-Tropsch big under the bright lights of HBO’s Real Time with Bill Maher.
Now Montana Gov. Brian Schweitzer has invited Alberta’s energy producers to his state. His two-day trip north was planned more than a year ago, but Alberta Premier Ed Stelmach’s decision to boost royalty rates in the province made the journey particularly timely.
Those unhappy with increased royalty rates may be inclined to accept Schweitzer’s invitation. According to Schweitzer, Montana’s tax structure was better than Alberta’s even before Stelmach’s hike: “When you drill in Montana, you don’t even pay the tax for the first 12, 18 months. We have a tax holiday.”
And the state already does a lot of business with its cross-border Rocky Mountain energy corridor neighbors: 75 percent of the oil refined in his state’s four facilities comes from Alberta.
He suggested that new refineries will have to be built if Canada is going to increase energy production and nominated Montana to host them. According to the latest National Energy Board projections, Canada’s roughly 1.5 million barrels per day of oil sands production will rise to 3 million barrels per day by 2015, requiring a near-tripling of refining capacity.
“New refining capacity is going to have to be developed at some place…either on the Gulf Coast where they’re refining it right now, or it’s going to be someplace between Fort McMurray and markets,” said Schweitzer.
The strong loonie allows Canadian companies the opportunity to invest in the US on attractive terms. The Canadian dollar was only recently worth 62 US cents; it’s now well north of 100, and it looks like it will stay above parity for the foreseeable future. As Schweitzer put it, “That buys a lot of investment in a place like Montana.”
The governor’s pitch was part of a larger message on energy security: that North America must either develop its own domestic energy sources or face decades of geopolitical instability.
“The good news is that the Rocky Mountain corridor is the most important energy region in the world,” said Schweitzer. “The hydrocarbon resources between Fort McMurray and New Mexico are easily equal to the Middle East. And at today’s oil prices, we can become self-sufficient in energy economically.”
See You in Court
Marvin and Elaine Gottlieb of Chicago have filed a Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA), which allows corporate or private investors in one NAFTA country (Canada, the US or Mexico) to challenge actions by the government of another that harm their investments. The Gottliebs allege that Canada breached its tax treaty obligations to US investors by slapping a tax on income and royalty trust distributions.
Chapter 11 of NAFTA doesn’t allow for class actions; investors must file individual complaints. Go to http://www.naftatrustclaims.com/ for more information on the Gottliebs’ suit and how you can proceed. All Chapter 11 claims made on the trust matter will eventually be consolidated for a single hearing before a NAFTA tribunal.
There are significant procedural and jurisdictional issues the Gottliebs must overcome, and the history of these types of suits isn’t positive for investors. But it’s better to have argued and lost than not to have argued at all.
To the Links
Jonathan Ratner, summarizing TD Bank Financial Senior Economist Richard Kelly’s report “Oh CDOs, CDOs, Wherefore art thou CDOs?” on the Financial Post’s Trading Desk blog, provides a simple, interesting accounting of recent financial losses:
The whole post is available here. The bottom line: The continuing maturation of the global economy makes such problems easier to digest, but disclosure and transparency are still lacking.
The Roundup
Canadian Edge Portfolio recommendations have started reporting third quarter results in earnest.
Below we wrap up results for those that have released numbers and provide dates for those that will do so in the next couple weeks.
Conservative Portfolio
Algonquin Power Income Fund (APF.UN, AGQNF): Nov. 8
AltaGas Income Trust (ALA.UN, ATGFF): Nov. 7
Arctic Glacier Income Fund (AG.UN, AGUNF): Nov. 12
Artis REIT (AX.UN, ARESF): Nov. 14
Atlantic Power Corp (ATP.UN, ATPWF): Nov. 13
Bell Aliant Regional Communications Income Fund’s (BA.UN, BLIAF) operating revenue increased 1.6 percent (CAD12.8 million) in the third quarter compared to the same period a year ago, driven by 9 percent growth in data and Internet revenues. Internet revenue grew by CAD5.5 million as Bell increased high-speed Internet subscribers by 19 percent from a year ago. Other data revenues grew by 10.6 percent.
Information Technology revenue increased by CAD3.7 million on higher sales of computer hardware and software. Local service and long-distance revenue declined 1.6 percent and 3.5 percent, respectively. Network access services were 3.1 percent lower than a year ago and 7 percent lower than in the first two quarters of 2007.
Higher revenues, productivity-improvement-driven cost containment and lower provincial capital taxes resulted in a 1.6 percent increase in earnings before interest, taxes, depreciation and amortization (EBITDA). Distributable cash decreased by 4.5 percent as a result of the higher capital expenditures.
Bell Aliant’s rollout of fiber-to-the-node (FTTN) technology in the third quarter accounted for an increase in total capital expenditures of 6.1 percent. Bell Aliant Regional Communications Income Fund is a buy up to USD32.
Boralex Power Income Fund’s (BPT.UN, BLXJF) third quarter earnings declined on reduced power generation at two US rivers on which it operates. Boralex, because it has little reservoir capacity, is heavily dependent on river flows to generate hydroelectricity.
Net earnings for the quarter decreased to CAD1.5 million (3 cents Canadian per unit) from a CAD6.3 million profit a year earlier. Sales fell to CAD19.8 million from CAD23.5 million.
The US facilities generate about two-thirds of Boralex’s 90 megawatts of total hydroelectric capacity. Hydroelectric operations produced 34 percent less electricity than in the third quarter of 2006 and 23 percent less than the historical average. Revenue fell by CAD4.4 million to CAD6 million.
Strong water levels last year helped produce a 17 percent excess in power generation. Generation was off by 35 percent in the US, compared to an excess of 42 percent last year. Hydro output in Canada declined by 2 percent.
Partially offsetting Boralex’ hydro results were increases in the wood residue segment, where revenues rose slightly to CAD8.1 million. The natural gas power station had CAD5.7 million in earnings. Buy Boralex Power Income Fund up to USD10.
Canadian Apartment REIT (CAR.UN, CDPYF): Nov. 9
Energy Savings Income Fund (SIF.UN, ESIUF): Nov. 12
Keyera Facilities (KEY.UN, KEYUF): Nov. 6
Macquarie Power & Infrastructure (MPT.UN, MCQPF): Nov. 7
Northern Property REIT (NPR.UN, NPRUF): Nov. 8
Pembina Pipeline Income Fund (PIF.UN, PMBIF) reported third quarter net earnings of CAD33.4 million, up 36 percent from CAD24.6 million a year ago. Revenue jumped to CAD98.7 million from CAD85.3 million.
Conventional pipelines contributed CAD60.9 million in revenue and CAD38.4 million in net operating income during the third quarter of 2007, increases of 13 percent and 19 percent, respectively, from the same quarter of 2006. Pembina’s oil sands business contributed CAD17.1 million in revenue and CAD9.8 million in net operating income, up 6 percent and 3 percent, respectively.
The midstream business unit contributed CAD20.7 million in revenue and CAD18.7 million in net operating income, up 35 percent and 32 percent, respectively. Operating expenses totaled CAD31.8 million for the third quarter of 2007, up from CAD29.2 million.
The fund declared distributions of 35 cents Canadian per unit (CAD46.2 million), up from 29.5 cents Canadian per unit (CAD36.5 million) a year ago. Pembina’s payout ratio for the nine months ended Sept. 30 was 92 percent, comparable to the same period of the prior year.
Pembina estimates the full-year payout ratio for 2007 at 96 percent, comparable to 2006. Pembina Pipeline Income Fund is a buy up to USD17.
RioCan REIT (REI.UN, RIOCF) reported a 5 percent rise in funds from operations (FFO) for the third quarter, as rental revenue was up 10 percent during the period. RioCan reported net income of CAD35.9 million (17 cents Canadian per unit), down from CAD41.8 million (21 cents Canadian per unit) a year ago.
Rental revenue was CAD160.6 million, up from CAD145.3 million for the third quarter of 2006. FFO was CAD76 million (36 cents Canadian per unit), compared to CAD72.5 million (36 cents Canadian per unit) for the three months ended Sept. 30, 2006.
Portfolio occupancy at the end of the quarter was 97.6 percent, and 65.1 percent of rental revenue was derived from properties located in high-growth markets (Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver).
On Sept. 17 RioCan boosted its distribution 3 cents Canadian per unit on an annualized basis to CAD1.35 per unit. RioCan REIT is a buy up to USD25.
TimberWest Forest Corp (TWF.UN, TWTUF) lost, in distributable cash terms, CAD5.6 million (7 cents Canadian per unit) for the third quarter, reversing CAD9.6 million (12 cents Canadian per unit) reported for the same period of 2006. Sixty percent of the decline was related to a labor strike, real estate sales were lower than anticipated, and weak log markets in Japan and the US kept prices low.
The strike by the United Steelworkers union continues, but TimberWest’s logging contractors’ employees have returned to work. The forestry company reported a net loss of CAD28.1 million (36 cents Canadian per unit) on sales of CAD73.1 million; a year ago, TimberWest lost CAD12.8 million (16 cents Canadian per unit) on sales of CAD96.8 million.
TimberWest is focusing on real estate sales in coming quarters, and should be able to generate as much as CAD90 million via that route; that revenue should more than cover cash distributions. Hold TimberWest Forest Corp.
Yellow Pages Income Fund (YLO.UN, YLWPF): Nov. 7
Aggressive Portfolio
Advantage Energy Income Fund (AVN.UN, NYSE: AAV): Nov. 13
ARC Energy Trust (AET.UN, AETUF): Nov. 8
Enerplus Resources (ERF.UN, NYSE: ERF): Nov. 9
Newalta Income Fund (NAL.UN, NALUF): Nov. 7
Paramount Energy Trust (PMT.UN, PMGYF): Nov. 8
Penn West Energy Trust (PWT.UN, NYSE: PWE) Nov. 8
Peyto Energy Trust (PEY.UN, PEYUF): Nov. 7
Precision Drilling Trust (PD.UN, NYSE: PDS) reported net earnings of CAD73 million (58 cents Canadian per unit) for the third quarter, down 48 percent from CAD140 million (CAD1.11 per unit) a year ago. Revenue was down 35 percent to CAD228 million.
In the contract drilling segment, revenue for the quarter decreased by 35 percent to CAD160 million; operating earnings decreased by 49 percent to CAD59 million compared to the same period in 2006. Average drilling rig operating day rates declined 12 percent to CAD17,112.
In the completion and production segment, revenue for the third quarter decreased by 33 percent from 2006 to CAD72 million, while operating earnings decreased by 42 percent to CAD23 million. Service rig activity declined 32 percent from last year, with the fleet generating 84,490 operating hours compared with 123,783 hours in 2006.
Utilization fell to 38 percent in the quarter compared to 57 percent a year ago. Operating expenses increased from 48 percent of revenue in the third quarter of 2006 to 54 percent in 2007 because of lower customer pricing, higher labor costs and fixed overhead costs.
Conditions in Canada deteriorated even further during the period, but Precision continued to shift focus to the US land drilling market. It saw a sixfold increase in US drilling days quarter over quarter; as of Sept. 30, the trust had eight rigs operating in the lower 48 states at a utilization rate near 100 percent. Precision Drilling is a buy up to USD25.
Provident Energy Trust (PVE.UN, NYSE: PVX): Nov. 8
Trinidad Energy Services Income Trust (TDG.UN, TDGNF): Nov. 8
Vermilion Energy Trust (VET.UN, VETMF) reported net earning for the third quarter of CAD48.6 million, up from CAD48.1 million a year ago. Revenues from Vermilion’s operations in Canada, the Netherlands, Australia and France increased to CAD187.9 million from CAD167.3 million.
The trust reported production of 32,172 barrels of oil equivalent per day (boe/d), up 4.1 percent from the second quarter. Higher volumes in Australia and the Netherlands offset declines in Canada and France.
Vermilion’s geographic and production mix not only shield it from the currency and natural gas prices but also limit its exposure to Alberta’s planned royalty increases. Vermilion projected that the new royalty regime would shave less than 2 percent from its cash flow in 2009.
Cash flow for the quarter was CAD1.37 a unit, up 3 percent from a year earlier. Vermilion’s payout ratio was down to 34 percent from 40 percent a year earlier.
Production in the fourth quarter will likely come in slightly below the third quarter average because of maintenance downtime on facilities in Canada and the Netherlands. Average production for 2007 is expected to be about 31,000 boe/d, at the low end of Vermilion’s previous guidance. Vermilion Energy Trust is a buy up to USD38.
Now Montana Gov. Brian Schweitzer has invited Alberta’s energy producers to his state. His two-day trip north was planned more than a year ago, but Alberta Premier Ed Stelmach’s decision to boost royalty rates in the province made the journey particularly timely.
Those unhappy with increased royalty rates may be inclined to accept Schweitzer’s invitation. According to Schweitzer, Montana’s tax structure was better than Alberta’s even before Stelmach’s hike: “When you drill in Montana, you don’t even pay the tax for the first 12, 18 months. We have a tax holiday.”
And the state already does a lot of business with its cross-border Rocky Mountain energy corridor neighbors: 75 percent of the oil refined in his state’s four facilities comes from Alberta.
He suggested that new refineries will have to be built if Canada is going to increase energy production and nominated Montana to host them. According to the latest National Energy Board projections, Canada’s roughly 1.5 million barrels per day of oil sands production will rise to 3 million barrels per day by 2015, requiring a near-tripling of refining capacity.
“New refining capacity is going to have to be developed at some place…either on the Gulf Coast where they’re refining it right now, or it’s going to be someplace between Fort McMurray and markets,” said Schweitzer.
The strong loonie allows Canadian companies the opportunity to invest in the US on attractive terms. The Canadian dollar was only recently worth 62 US cents; it’s now well north of 100, and it looks like it will stay above parity for the foreseeable future. As Schweitzer put it, “That buys a lot of investment in a place like Montana.”
The governor’s pitch was part of a larger message on energy security: that North America must either develop its own domestic energy sources or face decades of geopolitical instability.
“The good news is that the Rocky Mountain corridor is the most important energy region in the world,” said Schweitzer. “The hydrocarbon resources between Fort McMurray and New Mexico are easily equal to the Middle East. And at today’s oil prices, we can become self-sufficient in energy economically.”
See You in Court
Marvin and Elaine Gottlieb of Chicago have filed a Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA), which allows corporate or private investors in one NAFTA country (Canada, the US or Mexico) to challenge actions by the government of another that harm their investments. The Gottliebs allege that Canada breached its tax treaty obligations to US investors by slapping a tax on income and royalty trust distributions.
Chapter 11 of NAFTA doesn’t allow for class actions; investors must file individual complaints. Go to http://www.naftatrustclaims.com/ for more information on the Gottliebs’ suit and how you can proceed. All Chapter 11 claims made on the trust matter will eventually be consolidated for a single hearing before a NAFTA tribunal.
There are significant procedural and jurisdictional issues the Gottliebs must overcome, and the history of these types of suits isn’t positive for investors. But it’s better to have argued and lost than not to have argued at all.
To the Links
Jonathan Ratner, summarizing TD Bank Financial Senior Economist Richard Kelly’s report “Oh CDOs, CDOs, Wherefore art thou CDOs?” on the Financial Post’s Trading Desk blog, provides a simple, interesting accounting of recent financial losses:
It is by no means an insignificant amount, but if you tally up the roughly $30-billion in losses financial institutions have booked so far as a result of this summer’s financial mayhem, it works out to a loss of just a nickel for every $100 invested in the world’s stock and bond markets.
The whole post is available here. The bottom line: The continuing maturation of the global economy makes such problems easier to digest, but disclosure and transparency are still lacking.
The Roundup
Canadian Edge Portfolio recommendations have started reporting third quarter results in earnest.
Below we wrap up results for those that have released numbers and provide dates for those that will do so in the next couple weeks.
Conservative Portfolio
Algonquin Power Income Fund (APF.UN, AGQNF): Nov. 8
AltaGas Income Trust (ALA.UN, ATGFF): Nov. 7
Arctic Glacier Income Fund (AG.UN, AGUNF): Nov. 12
Artis REIT (AX.UN, ARESF): Nov. 14
Atlantic Power Corp (ATP.UN, ATPWF): Nov. 13
Bell Aliant Regional Communications Income Fund’s (BA.UN, BLIAF) operating revenue increased 1.6 percent (CAD12.8 million) in the third quarter compared to the same period a year ago, driven by 9 percent growth in data and Internet revenues. Internet revenue grew by CAD5.5 million as Bell increased high-speed Internet subscribers by 19 percent from a year ago. Other data revenues grew by 10.6 percent.
Information Technology revenue increased by CAD3.7 million on higher sales of computer hardware and software. Local service and long-distance revenue declined 1.6 percent and 3.5 percent, respectively. Network access services were 3.1 percent lower than a year ago and 7 percent lower than in the first two quarters of 2007.
Higher revenues, productivity-improvement-driven cost containment and lower provincial capital taxes resulted in a 1.6 percent increase in earnings before interest, taxes, depreciation and amortization (EBITDA). Distributable cash decreased by 4.5 percent as a result of the higher capital expenditures.
Bell Aliant’s rollout of fiber-to-the-node (FTTN) technology in the third quarter accounted for an increase in total capital expenditures of 6.1 percent. Bell Aliant Regional Communications Income Fund is a buy up to USD32.
Boralex Power Income Fund’s (BPT.UN, BLXJF) third quarter earnings declined on reduced power generation at two US rivers on which it operates. Boralex, because it has little reservoir capacity, is heavily dependent on river flows to generate hydroelectricity.
Net earnings for the quarter decreased to CAD1.5 million (3 cents Canadian per unit) from a CAD6.3 million profit a year earlier. Sales fell to CAD19.8 million from CAD23.5 million.
The US facilities generate about two-thirds of Boralex’s 90 megawatts of total hydroelectric capacity. Hydroelectric operations produced 34 percent less electricity than in the third quarter of 2006 and 23 percent less than the historical average. Revenue fell by CAD4.4 million to CAD6 million.
Strong water levels last year helped produce a 17 percent excess in power generation. Generation was off by 35 percent in the US, compared to an excess of 42 percent last year. Hydro output in Canada declined by 2 percent.
Partially offsetting Boralex’ hydro results were increases in the wood residue segment, where revenues rose slightly to CAD8.1 million. The natural gas power station had CAD5.7 million in earnings. Buy Boralex Power Income Fund up to USD10.
Canadian Apartment REIT (CAR.UN, CDPYF): Nov. 9
Energy Savings Income Fund (SIF.UN, ESIUF): Nov. 12
Keyera Facilities (KEY.UN, KEYUF): Nov. 6
Macquarie Power & Infrastructure (MPT.UN, MCQPF): Nov. 7
Northern Property REIT (NPR.UN, NPRUF): Nov. 8
Pembina Pipeline Income Fund (PIF.UN, PMBIF) reported third quarter net earnings of CAD33.4 million, up 36 percent from CAD24.6 million a year ago. Revenue jumped to CAD98.7 million from CAD85.3 million.
Conventional pipelines contributed CAD60.9 million in revenue and CAD38.4 million in net operating income during the third quarter of 2007, increases of 13 percent and 19 percent, respectively, from the same quarter of 2006. Pembina’s oil sands business contributed CAD17.1 million in revenue and CAD9.8 million in net operating income, up 6 percent and 3 percent, respectively.
The midstream business unit contributed CAD20.7 million in revenue and CAD18.7 million in net operating income, up 35 percent and 32 percent, respectively. Operating expenses totaled CAD31.8 million for the third quarter of 2007, up from CAD29.2 million.
The fund declared distributions of 35 cents Canadian per unit (CAD46.2 million), up from 29.5 cents Canadian per unit (CAD36.5 million) a year ago. Pembina’s payout ratio for the nine months ended Sept. 30 was 92 percent, comparable to the same period of the prior year.
Pembina estimates the full-year payout ratio for 2007 at 96 percent, comparable to 2006. Pembina Pipeline Income Fund is a buy up to USD17.
RioCan REIT (REI.UN, RIOCF) reported a 5 percent rise in funds from operations (FFO) for the third quarter, as rental revenue was up 10 percent during the period. RioCan reported net income of CAD35.9 million (17 cents Canadian per unit), down from CAD41.8 million (21 cents Canadian per unit) a year ago.
Rental revenue was CAD160.6 million, up from CAD145.3 million for the third quarter of 2006. FFO was CAD76 million (36 cents Canadian per unit), compared to CAD72.5 million (36 cents Canadian per unit) for the three months ended Sept. 30, 2006.
Portfolio occupancy at the end of the quarter was 97.6 percent, and 65.1 percent of rental revenue was derived from properties located in high-growth markets (Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver).
On Sept. 17 RioCan boosted its distribution 3 cents Canadian per unit on an annualized basis to CAD1.35 per unit. RioCan REIT is a buy up to USD25.
TimberWest Forest Corp (TWF.UN, TWTUF) lost, in distributable cash terms, CAD5.6 million (7 cents Canadian per unit) for the third quarter, reversing CAD9.6 million (12 cents Canadian per unit) reported for the same period of 2006. Sixty percent of the decline was related to a labor strike, real estate sales were lower than anticipated, and weak log markets in Japan and the US kept prices low.
The strike by the United Steelworkers union continues, but TimberWest’s logging contractors’ employees have returned to work. The forestry company reported a net loss of CAD28.1 million (36 cents Canadian per unit) on sales of CAD73.1 million; a year ago, TimberWest lost CAD12.8 million (16 cents Canadian per unit) on sales of CAD96.8 million.
TimberWest is focusing on real estate sales in coming quarters, and should be able to generate as much as CAD90 million via that route; that revenue should more than cover cash distributions. Hold TimberWest Forest Corp.
Yellow Pages Income Fund (YLO.UN, YLWPF): Nov. 7
Aggressive Portfolio
Advantage Energy Income Fund (AVN.UN, NYSE: AAV): Nov. 13
ARC Energy Trust (AET.UN, AETUF): Nov. 8
Enerplus Resources (ERF.UN, NYSE: ERF): Nov. 9
Newalta Income Fund (NAL.UN, NALUF): Nov. 7
Paramount Energy Trust (PMT.UN, PMGYF): Nov. 8
Penn West Energy Trust (PWT.UN, NYSE: PWE) Nov. 8
Peyto Energy Trust (PEY.UN, PEYUF): Nov. 7
Precision Drilling Trust (PD.UN, NYSE: PDS) reported net earnings of CAD73 million (58 cents Canadian per unit) for the third quarter, down 48 percent from CAD140 million (CAD1.11 per unit) a year ago. Revenue was down 35 percent to CAD228 million.
In the contract drilling segment, revenue for the quarter decreased by 35 percent to CAD160 million; operating earnings decreased by 49 percent to CAD59 million compared to the same period in 2006. Average drilling rig operating day rates declined 12 percent to CAD17,112.
In the completion and production segment, revenue for the third quarter decreased by 33 percent from 2006 to CAD72 million, while operating earnings decreased by 42 percent to CAD23 million. Service rig activity declined 32 percent from last year, with the fleet generating 84,490 operating hours compared with 123,783 hours in 2006.
Utilization fell to 38 percent in the quarter compared to 57 percent a year ago. Operating expenses increased from 48 percent of revenue in the third quarter of 2006 to 54 percent in 2007 because of lower customer pricing, higher labor costs and fixed overhead costs.
Conditions in Canada deteriorated even further during the period, but Precision continued to shift focus to the US land drilling market. It saw a sixfold increase in US drilling days quarter over quarter; as of Sept. 30, the trust had eight rigs operating in the lower 48 states at a utilization rate near 100 percent. Precision Drilling is a buy up to USD25.
Provident Energy Trust (PVE.UN, NYSE: PVX): Nov. 8
Trinidad Energy Services Income Trust (TDG.UN, TDGNF): Nov. 8
Vermilion Energy Trust (VET.UN, VETMF) reported net earning for the third quarter of CAD48.6 million, up from CAD48.1 million a year ago. Revenues from Vermilion’s operations in Canada, the Netherlands, Australia and France increased to CAD187.9 million from CAD167.3 million.
The trust reported production of 32,172 barrels of oil equivalent per day (boe/d), up 4.1 percent from the second quarter. Higher volumes in Australia and the Netherlands offset declines in Canada and France.
Vermilion’s geographic and production mix not only shield it from the currency and natural gas prices but also limit its exposure to Alberta’s planned royalty increases. Vermilion projected that the new royalty regime would shave less than 2 percent from its cash flow in 2009.
Cash flow for the quarter was CAD1.37 a unit, up 3 percent from a year earlier. Vermilion’s payout ratio was down to 34 percent from 40 percent a year earlier.
Production in the fourth quarter will likely come in slightly below the third quarter average because of maintenance downtime on facilities in Canada and the Netherlands. Average production for 2007 is expected to be about 31,000 boe/d, at the low end of Vermilion’s previous guidance. Vermilion Energy Trust is a buy up to USD38.