Best Served Cold

Prime Minister Stephen Harper’s hints at proroguing Parliament and starting over with a throne speech have raised the possibility of an early election.

A throne speech requires a subsequent vote of confidence. If enough opposition Members of Parliament vote against the minority government’s new policy articulation, the government falls and a federal election would follow.

The case for investing in income trusts–buying solid, cash-flow heavy businesses paying sustainable distributions–is sound, particularly so in light of the three-and-a-half-year tax window. A unit of the Bank of Montreal issued a press release last week announcing the availability of analysts to discuss the issue, and the message is getting out. (See here and here.)

We’re not looking at the toppling of Harper and his Finance Minister Jim Flaherty as some sort of rescue. But seeing the minority government fall, given the opportunities still available, would be cold vengeance–a cake we get to eat, too.

The Liberals would need the support of the Bloc Quebecois and the New Democratic Party to bring down the government. But their leader Stephane Dion told Canwest News Service that, if Harper, in a throne speech, moved forward with the Conservatives’ environmental regulation plan and killed opposition legislation requiring a faster reduction of greenhouse gas emissions, “we will not be able to support it and look Canadians in the eye.”

“It’s not that I want to go in an election, but everybody will understand that as a man of honour, I cannot stand for something that I think is wrong,” Harper said.

Most analysts say none of the major political parties–especially not the Conservatives and Liberals–is eager to risk an early election because opinion polls don’t point to a clear win for any party. But Dion said it won’t matter if polls suggest that neither the Conservatives nor the Liberals had enough support to secure a majority in a federal election.

The Conservatives would need the support of at least one other party on a throne speech vote to stay in power.

Issues that could galvanize the three opposition parties include government plans to fight climate change and the military mission in Afghanistan, where 69 Canadian soldiers have been killed since 2002.

Dion said that, if Harper does suspend the parliamentary session, he must revive the Clean Air Act–legislation the opposition, led by the Liberals, crafted and passed to commit Canada to sticking to the Kyoto Protocol. The government has essentially abandoned the bill, arguing that meeting Kyoto targets on greenhouse gas emission would be too costly.

The Bloc Quebecois’ Gilles Duceppe said he would seek to amend a throne speech to include a pledge to pull Canadian troops out of Afghanistan by February 2009. The New Democrats have called for an immediate withdrawal of troops rather than waiting another 18 months.

If Harper does suspend Parliament, Ottawa pundits assume a throne speech would be in mid-October, followed by a vote in the following days. Defeat of the throne speech could mean an election in late November or early December.

The Roundup

Canadian Edge Portfolio trusts have all reported results for the period ending June 30, 2007.

Here are the collected summaries, all in one convenient location. Results on the whole reflect decent business conditions domestically and for the international economy. Specific trusts have had to deal with issues like the depressed natural gas market, and many have booked paper losses because of the passage of the Tax Fairness Plan.

We’ll take an in-depth look at the reasons trusts had to account for future income taxes now in the September issue’s Canadian Currents.

Conservative Portfolio

Algonquin Power Income Fund (APF.UN, AGQNF) reported a CD2.3 million (3 cents Canadian per unit) loss for the second quarter, reversing the CD13.8 million (20 cents Canadian per unit) net earnings a year ago. The decrease is traceable to a CD27.9 million future tax expense, a one-time accounting charge required by the passage of the Tax Fairness Plan.

Revenue grew to CD50 million from CD47.1 million during the second quarter of 2006. The revenue boost came mostly from the acquisition of the St. Leon Wind Energy Facility and increased production at the Windsor Locks and Sanger facilities. Algonquin’s hydroelectric division operated at 100 percent of long-term averages.

Cash available for distribution was CD18.9 million (25 cents Canadian per unit), up from CD16 million (23 cents Canadian per unit) a year ago. Algonquin distributed 23 cents Canadian per unit during the recently concluded quarter, the same amount it paid a year ago.

Running its existing operations well and positioned to capitalize on the drive for carbon-neutral power generation, Algonquin Power Income Fund is a buy up to USD9.

AltaGas Income Trust (ALA.UN, ATGFF) reported second quarter net income of CD13.1 million (23 cents Canadian per unit), down from CD29.9 million (54 cents Canadian per unit) in the same quarter 2006. Excluding a CD14.5 million noncash charge related to passage of the Tax Fairness Plan, net income was CD27.6 million (48 cents Canadian per unit), up from CD23.3 million (42 cents Canadian per unit) a year ago.

Funds from operations (FFO) were CD39.2 million (69 cents Canadian per unit), compared to CD35.7 million (65 cents Canadian per unit) a year ago. Quarterly revenues rose to CD341.8 million from CD299.6 million in the second quarter of 2006.

AltaGas also boosted its monthly cash distribution to 17.5 cents Canadian per unit from 17 cents Canadian per unit payable on Sept. 17, 2007, to unitholders of record on Aug. 27, 2007. AltaGas Income Trust is a buy up to USD26.

Arctic Glacier Income Fund (AG.UN, AGUNF) reported second quarter sales of CD79.8 million, a 32 percent increase from the same period in 2006. Most of the gain was attributable to acquisitions completed in 2006 and the first quarter of 2007.

Sales in previously serviced markets increased CD700,000, or 1 percent, compared to the same quarter in 2006. The stronger Canadian dollar decreased reported sales by CD1.5 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) were CD27.3 million, up 33 percent from a year ago.

Net income increased 31 percent to CD11.7 million (30 cents Canadian per unit). Acquisitions fueled a 14 percent increase in distributable cash to a second quarter high of CD18.5 million; on a per-unit basis, distributable cash decreased to 48 cents Canadian from 54 cents Canadian because of seasonal factors as well as the timing of acquisitions of California Ice and Happy Ice during the last half of the second quarter of 2006.

The fund declared distributions to unitholders totaling CD10.6 million (28 cents Canadian per unit) during the quarter. Arctic Glacier’s total long-term debt, excluding convertible debentures, was CD177.4 million as of June 30, compared to CD186.1 million at Dec. 31, 2006. The fund’s net debt to EBITDA ratio at June 30, 2007, was 2.6-to-1. Arctic Glacier Income Fund is a buy up to USD14.

Atlantic Power Corp (ATP.UN, ATPWF) reported a net loss of CD24.2 million (39 cents Canadian per unit). Not including the mark-to-market losses and the noncash gain at Onondaga, the net loss for the quarter would have been CD10 million (16 cents Canadian per unit); net income year-to-date would have been CD7.3 million (12 cents Canadian per unit).

Distributable cash was CD17.4 million (28 cents Canadian per unit), down from CD21.1 million (54 cents Canadian per unit) in the year-ago period. Atlantic declared distributions of CD16.3 million (27 cents Canadian per unit) for a payout ratio of 87 percent. Atlantic attributed the decrease to “routine fluctuations in the timing of working capital and the timing of semi-annual debt payments at the Path 15 Project.”

Adjusted EBITDA at its facilities increased 9 percent to CD34.6 million, driven by the new contribution from the Path 15 transmission line, increased generation and efficiency, as well as lower maintenance expenses. Atlantic generated project income of CD2.7 million in the second quarter, which included noncash mark-to-market losses of CD24.2 million related to changes in the fair value of the Chambers power purchase agreement (PPA).

The company also recognized a CD10 million noncash gain associated with a settlement of firm gas transportation contracts at the Onondaga project. Excluding noncash items, project income was CD16.9 million for the quarter. Buy Atlantic Power Corp up to USD12.

Bell Aliant Regional Communications Income Fund’s (BA.UN, BLIAF) second quarter results illustrate a steady shift in focus from traditional telephone to broadband services: High-speed Internet subscriptions were up 21 percent year-over-year to 642,434, while local access lines declined by 94,000 to 3,264,763.

Local and long-distance revenue declined by CD3.8 million, or 1 percent, and CD4.8 million, or 3.9 percent, respectively, in the three months to June 2007, compared to the second quarter of 2006, as Internet turnover rose by CD8.3 million. Overall operating revenue for the period reached CD825.4 million, up 1.3 percent year-over-year.

EBITDA were CD358.1 million, a 4.1 percent increase, and net income was CD305.2 million. Results were helped by the sale of the fund’s telephone directory business.

Three-month capital expenditures were CD143.4 million, up 0.9 percent on the year-ago period. Still effectively transitioning from landlines to the new age, Bell Aliant Regional Communications Income Fund is a buy up to USD30.

Boralex Power Income Trust (BPT.UN, BLXJF) reported a CD44.3 million (75 cents Canadian per unit) loss for the three months ended June 30, 2007, down from a CD7.2 million (12 cents Canadian per unit) gain during the second quarter of 2006. Without the change in Canadian tax law, net earnings would have been CD2.8 million (5 cents Canadian per unit).

The adjustment for future income taxes based on the passage of the Tax Fairness Plan was CD47.1 million. On the operations side, the second quarter revenue was off CD3.3 million to CD23.9 million from CD27.2 million a year ago.

Boralex’s hydroelectric facilities aren’t served by reservoirs, so it’s dependent on natural conditions for operational efficiency. Water was tight during the second quarter, even for what is ordinarily a slower period for the company.

EBITDA amounted to CD11.2 million, down from CD16.1 million in 2006. Revenue from the hydroelectric segment was CD11.6 million, down CD3 million from the same period in 2006. The seven hydroelectric power stations generated 137,553 megawatt hours (MWh), 11 percent below historical averages and down 19.6 percent from 171,006 MWh in the second quarter of 2006.

The wood-residue segment reported revenue of CD7.3 million compared to CD7.5 million for the second quarter of 2006. EBITDA was CD1.8 million, compared to CD2.3 million for the same quarter a year earlier, because of nonrecurring items related to municipal taxes and downtime because of scheduled maintenance. The natural gas segment recorded revenue of CD5 million, down CD200,000 compared to the second quarter of 2006.

Boralex continues to accept merger proposals and offers to buy the business. The trust has received offers it’s currently reviewing but says it can’t put a timeline or make a prediction on the outcome. Boralex Power Income Trust is a buy up to USD10.

Energy Savings Income Fund’s (SIF.UN, ESIUF) first quarter profit jumped 135 percent to CD25.9 million (24 cents Canadian per unit), up from CD11 million (10 cents Canadian per unit) a year ago, and the fund boosted its annual distribution by 4.5 cents Canadian per unit to CD1.21 per unit (10.083 cents Canadian per month) effective Sept. 30.

Sales for the three months ended June 30 were CD374.3 million, up from CD321.2 million. Energy Savings’ customer base grew 6 percent to 1.7 million; for the first time, the fund added more customers in the US than in Canada. Energy Savings Income Fund is a buy up to USD16.

Keyera Facilities Income Fund (KEY.UN, KEYUF) reported net earnings before tax and noncontrolling interest of CD21.6 million, up 44 percent from the second quarter of 2006. Keyera recorded a net loss of CD59.8 million for the quarter because of an CD80.2 million noncash future income tax expense resulting from the enactment of the Canadian government’s tax on publicly traded income trusts starting in 2011.

Distributable cash flow was CD31.2 million (51 cents Canadian per unit), up 31 percent from a year ago. Distributions to unitholders totaled CD22.5 million (36.9 cents Canadian per unit) in the second quarter.

All business segments delivered strong second quarter results: Gathering and processing contributed CD15.4 million, up 14 percent year-over-year; natural gas liquids infrastructure generated CD11.2 million, up 26 percent; and marketing posted CD18.1 million, up 83 percent. Keyera declared CD22.5 million of distributions to unitholders on CD31.2 million (51 cents Canadian per unit) in distributable cash flow.

The decline in drilling activity in Western Canada hasn’t had a material impact on the raw gas volumes delivered to Keyera’s facilities for processing; throughput volumes at most Keyera plants increased compared to the first quarter of 2007, the result of producer drilling undertaken in previous years. Lower activity levels may affect the volume of raw gas delivered to Keyera’s gathering and processing facilities in the future.

As of Jan. 1, 2007, Keyera had approximately CD385 million of unutilized tax pools and deductions. Keyera plans to reduce the use of its available tax deductions in 2007-10, thereby increasing deductions available for the years after 2010. Keyera Facilities Income Fund is a buy up to USD19.

Macquarie Power & Infrastructure Income Fund (MPT.UN, MCQPF) reported revenue for the second quarter of CD21.6 million, up from CD16.3 million a year ago. Income from operations was CD2.4 million for the quarter, compared with a loss of CD1.3 million for the second quarter of 2006.

Distributable cash was CD7.3 million (23.7 cents Canadian per unit), up from CD6.3 million (21 cents Canadian per unit) a year ago. Declared distributions to unitholders for the quarter were CD9.5 million (25.7 cents Canadian per unit), compared to CD7.5 million (25 cents Canadian per unit) a year ago.

Macquarie’s reported payout ratio for the quarter was 129 percent, up from 119 percent for the same period a year ago. Macquarie’s future income tax expense in the second quarter includes a one-time charge of CD44 million related to passage of the Tax Fairness Plan. This noncash charge represents the tax effect of the difference in the tax and accounting values of the fund’s assets and doesn’t affect distributable cash.

As of June 30, 2007, the fund had working capital of CD33 million, an uncommitted cash balance of CD22.8 million, and fully funded general, major maintenance and capital expenditure reserve accounts. Macquarie Power & Infrastructure Income Fund is a buy up to USD12.

Northern Property REIT (NPR.UN, NPRUF) recorded a net loss for the second quarter ended of CD10.9 million, compared to net earnings of CD4.1 million for the three months ended June 30, 2006, because of a CD16 million, noncash charge based on the real estate investment trust’s (REIT’s) share of the temporary differences between the accounting and tax basis of its assets and liabilities.

The charge has no impact on cash flows or distributions; it relates to Northern Property’s future income tax liabilities as a result of passage of the Tax Fairness Plan.

Favorable rental market conditions and a seasonal decline in operating costs resulted in a 13.4 percent increase in total property rental revenue to CD24.2 million from CD21.4 million a year ago. Net operating income increased by 16 percent to CD16 million.

Distributable income increased by 16.4 percent from CD8.1 million (41.7 cents Canadian per unit) a year ago to CD9.4 million (46.4 cents Canadian per unit). The REIT’s payout ratio for the first six months of 2007 was 80.6 percent.

Northern Property’s debt stood at 58.7 percent of gross book value as of June 30. The REIT closed on 281 residential units and 182 seniors’ units during the second quarter, and has followed up with 263 residential units, 53 seniors’ units and 237,000 square feet of commercial space thus far in the third quarter. Northern Property REIT is a buy up to USD25.

Pembina Pipeline Income Fund (PIF.UN, PMBIF) generated net earnings of CD30.9 million for the second quarter, up 83 percent from a year ago. Year-to-date earnings are up 63 percent over 2006 levels.

The conventional pipelines contributed CD60 million in revenue and CD37 million in net operating income during the second quarter of 2007, up by 10 percent and 16 percent, respectively, from the same quarter of 2006. Pembina’s oil sands business segment contributed CD15 million in revenue and CD10 million in net operating income during the second quarter of 2007, a 12 percent and 4 percent increase from the same quarter of 2006.

Construction activities on the Horizon Pipeline proceeded on schedule to meet Pembina’s targeted mid-2008 completion; it will add 250,000 barrels a day in capacity. The midstream business unit contributed CD18 million in revenue and CD15 million in net operating income during the second quarter of 2007, resulting in increases of 41 percent and 33 percent, respectively, over the same quarter of 2006.

Operating expenses totaled CD30.7 million during the second quarter of 2007 and CD61.9 million for the first half of the year, up from operating expenses incurred during the same periods of 2006 of CD27.7 million and CD57.3 million, respectively. Operating costs on the conventional pipeline systems totaled CD47 million during the first half of 2007, up from CD45.3 million incurred during the first half of 2006.

On a per-barrel-of-throughput basis, operating expenses on the conventional systems averaged 53 cents Canadian for the quarter compared to 52 cents Canadian during the same quarter of 2006. General and administrative expenses of CD14.6 million were recorded during the first half of 2007, CD600,000 higher than the previous year on salary pressures.

Long-term debt to total enterprise value stood at 25 percent, up from 24 percent as of Dec. 31, 2006. Pembina also announced a 9 percent increase in its distribution to 12 cents Canadian per unit effective for the distribution to be paid in September 2007 to unitholders of record on Aug. 31, 2007.

The fund distributed 33 cents Canadian per unit during the second quarter of 2007 for total cash distributions of CD42.9 million. Buy Pembina Pipeline Income Fund up to USD16.

RioCan REIT (REI.UN, RIOCF) reported a net loss for the quarter ended June 30, 2007, of CD106.1 million (51 cents Canadian per unit) compared to net earnings of CD39.6 million (20 cents Canadian per unit) a year ago because of a noncash charge of CD150 million brought on by the passage of the Tax Fairness Plan.

The charge is based on temporary differences between the accounting and tax basis of the REIT’s assets and liabilities. It has no impact on cash flow or distributions.

Rental revenue was up 12 percent to CD158.3 million from CD141.6 million. FFO were CD79.8 million (38 cents Canadian per unit), up from CD68.2 million (35 cents Canadian per unit) a year ago. Occupancy increased to 97.7 percent.

RioCan continues to run a stable portfolio of assets: High-growth markets constituted 64.6 percent of rental revenue; 82.6 percent of annualized revenue comes from and 83.1 percent of space is rented to national, anchor tenants; 49.7 percent of second quarter revenue was derived from its 25 largest tenants; and no individual tenant accounted for more than 5.7 percent of annualized rental revenue. RioCan REIT is a buy up to USD25.

TimberWest Forest Corp (TWF.UN, TWTUF) reported a net loss of CD7.3 million (9 cents Canadian per unit) after earning CD12.2 million (16 cents Canadian per unit) during the second quarter of 2006. Sales revenue declined from CD145 million to CD104 million on slackening volume and lower average sales realizations.

The US log and lumber market continued to be weak, the Japanese market was oversupplied, contractor costs in the timberlands business rose, and the company also realized lower real estate sales during the period. TimberWest generated distributable cash of CD13.6 million (17 cents Canadian per unit), down from CD35.5 million (46 cents Canadian per unit) a year ago.

Log sales realizations averaged CD90 per cubic meter, CD10 per cubic meter lower than the same quarter last year. Domestic sales represented 58 percent of total volume, up from 49 percent a year ago; pricing is lower in Canada compared to the export market.

Log sales volumes for the quarter were off slightly from 2006 at 892,300 cubic meters. TimberWest’s debt-to-total capitalization ratio as of June 30, 2007, was 19-to-81 compared to 17-to-83 at the end of 2006. TimberWest Forest Corp remains a buy up to USD16.

Yellow Pages Income Fund (YLO.UN, YLWPF) posted a CD127.6 million (24 cents Canadian per unit) second quarter profit, up from CD114.2 million (23 cents Canadian per unit) a year ago. Revenue increased 21 percent to CD411.1 million, up from CD340.3 million.

Distributable cash grew by 18.5 percent to CD177.3 million, up 10 percent on a per-unit basis to 33 cents Canadian per unit from 30 cents Canadian in the second quarter of 2006. Organic growth in the directory business, both print and online, drove Yellow’s performance.

Directories adjusted revenues increased by 5.1 percent, while adjusted EBITDA increased by 6.6 percent. Adjusted EBITDA margin reached 58.8 percent for the quarter.

Yellow completed the purchase of Aliant Directory Services in Atlantic Canada. On the vertical media side of the business, Trader Corp generated revenues of CD90.7 million, growing 5.1 percent; EBITDA grew by 12.3 percent to CD30 million.

Migrating well from print to electronic media, Yellow Pages Income Fund is a solid buy up to USD15.

Aggressive Portfolio

Advantage Energy Income Fund (AVN.UN, NYSE: AAV) reported earnings of CD4.5 million (4 cents Canadian per unit) in its first quarter, down from CD23.9 million (38 cents Canadian per unit), as operating costs increased along with production volumes. Revenue before royalties increased to CD125.1 million from CD80.8 million.

Advantage reduced its payout ratio to 83 percent from 127 percent a year ago. FFO were CD62.6 million (54 cents Canadian per unit), compared to CD42.3 million (62 cents Canadian per unit) for the same period of 2006.

Production volumes grew by 48 percent year-over-year to 27,115 barrels of oil equivalent per day (boe/d) on the Ketch Resources acquisition, which closed June 23, 2006. Natural gas production increased 55 percent to 109 million cubic feet per day (MMcf/d) compared to 70.3 MMcf/d a year ago. Crude oil and natural gas liquids production increased 36 percent to 8,952 barrels per day (bbls/d) compared to 6,593 bbls/d in the second quarter of 2006.

Advantage currently has approximately 54 percent of its net natural gas production hedged for summer at an average floor price of CD7.08 per thousand cubic feet (mcf) and an average ceiling of CD8.09 per mcf. Fourteen percent of net crude oil production has been hedged for the same period at an average floor of USD65 per barrel (bbl) and a ceiling of USD90.

For the winter months and extending into the spring of 2008, Advantage has 28 percent of net natural gas production hedged at a floor price of CD8.85 per mcf and a ceiling of CD10.19 per mcf. Buy Advantage Energy Income Fund up to USD14.

ARC Energy Trust (AET.UN, AETUF) reported net income in the second quarter of 2007 was CD184.9 million (90 cents Canadian per unit), basically flat compared to the CD182.5 million (91 cents Canadian per unit) in the second quarter of 2006. Higher operating costs, interest costs and depletion expense were almost entirely offset by an increased gain on foreign exchange.

ARC recorded an increased gain on risk management contracts that was offset by a lower future income tax recovery and the recording of a gain on sale of investment. Cash flow for the period was CD167.6 million, down 14 percent from CD194.7 a year ago on a CD11 million decrease in realized cash hedging gains, a CD8.5 million increase in cash operating costs and a CD5.7 million increase in cash general and administrative costs.

Revenue was flat at CD305.6 million, compared with CD306.7 million for the second quarter of 2006. Production volume averaged 61,637 boe/d, relatively unchanged from 61,803 boe/d during the second quarter of 2006.

The trust experienced significant production loss during the second quarter as a result of planned turnarounds and workovers. ARC has maintained its full-year production guidance of 63,000 boe/d.

Capital expenditures for the quarter were CD48.5 million, 86 percent of which was funded from cash flow. Year-to-date capital expenditures are CD126 million, most which have been funded from cash flow.

Prior to hedging activities, ARC’s total realized commodity price was CD54.48 per barrel of oil equivalent (boe) in the second quarter of 2007, relatively unchanged from the CD54.54 per boe received prior to hedging in the second quarter of 2006. ARC’s balanced production mix helped keep realized prices stable.

As of June 30, 2007, ARC had CD644.8 million of debt outstanding, of which CD238.3 million was fixed at a weighted average rate of 5.06 percent and $406.5 million was floating at current market rates plus a credit spread of 60 basis points. Sixty-three percent of the trust’s debt is denominated in US dollars. Buy ARC Energy Trust up to USD23.

Enerplus Resources (ERF.UN, NYSE: ERF) reported a decline in net income to CD40.1 million (31 cents Canadian per unit) from CD146 million (CD1.19 per unit) in the second quarter of 2006. Revenue was CD333.9 million, up from CD318.5 million a year ago. Crude oil and natural gas revenues were CD382.5 million, compared to CD403.5 million for the same period in 2006.

Production volumes averaged 82,478 boe/d, a decrease of 4 percent from 86,028 boe/d during the first quarter of 2007. Average production was weighted 54 percent natural gas and 46 percent crude oil and natural gas liquids on a boe basis.

Distributions to unitholders were 42 cents Canadian per unit per month for a total of CD1.26 per unit during the second quarter. That works out to a 68 percent payout ratio after working capital.

Enerplus spent CD80.4 million on development activity in the period, with CD33 million of that devoted to its Sleeping Giant property in Montana. Enerplus is reallocating an additional CD10 million from its 2007 capital budget to this US property. US capital spending will account for more than a quarter of the full-year total.

Operating costs averaged CD9.69 per boe in the period; the full-year average is projected to be CD9 per boe, up from previous guidance of CD8.45 per boe.

Enerplus’ debt-to-cash flow ratio was 0.7 times as of June 30, 2007. On July 18, Enerplus was added to the S&P/TSX 60 Index, a market-weighted index of 60 of the largest Canadian public companies. Inclusion should provide increased liquidity, visibility and institutional ownership. Buy Enerplus Resources up to USD50.

Newalta Income Fund (NAL.UN, NALUF) reported a 70 percent decline in net earnings to CD6.7 million and a 37 percent slide in EBITDA to CD15.5 million for the second quarter. Revenue improved 16 percent from a year ago to CD111.6 million on the strength of acquisitions completed during the second half of 2006.

Wet weather in the quarter slowed activity in Newalta’s western waste and recovered crude operations, and weak natural gas prices depressed drill site activity. Acquisitions drove solid margin growth in its eastern segment.

FFO decreased 47 percent in the second quarter to CD12.2 million. Cash available for distribution declined 56 percent to CD8.5 million. Newalta’s debt to EBITDA ratio as of June 30 was 1.69-to-1. Newalta Income Fund is a buy up to USD30.

Paramount Energy Trust’s (PMT.UN, PMGYF) profit fell 72 percent to CD6.1 million (7 cents Canadian per unit) from CD21.8 million (26 cents Canadian per unit) on lower natural gas prices. Paramount announced a 29 percent distribution cut in July to 10 cents Canadian per unit per month.

Strong production levels in the quarter and realized hedging gains led to a 28 percent increase in funds flow from operations to CD72.7 million from CD56.6 million a year ago. The hedging program contributed to funds flow per unit of 81 cents Canadian, up from 68 cents Canadian per unit during the second quarter of 2006.

Paramount took advantage of short-term weakness in natural gas markets to realize early termination gains on its hedging and physical forward sales portfolio, recording CD19.6 million of realized gains on financial instruments during the quarter, of which CD18.6 million related to the early termination of certain financial instruments for the summer 2007, winter 2007-08 and summer 2008 terms.

Production averaged 155 MMcfe/d for the period, down from 162.9 MMcfe/d in the second quarter of 2006. Distributions totaled 42 cents Canadian per unit during the quarter. Paramount Energy Trust is a buy up to USD13.

Penn West Energy Trust (PWT.UN, NYSE: PWE) reported cash flow of CD326 million (CD1.37 per unit) in the second quarter compared to CD265 million (CD1.59 per unit) a year ago.

The trust recorded a net loss of CD185 million (77 cents Canadian per unit) compared to net income of CD221 million (CD1.34 per unit, basic) in the second quarter of 2006 because of a CD326 million future income tax charge taken to reflect the enactment of the Tax Fairness Plan. Absent the charge, net income would have been CD140 million (59 cents Canadian per unit).

Production averaged 126,599 boe/d in the second quarter of 2007 compared to 93,242 boe/d in the same period of 2006. Crude oil and natural gas liquids production averaged 70,923 barrels per day, and natural gas production averaged 334 MMcf per day in the second quarter of 2007.

Penn West invested CD484 million on capital development, including CD351 million of net property acquisitions, and drilled 13 net wells in the second quarter with a success rate of 92 percent. Penn West’s board has committed to keeping the trust’s distribution at 34 cents Canadian per unit per month for the next three months. Penn West Energy Trust is a buy up to USD38.

Peyto Energy Trust (PEY.UN, PEYUF) reported net income was CD38.8 million (37 cents Canadian per unit) in the second quarter, down from CD56.7 million (54 cents Canadian per unit) a year ago. Production decreased 10 percent to 20,509 boe/d from 22,892 boe/d during the second quarter of 2006.

Peyto paid total distributions of CD44.4 million, even on a per-unit basis (42 cents Canadian) with second quarter 2006 levels. The payout ratio for the second quarter of 2007 was 64 percent of funds from operations, up from 57 percent a year ago.

Operating costs were CD2.70 per boe for the quarter, up 19 percent from CD2.26 per boe a year ago. Peyto reported a reserve life of 14 years on a proved basis, 20 years on a proved plus probable basis.

Revenue for the period was CD100.8 million, down 6 percent from CD106.8 million. FFO were CD69.3 million (66 cents Canadian per unit), down 11 percent from CD77.5 million (74 cents Canadian per unit).

The trust’s debt-to-FFO ratio was 1.5 as of June 30. Net debt decreased CD12 million from the first quarter of 2007 to CD415 million. Peyto spent CD12.9 during the quarter in finding and developing new natural gas reserves, an 81 percent reduction in capital expenditures from the second quarter of 2006.

Boasting a low-cost profile and one of the most transparent capital structures in the industry, Peyto Energy Trust is a buy up to USD22.

Precision Drilling (PD.UN, NYSE: PDS) reported net earnings for the second quarter of CD26 million (20 cents Canadian per unit), a 71 percent decrease from the CD88 million (70 cents Canadian per unit) for the same period a year ago.

Revenue in the quarter was down 45 percent from CD223.6 million a year ago to CD122 million; revenue in the contract drilling services segment decreased 50 percent, and the completion and production services segment was down 36 percent. Cash flow fell 33 percent to CD229.1 million (45 cents Canadian per unit) from CD339.6 million (89 cents Canadian per unit).

Precision plans to spend around CD275 million on property, plant and equipment in 2007. Precision has traded near a 52-week low in the wake of its obviously distressing results, but its great balance sheet and solid reputation will allow it to position well for the eventual rebound in the natural gas market. Precision Drilling remains a buy up to USD30.

Provident Energy Trust (PVE.UN, NYSE: PVX) recorded a net loss for the second quarter of CD41 (19 cents Canadian per unit), largely on the weight of a CD125.2 million future income tax charge related to the passage of the 2007 Canadian federal budget, which includes the tax on trust beginning in 2011. This future income tax expense doesn’t affect cash flow before 2011.

Earnings were positively impacted by a noncash dilution gain of CD98.6 million and related future income tax expense of CD40.2 million associated with Provident’s stake in BreitBurn Energy Partners, a US master limited partnership.

The trust reported second quarter 2007 FFO of CD105.7 million (49 cents Canadian per unit), down from CD111 million (CD0.58 per unit) a year ago. Year to date, the trust has generated FFO of CD202.8 million, up from CD189.9 million. Lower second quarter 2007 FFO was caused by lower realized crude oil prices, a stronger Canadian dollar and increased general and administrative costs, which offset increased upstream production and higher midstream sales volumes.

Distributions totaled CD80.2 million, even on a per-unit basis (36 cents Canadian) with year-ago levels. Provident’s payout ratio of FFO was 79 percent, up from 62 percent for the second quarter of 2006.

Crude oil and natural gas production increased 13 percent to 34,900 boe/d from 30,800 boe/d in the second quarter of 2006. The production was weighted 46 percent natural gas, 48 percent light/medium oil and natural gas liquids (NGLs), and 6 percent heavy oils.

Midstream NGL sales volumes increased 9 percent in the quarter to 110,000 barrels per day (bpd) compared to 100,000 bpd in the second quarter of 2006. Growing its midstream business and increasing its focus south of the border–away from the 2011 tax–Provident Energy Trust is a buy up to USD14.

Trinidad Energy Services Income Trust (TDG.UN, TDGNF), squeezed by reduced drilling activity in the Canadian oil patch and currency losses, reported earnings of CD4.6 million (6 cents Canadian per unit) for the second quarter, down from CD20.8 million (25 cents Canadian per unit) for the same period last year. Revenues rose to CD115.5 million from CD104.5 million on acquisitions.

FFO was relatively stable at CD93.2 million year to date and increased slightly on a quarterly basis by CD800,000. EBITDA were CD26.6 million (31 cents Canadian per unit), flat with the CD26.2 million (30 cents Canadian per unit) of a year ago.

The rising Canadian dollar brought currency losses to CD5.6 million from CD1.3 million a year ago. FFO were CD23.4 million (27 cents Canadian per unit), up slightly from CD22.5 million (26 cents Canadian) in the second quarter of 2006. The trust paid CD28.8 million (34 cents Canadian per unit) in distributions, up from CD26.8 million (32 cents Canadian per unit) a year ago.

Trinidad’s payout ratio for the first six months of 2007 stood at 60 percent, up from 52 percent for the same period of 2006. Industry utilization rates declined by 71.2 percent from the first quarter of 2007, reducing utilization to 17 percent for the three months ended June 30, 2007, and 38 percent year to date.

Canadian drilling operations were impacted, but Trinidad’s focus on the deeper drilling market. Long-term contracts did shelter operations from the full reduction experienced in the drilling market, allowing Trinidad to continue to exceed industry utilization by 17.6 percent for the quarter and 15.8 percent year to date.

Reduced day-rates and declining activity led to a 37.4 percent quarter-over-quarter decline in revenue to CD31.3 million from CD49.9 million a year ago. US drilling operations generated an 88.9 percent revenue increase to CD73.4 million from CD38.8 million a year ago and continue to stabilize Trinidad’s funds flow. Buy Trinidad Energy Services Trust up to USD18.

Vermilion Energy Trust (VET.UN, VETMF) reported second quarter net income of CD41 million, up from CD40.4 million a year ago on a 6.3 percent production increase. Output averaged 30,916 boe/d (55 percent oil), up from 29,090 boe/d; increased volumes from Australia, France and Canada offset declines in the Netherlands. Vermilion has about 40 percent of its production in Canada.

FFO were CD85.1 million (CD1.18 per unit), up 11 percent from CD76.8 million (CD1.10 per unit) in the second quarter of 2006. The trust paid CD33.7 million (51 cents Canadian per unit) to unitholders during the second quarter, roughly 40 percent of cash flow.

Vermilion has maintained its distribution at 17 cents Canadian per unit per month since its conversion to a trust, making 53 such payments in a row. The total payout ratio was 67 percent of FFO.

Vermilion’s net debt at the end of the second quarter increased by CD100 million to approximately CD446 million, 1.3 times annualized second quarter cash flow. Revenue for the second quarter was CD164.9 million, up from CD147.8 million a year ago.

Operating costs increased to CD9.91 in the quarter, up from CD9.25 a year ago. General and administration expenses increased to CD1.69 per boe in the quarter from CD1.66 a year ago.

Vermilion has stated that it may be able to mitigate the impact of the 2011 tax on trust distributions because its foreign operations generate after-tax cash flow and subsequently declare and pay dividends that don’t attract additional taxes when received in Canada. Vermilion anticipates being able to flow through this dividend income to unitholders as part of the normal distributions paid and not attract the distribution tax on that portion of distributions made up of this dividend income.

Vermilion has also increased the return on capital, or taxable, portion of its distribution for 2006 to 100 percent in order to preserve the tax basis it would have utilized to declare a portion of the 2006 distribution as a return of capital, or tax deferred. The trust expects to continue with this practice through 2010 to preserve the tax basis during the interim period prior to the implementation of the new rules.

Beginning in 2011, that portion of the distribution that represents return of capital won’t be subject to the distribution tax. Geographically diverse and operationally sound, Vermilion Energy Trust is a long-term buy up to USD36.