The US Dept of Energy’s Energy Information Administration (EIA) is one of the world’s most widely watched data crunchers. It’s also the object of much skepticism, particularly as its long-term projections for global oil production growth are concerned.

On May 25 the EIA published highlights from its forthcoming International Energy Outlook 2010 (IEO). (The full report will be released in July.) The data and forecasts released last month reveal a startling shift in the EIA’s position in the “Peak Oil” debate.

As recently as 2007 the EIA estimated oil supplies would increase largely in step with demand. But the new IEO predicts that through 2020, a period during which China will hit its economic growth stride, no year in which liquids production will increase by even 1 percent. Petroleum liquids supply increases by an average of 0.6 percent per year from 2011 to 2020. In other words, the EIA is expecting the oil supply to be essentially flat for the rest of the decade.

The supply will creep up from 86 million barrels per day (Mbpd) today to approximately 92 Mbpd to 2020, but that’s not much growth, and indeed, is about the same as current global liquids production capacity. Moreover, it represents a reduction of nearly 4 Mbpd from last year’s forecast for 2020. The EIA, considered a cheerleader for production growth, is now one of the most pessimistic production-growth forecasters.

Meanwhile, energy consumption in non-developed countries will be 84 percent higher by 2035. Over the same period, energy use in the developed world will grow by 14 percent. The EIA says oil will remain the world’s largest energy source, with transportation being the key driver of oil demand. China is already the world’s largest car market and is expected to continue to its automobile fleet over the next 25 years.

Energy use for transportation in the developing world is forecast to rise 2.6 percent a year through 2035, while in the developed world growth will remain essentially flat. This demand increase from the emerging economies will exert a huge impact on price. The EIA estimates oil prices will average USD79 a barrel in 2010, will jump to USD108 by 2020 and to USD133 in 2035.

The global recession “has had a profound impact on near-term prospects for world energy demand”–energy consumption declined by 1.2 percent in 2008 and an estimated 2.2 percent in 2009–but the IEO notes that “as the economic situation improves, most nations are expected to return to the economic growth rates that were projected prior to the downturn.” Though this “back to normal” forecast may be in keeping with the EIA’s reputation for rosy outlooks, the fact that developing nations are generating the strongest growth rates is not subject to debate. Average annual energy consumption is projected to increase by 1.4 percent through 2035, with non-OECD energy use rising 2.2 percent a year, and OECD consumption up just 0.5 percent, the report said.

“China and India are among the nations least impacted by the global recession, and they will continue to lead the world’s economic and energy demand growth into the future,” the report concludes. Together the two countries’ share of global energy consumption is expected to increase to 30 percent in 2035 from 20 percent in 2007 as “their combined energy use more than doubles by 2035.”

Heads and Tails

Today’s headlines suggest the Canadian dollar is rallying as a result of capital outflows from vulnerable euro-denominated assets into stronger currencies. At the same time, the loonie has drifted from above USD1 as recently as April 23 to well below parity with the buck on broader concerns about the durability of the global economic recovery. Is the Canadian dollar strong? Is it weak? Does it depend entirely on the economic health of its southern neighbor?

The loonie’s relationship with the per-barrel price of crude oil is well understood; prior to the onset of the global downturn it soared well above parity with the US dollar, reaching CAD1.07 per USD1 in November 2007. By March 2009 it had fallen to CAD0.77. Its trajectory mirrors that of oil, which traded above USD145 in the summer of 2008 before falling below USD34 before 2009 dawned.

Amid the peaks and valleys, however, can be seen a definite long-term uptrend that happens to correspond with the ascent of the per barrel price of crude oil to what is highly likely to be a permanently elevated station above USD60 that ranges in the USD80s and tops out in the triple digits. In short, the Canadian dollar is a petrocurrency; what’s bullish for oil prices is bullish for the loonie. And emerging “middle-class demand” means consumption of more and more oil.

In the short and even the medium term, heads or tails will dominate a coin-flipping series; in the short and medium terms what’s perceived to be a headwind or a tailwind will force the loonie higher or send it to loftier perches. Over the long term, however, the reality of “one in two” will govern the final count of heads versus tails; fundamental forces, primarily burgeoning middle-class demand in China, India and elsewhere in Asia, that will surge during the next 10 years support a stronger Canadian dollar.

What’s printed or posted today or tomorrow in big letters above a byline is largely the result of a hurried process that seeks to attract eyeballs. Always read the rest of the story.

The Roundup

Fiscal 2010 second-quarter numbers for Canada’s Big Five banks were mixed according to watchers on Bay Street. But there remain significant signs of strength, particularly in domestic operations, and the problems confronting the Great White North’s financial system remain levels of magnitude less significant than what’s staring back at European institutions.

And speculation about further Big Five expansion into the US continues, another sign that Canadian banks are on top of the world.

Bank of Montreal (TSX: BMO, NYSE: BMO), once burdened more than any of its Big Five peers by bad debt, reported higher trading revenue, consumer lending and lower loan losses as second-quarter net income doubled to CAD745 million (CAD1.26 per share) from CAD358 million (CAD0.61 per share). Revenue rose 15 percent to CAD3.05 billion.

The bank set aside CAD249 million for bad loans in the period, down from CAD372 million a year earlier. Net interest income rose 13 percent to CAD1.52 billion. Net income from Canadian domestic banking rose 16 percent to CAD396 million, driven by volume growth in its personal, commercial and card businesses and improved net interest margin.

BMO Capital Markets’ net income jumped 38 percent to CAD259 million. Net income from the private client group rose 64 percent to CAD118 million on higher fee revenue. The combination of new clients, and improved equity markets helped lift assets under management by 20 percent, or CAD45 billion. Net income from Bank of Montreal’s US business fell 43 percent to CAD46 million. Bank of Montreal’s Tier 1 capital ratio stood at 13.3 percent at the end of the quarter.

After pulling itself together in the aftermath of the global financial crisis and setting a high bar for the Big Five yet again with a blowout quarter, Bank of Montreal is a buy up to USD60.

Lower loan-loss provisions and higher fee-based revenue helped Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM) post a profit, reversing a year-ago second-quarter loss. Net income was CAD660 million (CAD1.59 a share), while cash earnings were CAD1.61 per share. Revenue rose 35 percent to CAD2.9 billion.

The bank’s Tier 1 capital ratio was 13.7 percent, up from 11.5 percent a year ago.

Provisions for bad loans were CAD316 million, down from CAD394 million a year earlier and CAD359 million in the first quarter. Personal banking revenue rose 11 percent to CAD1.5 billion, while wealth management revenue rose 16 percent to CAD345 million. CIBC is a buy up to USD70.

Royal Bank of Canada (TSX: RY, NYSE: RY) managed to disappoint the Street despite swinging to a second-quarter profit after posting a CAD50 million (CAD0.07 per share) loss a year ago. Net income was CAD1.33 billion (CAD0.88 per share) for Canada’s biggest bank. Second-quarter core cash earnings were CAD0.96 per share.

Second-quarter 2009 numbers reflect a CAD1 billion goodwill charge. Excluding that charge, earnings were up 40 percent from a year earlier. Its Tier 1 capital ratio at the end of the second quarter was 13.4 percent.

Credit quality continues to stabilize, management’s efforts to control costs have proven effective and the Canadian economy is getting stronger. At the same time, management noted that the strong loonie hurt results in its Capital Markets and Wealth Management segments, trimming CAD0.06 per share from earnings. Loan-loss provisions were CAD504 million, down from CAD974 million. Canadian Banking earnings rose 27 percent, but Wealth Management earnings fell 29 percent. Royal Bank’s international unit reported a narrower loss, and management will continue to focus on cost-cutting efforts in its US operations. Royal Bank of Canada, its capital ratios getting stronger, remains a buy up to USD55.

Also falling short of Bay Street expectations was Toronto-Dominion Bank (TSX: TD, NYSE: TD), which earned CAD1.17 billion (CAD1.30 per share), up from CAD545 million (CAD0.59 per share) in its fiscal 2009 second quarter. Adjusted earnings per share of CAD1.36 exceeded year-ago totals but fell short of the CAD1.38 consensus estimate.

Loan-loss provisions were CAD365 million, down from CAD772 million. Canadian Personal and Commercial Banking recorded a 29 percent increase in earnings in the second quarter; US Personal and Commercial Banking earnings were up 45 percent on an adjusted basis. Wholesale Banking net rose 27 percent. Tier 1 capital was 12 percent, at the low end of Canadian peers but well above most global rivals.

TD, with the assistance of the US Federal Deposit Insurance Corporation (FDIC), in April completed a small acquisition of three Florida banks to bolster its US retail banking operation. And in May TD bought troubled US lender South Financial Group (without the FDIC’s help) that expanded its presence in Florida and established a presence in the Carolinas. Toronto-Dominion Bank is a buy up to USD65.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) closed out Big Five reporting season with record-beating numbers, as net income rose 26 percent to CAD1.1 billion. Cash earnings were CAD1.04 per share, up from CAD0.82 in the second quarter of 2009 and well ahead of analysts’ expectations of CAD0.93.

Provisions for loan losses were CAD338 million, down from CAD489 million a year earlier.

Scotiabank’s Tier 1 capital ratio stood at 11.2 percent at the end of the quarter.

The Canadian banking division had a record quarter, posting net earnings of CAD584 million. International banking earnings fell 13 percent to CAD288 million, while Scotia Capital earnings improved 19 percent to CAD391 million.

Management noted that the bank’s credit portfolios continue to improve, and that it has little or no exposure to troubled European sovereign debt. Scotiabank also plans to continue its international expansion, particularly in emerging Asian markets. Bank of Nova Scotia is a buy up to USD50.

Here are a couple updates from the Portfolio–with second-quarter reporting dates–and the news from the How They Rate universe.

Aggressive Holdings

Vermilion Energy Trust (TSX: VET-U, OTC: VETMF), based on successes this year in its Cardium light oil and natural gas play, is upping its 2010 average production guidance to a range of 31,000 to 32,000 barrels of oil equivalent per day (boe/d) with an exit rate of between 33,000 and 34,000 boe/d, depending on the timing of completion and tie-in of new wells.

Acquisitions completed since late 2009 have increased Vermilion’s presence in the Cardium from 121 net sections to approximately 150 net sections. Vermilion has drilled five wells to date, four have been completed and three have been tied in. Vermilion Energy Trust is a buy up to USD33.

• Ag Growth International (TSX: AFN, OTC: AGGZF)–August 12
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–August 4 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–July 28
• Daylight Energy (TSX: DAY, OTC: DAYYF)–August 5
• Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF)–August 10
• Newalta Income Fund (TSX: NAL, OTC: NWLTF)–August 6
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–August 6
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–August 12
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–August 12
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–August 13
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–May 6
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–August 6

Conservative Holdings

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) closed the acquisition of Nightingale Architects Ltd from Tribal Group PLC for GBP12.1 million.

Nightingale is a UK-based firm that focuses on social infrastructure projects such as health care, education and science facilities in its home country and in Eastern Europe, the Persian Gulf, Australia and South Africa, among other international locales. The consideration is GBP12.1 million for goodwill and working capital, with an adjustment mechanism to a limit of an increase or decrease of GBP1 million. IBI Income Fund is a buy up to USD17.

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–July 29 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–August 12
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–August 11
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–July 30
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–August 11
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–July 28
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–August 11
• Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF)–August 13
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–August 12
• Colabor Group (TSX: GCL, OTC: COLFF)–July 14
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–July 28
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)–August 5
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–August 13
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–August 6
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–August 4 (confirmed)
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–August 5
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–August 6
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–July 29
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–July 27
• TransForce (TSX: TFI, OTC: TFIFF)–July 29 (confirmed)
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–August 6

Oil and Gas

Advantage Oil & Gas (TSX: AAV, NYSE: AAV) reported that sales of non-core natural gas assets in southeastern Albert have closed, generating total cash proceeds of CAD67 million for the company. Management used the cash to pay down amounts drawn on the company’s credit facility. Buy Advantage Oil & Gas up to USD7.

Equal Energy (TSX: EQU, NYSE: EQU), formerly Enterra Energy Trust, has signed a letter of intent to sell non-core, non-operated deep sour gas interests in west central Alberta for CAD25 million. Management is also maintaining previous 2010 production guidance of 9,200 to 9,700 barrels of oil equivalent per day (boe/d). Equal Energy is a hold.

Suncor Energy (TSX: SU, NYSE: SU) has received regulatory approvals for the construction of an 88 megawatt (MW) wind farm in Wintering Hills, Alberta.

The project comprises 55 1.6 MW turbines that will provide electricity to 35,000 homes and offset 200,000 tonnes of carbon dioxide emissions per year. Suncor expects to begin work on the project this summer and to finish it by the end of 2011.

The Wintering Hills farm is Suncor’s fifth wind project; total capacity for existing facilities is 147 MW. Management didn’t say how much the new project will cost. Suncor Energy is a hold.

Electric Power

Emera (TSX: EMA, NYSE: EMA) completed its previously announced offering of 6 million cumulative five-year rate reset preferred shares for aggregate gross proceeds of CAD150 million. Net proceeds of the offering will be used for general corporate purposes. Emera is a buy up to USD24.

TransAlta Corp (TSX: TA, NYSE: TAC) Canada’s largest publicly traded electricity producer, declared force majeure due to the mechanical failure of critical generator components at its Sundance 3 power plant in Wabamun, Alberta. The plant should be back in service by June 20, and the event shouldn’t materially affect the company’s net income for 2010. TransAlta Corp is a buy up to USD22.

Business Trusts

IESI-BFC’s (TSX: BIN, NYSE: BIN) merger with Waste Services moved one step closer to completion with the US Securities and Exchange Commission’s approval of the proxy statement describing the transaction for shareholders. A vote on the deal–along with ratification by the Canadian Competition Bureau–are all that remain before IESI-BFC and Waste Services combine to form one of the biggest waste haulers in North America.

The combined company, to be headquartered in Toronto, will have more than 6,000 employees serving commercial, industrial and residential customers in 11 US states and the District of Columbia and in six Canadian provinces.

IESI-BFC will issue 27.8 million common shares to Waste Services shareholders, approximately 23 percent ownership in the combined company; the exchange ratio is 0.5833 common shares of IESI-BFC for each Waste Services common share held. Shareholders will vote June 30. IESI-BFC is a hold.

Real Estate Trusts

Calloway REIT (TSX: CWT-U, OTC: CWYUF) closed a previously announced CAD100 million offering of five-year, 5.1 percent senior unsecured debentures. The REIT plans to use CAD47.6 million of the proceeds to pay down the balance and accrued interest outstanding on its 4.51 percent unsecured debentures due Sept. 22, 2010, and the balance to pay down a portion of the debt owing under its credit facilities and for general trust purposes. DBRS has rated the new offering BBB with a stable trend. Calloway REIT is a buy up to USD20.

Chartwell Seniors Housing REIT (TSX: CSH-U, OTC: ) completed previously announced acquisitions of the 50 percent interest in a portfolio of long-term care communities (LTC) it didn’t already own and a 50 percent interest in a 139-suite retirement residence in Vaughan, Ontario.

Chartwell operated what’s known as the Regency Care Portfolio–eight LTCs with a total of 1,385 beds in Ontario–as part of a 50-50 joint venture with ING Real Estate Investment Management Australia. Management will pay ING Real Estate CAD79.5 million–the assumption of mortgages of approximately CAD68.0 million and CAD11.5 million in cash–to take full ownership of the portfolio.

Chartwell is paying CAD17.4 million, including the assumption of a CAD15.1 million mortgage, for a 50 percent interest in the Valley Vista Retirement Residence. Chartwell Seniors Housing REIT is a hold.

Dundee REIT (TSX: D-U, OTC: DRETF) closed a previously announced offering of 4.1 million units at CAD24.40 per, for gross proceeds of approximately CAD100 million. Underwriters have the option to purchase up to 615,000 units through the end of June, the full exercise of which would bring total gross proceeds to about CAD115 million.

Net proceeds will be used to fund acquisitions already identified, for future acquisitions and for general purposes. Dundee REIT is a hold.

Primaris Retail REIT’s (TSX: PMZ-U, OTC: PMZYF) previously announced public offering of approximately 4.9 million units at CAD17.30 per closed; underwriters have exercised their full overallotment options, generating additional gross proceeds of CAD12.8 million on top of the CAD85.2 million brought in through the initial offering round.

Net proceeds will be used to pay down debt, fund acquisitions, re-develop existing properties and for general purposes. Primaris Retail REIT is a hold.

Natural Resource Trusts

Sun Gro Horticulture Income Fund (TSX: GRO-U, OTC: SGHRF) unitholders approved a conversion plan, and the Supreme Court of British Columbia has granted the final order approving the transaction.

The plan of arrangement will become effective on or before Dec. 31, 2010; units will be exchanged on a one-for-one basis for common shares of Sun Gro Horticulture, which will trade on the Toronto Stock Exchange under the symbol “GRO.” We’ll provide a US symbol once it becomes available in 2011. Sun Gro Horticulture Income Fund, currently paying no dividend, is a hold.

Financial Services

CI Financial (TSX: CI, OTC: CIFUF) reported gross retail sales of CAD1.1 billion and net sales of CAD265 million for May. Assets under management at May 31 were CAD66 billion.

CI had gross retail sales of CAD4.7 billion and net sales of CAD998 million. Total fee-earning assets were CAD87.5 billion, down 3.6 percent during the month. CI Financial is a hold.

Transports

Contrans (TSX: CSS, OTC: CTFIF) closed a previously announced bought-deal offering of a total of 5.9 million shares at CAD9.60 per for gross proceeds of CAD56.2 million; underwriters partially exercised their overallotment rights. Net proceeds will be used to fund acquisitions and for general corporate purposes. Contrans is a hold.

WestJet Airlines (TSX: WJA, OTC: WJAFF), a new addition to How They Rate coverage, reported solid May 2010 traffic, including a load factor of 77.7 percent.

Revenue passenger miles (RPM) increased 18.9 percent year over year, and capacity, or available seat miles (ASM), grew 13.4 percent. WestJet flew 125,000 additional passengers in May 2010 compared to May 2009.

The airline’s recently initiated year-round service contributed substantially to the capacity increase. WestJet Airlines is a buy up to USD12.