Canadian Edge Portfolio holding ARC Energy Trust (TSX: AET-U, OTC: AETUF) took an aggressively conservative approach in its preparations for the post-Jan. 1, 2011 reality of taxation at the entity level. Most notably, management slashed the trust’s monthly distribution from CAD0.28 per unit in September 2008 to CAD0.10 by June 2009.

But the series of five cuts that tracked crashing crude oil and natural gas prices have left the company, the second-largest oil and gas producer organized as a trust, in position to sustain its current payout after Conservative government’s Tax Fairness Act takes full effect. In addition to freeing up cash to pay down debt and fund development internally, management built in the flexibility to add attractive assets–which will support a regular payout well past 2011–at favorable prices.

In a statement announcing its CAD680 million acquisition of Storm Exploration (TSX: SEO, OTC: STXPF), ARC CEO John Dielwart touted a recent independent study that identified ARC’s Dawson field as the lowest-cost unconventional gas play in Canada. Dielwart noted that Storm’s primary asset, the Parkland field, is “every bit as good geologically as Dawson” and “it has much higher liquids content.” This latter suggests ARC’s netback for Parkland could be even better than Dawson’s, which is eight miles southeast of the newly acquired field.

One of the key considerations in the acquisition of an unconventional asset is the ability to efficiently exploit it. These are often complex operations, the geology of which demands sophisticated technology in the hands of experienced workers. In terms of exploration, tight gas is more comparable to oil sands than to conventional oil and gas. The resource is pretty much known to be there in very large quantities; the solution to the problem of developing economically is coming through multiple hydraulic fracturing of long horizontal wellbores.

ARC began breaking open the Upper Montney formation in 2003, but development only took off after it drilled the play’s first multiple-stage frac horizontal well in July 2005. Last year ARC drilled a 1,900 meter horizontal leg with eight fracs; this well cost CAD5 million and achieved initial production of 8 mmcf/d. The company reported finding and development costs of about CAD10 per barrel of oil equivalent (boe) at Dawson, a netback of about CAD40 per boe, and total production of about 5 billion cubic feet (bcf), nearly 1 million boe, for each well.

But every major shale formation is geologically distinct. Techniques that work well in Dawson, for example, provide no more than a starting point for Parkland. But the geographic proximity is reassuring.

Why would Storm be so quick to unload such a prime asset? Storm’s management team lacked the resources to properly exploit Storm’s unconventional assets during a prolonged period of low natural gas prices. ARC, on the other hand, is positioned to capitalize on a long-term shift on the natural gas demand profile and the gradual evolution of the natural gas market from a regional into a global one.

This shift, too, is driven by the country that seems to be the force behind all demand-profile shifts, China. The Middle Kingdom is in the process of building natural gas terminals to facilitate import of the commodity from Australia. This is part of a move to diversify China’s dependence on coal and oil toward nuclear and natural gas. It has profound implications for Canada, rich in a resource that will soon be traded in a global rather a regional context.

The deal is comparable to Exxon Mobil’s (NYSE: XOM) acquisition of XTO Energy because of its long-term orientation. ARC’s management team, like Exxon Mobil’s, is responding to the fact of natural gas’s increasing proportion in the global energy pie. According to at least one estimate natural gas demand is already growing at three times the rate of oil demand.

ARC will acquire all of the existing and outstanding common shares of Storm. Terms of the deal call for the issuance of approximately 28.4 million ARC units (including the issuance of exchangeable shares of ARC Resources Ltd that may be exchanged for ARC units) plus the assumption of approximately CAD90 million of total debt. Each Storm shareholder can elect to receive either 0.5700 of an ARC unit or 0.2021 of an ARC Resources Ltd exchangeable share.

On completion of the transaction, ARC’s existing unitholders will own 90 percent and Storm shareholders will own 10 percent of the 282.5 million ARC units outstanding.  The acquisition is expected to close on August 17, providing ARC with about four months of production in 2010 from the Storm assets.

The new assets produced 9,861 barrels of oil equivalent per day (boe/d) in April. ARC now sees total production in 2010 of between 72,500 and 74,500 boe/d, up from prior guidance of between 70,500 and 72,500 boe/d. As of Sept. 1, 2009, Parkland held an estimated 28.9 million boe of proved reserves and 43.2 million boe of proved plus probable reserves. ARC said it identified at least 33 net horizontal drilling opportunities on the acquired properties with the potential for much greater development.

Management has said it will pay at a “similar” rate as a corporation to what it does now as a trust. The company may not make a full reckoning until it converts, which now looks like the end of 2010.

It’s All About Asia

According to its website, the Bank of Canada (BoC) created the position of Special Adviser in 1998 “to bring additional perspectives to monetary policy discussions and to give university and private sector professionals in economics and finance first-hand knowledge of the institution.”

The latest appointee for the one-year term as Special Adviser is Prasanna Gai, currently Professor of International Economics at the Crawford School of Economics and Government, Australian National University (ANU), and a Senior Research Associate at both the Financial Markets Group at the London School of Economics and the Centre for Applied Macroeconomic Analysis at ANU.

Professor Gai is the first Special Advisor whose primary posting was outside Canada. That his primary affiliation is with an Australian institution is no accident, either, as that country in increasingly tied to Asia, China in particular. Before his current tenure at ANU he served as an academic adviser on financial stability matters to the BoC, the Bank of England, and the Reserve Bank of New Zealand. He was also a visiting fellow at the Hong Kong Institute for Monetary Research.

According to the BoC’s statement announcing his appointment

Professor Gai’s expertise regarding the stability of internationally active banks and financial markets and his knowledge of the latest modelling techniques will benefit the Bank in its ongoing development of a suite of empirical tools for routine macro stress testing of systemically important components of the financial system and, in particular, the tailoring of a new model of the financial system.

Professor Gai will contribute to the BoC committee that provides key guidance for monetary policy. He will also assist the Financial System Review Committee, which reviews international and domestic economic trends and advises the BoC’s Governing Council on financial system policy issues.

The Roundup

As noted above, ARC Energy Trust (TSX: AET-U, OTC: AETUF) continues to add attractive assets that fit particularly well within its existing profile on favorable terms. Management will announce results for the second quarter on August 4. Although we’d like to know more on the subject, it appears that management will hold out as long as possible–and allow the greatest possible time to understand the direction of commodity prices–before revealing a post-Jan. 1, 2011, dividend policy.

At any rate, however, and under any type of legal construct, this business will generate enough cash to pay a market-beating yield. And, as the Storm Exploration (TSX: SEO, OTC: STXPF) deal reveals, it knows how to add assets that build on its existing expertise. This means its payout will be sustainable over the long term. ARC Energy Trust is a buy up to USD22.

Here are reporting dates for the Aggressive Holdings, followed by news and quarterly announcement dates for the Conservative Holdings.

• 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

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) has received all court and unithholder approvals for its conversion into a corporation. The transaction is expected to be completed July 1. Management previously announced that it will pay CAD1.32 per share on an annualized basis. The first corporate dividend of CAD0.11 per share is expected to be paid August 16 to shareholders of record on July 26.

AltaGas also announced the execution of a 60-year power purchase agreement with BC Hydro for its 195 megawatt (MW) CAD725 million Forrest Kerr run-of-river hydroelectricity generation facility. Forrest Kerr is expected to come on stream in 2014. AltaGas Income Trust is a buy up to USD20.

Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) and its largest owner Brookfield Renewable Power Inc (BRPI) announced a bought-deal secondary offering of 8 million units at CAD19.60 per. Underwriters have agreed to purchase the units from BRPI, which will take its stake in the fund from above 50 percent to approximately 43 percent. According to a statement announcing the deal, proceeds from the secondary offering will provide BRPI with additional liquidity. Brookfield Renewable Power Fund is a buy up to USD20.

Keyera Facilities Income Fund (TSX: KEY-Y, OTC: KEYUF) announced the purchase of interests in two new gas plants and the increase of its stakes in four existing plants in Alberta for a total of CAD65 million. The deals increase Keyera’s net gas processing capacity by 9 percent; all of the incremental capacity is able to extract natural gas liquids (NGL) and handle sour gas.

Keyera will acquire a 57 percent interest in the Minnehik Buck Lake gas plant and a 20 percent interest in the Edson gas plant. It’s also acquiring various ownership interests in the Keyera-operated West Pembina, Nordegg River, Gilby and Brazeau River gas plants.

Included in the transactions are interests in approximately 260 kilometers of gathering pipelines and nine compressor stations. Keyera will also acquire approximately 12 billion cubic feet of proved plus probable natural gas reserves and approximately 711 thousand barrels of NGL reserves. Current production is approximately 4 million cubic feet per day of natural gas and about 350 barrels per day of natural gas liquids.

All of the acquisitions are located in the heart of Keyera’s operations in west central Alberta. Keyera Facilities Income Fund is a buy up to USD24.

Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF) announced that it plans to complete its conversion into corporation on Oct. 1, 2010. The transaction will be done on a one-for-one, units-for-shares basis and should therefore be a tax-deferred event.

Management expects Pembina’s common shares to begin trading on the Toronto Stock Exchange on or about October 5 under the symbols PPL. Pembina Pipeline Income Fund units will de-list the same day the converted corporation’s shares begin trading.

Management plans to maintain its current distribution level of CAD1.56 per share on an annualized basis through 2013. Pembina Pipeline Income Fund is a buy up to USD18.

Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) is issuing CAD200 million of 6.25 percent convertible unsecured subordinated debentures on a bought-deal basis. The debentures will mature Oct. 1, 2017, and will be convertible, at the option of the holder, for trust units at CAD8 per unit. Net proceeds will be used to pay down existing debt. Yellow Pages Income Fund is a buy up to USD8.

• 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