The War for the Arctic

Though still in the “touchy-feely” stages, a new Great Game is breaking out up north. Touched off by Russia’s audacious flag-planting maneuver last fall and made even more urgent by the “upside” impact of global warming, countries with designs on the resources underneath the North Pole will gather this week to work out parameters for the resolution of conflicting territory claims.  

Canadian Natural Resources Minister Gary Lunn will be in Ilulissat, Greenland, on Tuesday to begin three days of meetings with officials from the four other nations with continental shelves on the Arctic Ocean: Norway, Russia, the US and Denmark.

Climate change is making the region increasingly accessible, making the need for an international resolution of the conflicting claims in the area more pressing. According to the World Wildlife Fund, the Arctic ice caps are melting at “rates significantly faster than predicted.”

Exploration of the deep Arctic is unprofitable under present conditions, but global warming could change that. Not only could shrinking ice cover cut the cost of energy exploration, but the receding ice pack could also reduce transport costs significantly by opening up currently frozen maritime routes.

Export costs make up a significant percentage of the overall costs of developing Arctic resources, in many instances greater than 50 percent. For shipping in general, cutting across polar waters through the Northern Passage could shave 5,000 miles off a voyage between northern Europe and East Asia.

Scientists believe rising temperatures could leave most of the Arctic ice free in summer months. This would improve drilling access and open up the Northwest Passage, a potentially lucrative trade route between the Atlantic and Pacific oceans that European explorers sought for centuries.

In the short term, an ice-free Arctic Ocean will open up new possibilities, including easier access to natural resources and new transportation routes. The Northern Sea Route, the shipping lane from the Atlantic Ocean to the Pacific Ocean along the Siberian coast, is expected to open up this summer, and the Northwest Passage through Nunavut waters is also likely to be navigable by August.

According to the US Geological Survey, the 1.2 million square kilometers of Arctic seabed could hold 25 percent of the world’s remaining undiscovered oil and gas. An October 2007 report by British consulting firms Wood McKenzie and Fugro Robertson concluded that the Arctic is home to “resources estimated at 166 billion barrels of oil equivalent.”

The study, “The Future of the Arctic,” found that natural gas accounted for 80 percent of all available reserves. The study focused on areas within defined jurisdictions, primarily on the continental shelf. Most of what the study found is exploitable, and there’s speculation that additional reserves may exist farther out at sea.

This week’s Greenland conference, aimed at preventing a scramble for oil and gas reserves, will focus on United Nations-sponsored rules on dividing up jurisdiction over those waters. Under the 1982 UN Law of the Sea convention, the five countries may be able to extend their sovereignty beyond the usual 200-nautical-mile limit recognized in international law if the seabed is an extension of the continental shelf. All the countries bordering the Arctic have ratified the convention except the US.

In 2001, Russia made a submission to the Continental Shelf Commission of the Law of the Sea Treaty, stating that the Lomonosov Ridge, an underwater oceanic ridge stretching 1,100 miles under the Arctic Ocean and the North Pole, was actually an extension of the Eurasian continent. But Canadian scientists are amassing evidence that Lomonosov extends under the Arctic Ocean from the North America continent, giving Canada the grounds to assert sovereignty over the seabed all along the ridge.

The Canadian claim, which will be submitted in 2013, would be equivalent in size to Alberta, Saskatchewan and Manitoba combined–about 1.8 million square kilometers.

Denmark disagrees with Canada about mineral rights in the coastal waters, and the two countries have a longstanding disagreement over who owns tiny, uninhabited, ice-covered Hans Island, which straddles Nares Strait between Greenland and Canada’s Ellesmere Island. Canada and the US are in dispute about the Northwest Passage and parts of the Beaufort Sea. And a provocative Russian expedition last year planted a tricolor flag on the seabed at the North Pole, laying claim to an area of more than 1 million square kilometers and stoking present fears of a disorderly rush for resources.  

Under the treaty’s provisions, a coastal state’s jurisdiction includes its continental shelf. Countries submit data to prove how far the shelf extends. The data are then approved, or not, by the commission.

The commission, however, doesn’t determine who has jurisdiction over the shelf. That’s a political decision made through negotiations between countries with overlapping claims.

Denmark, which administers Greenland, hopes to sign a declaration that the UN would rule on any disputes. A final decision on exploration rights isn’t expected before 2020, but the five potential claimants are getting together to agree on the rules of the game.

Speaking Engagements

Be sure to wear a flower in your hair when you venture west to San Francisco. I’ll be heading to “The City” with Neil George and Elliott Gue Aug. 7-10, 2008, for the San Francisco Money Show.

Neil, Elliott and I will discuss infrastructure, partnerships, utilities, resources and energy, and tell you what to buy and what to sell in 2008.

Click here or call 800-970-4355 and refer to priority code 011362 to attend as our guest.

The Roundup

Still easing back into the grind after the long Memorial Day weekend, below are our synopses of CE Portfolio trusts’ first quarter earnings reports. We’ll get back into the swing of providing newsworthy updates next week.

Conservative Portfolio

Algonquin Power Income Fund (TSX: APF.UN, OTC: AGQNF) reported cash available for distribution of CAD15.9 million (21 cents Canadian per unit), up from CAD15.1 million (20 cents Canadian per unit) during the first quarter of 2007. Cash from operating activities was CAD14.7 million (20 cents Canadian per unit), up from CAD10 million (14 cents Canadian per unit) a year ago.

Cash distributions in the first quarter of 2008 were 23 cents Canadian per trust unit, unchanged from the first quarter of 2007. Revenue was CAD48 million, a slight uptick from CAD47.6 million in the first quarter of 2007. The fund reported a net loss of CAD1.6 million (2 cents Canadian per unit), compared to net income from continuing operations a year ago of CAD6.9 million (9 cents Canadian per unit).

The revenue increase was primarily because of increased energy production and higher rates. The strong Canadian dollar held down US-source revenue. Net income was lower because of higher interest costs, losses on financial instruments, lower earnings on portfolio investments, foreign exchange losses and an increased income tax expense booked in the quarter. Algonquin Power Income Fund is a buy up to USD9.50.

AltaGas Income Trust (TSX: ALA.UN, OTC: ATGFF) reported a 53 percent rise in net income for the first quarter of 2007 to CAD37.6 million (58 cents Canadian per unit) from CAD24.6 million (43 cents Canadian per unit) for the same period of 2007. The Taylor LNG LP acquisition, which AltaGas completed Jan. 10, 2008, for CAD600 million, accounted for most of the increase. Hedging gains, strong power prices and favorable fractionation spreads also drove results.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were CAD63.6 million (98 cents Canadian per unit) during the first quarter, up from CAD41.2 million (73 cents Canadian per unit) a year ago. Cash from operations was CAD37 million (57 cents Canadian per unit), compared to CAD46.1 million (81 cents Canadian per unit) for the first quarter of 2007. Funds from operations (FFO) were CAD56.3 million (87 cents Canadian per unit) for first quarter 2008 compared to CAD38.2 million (67 cents Canadian per unit) for the same period in 2007.

Total debt as of March 31, 2008, was CAD639.8 million, compared to CAD220.7 million as of Dec. 31, 2007, because of the Taylor acquisition. The trust’s debt-to-total capitalization ratio was 45.1 percent versus 27.4 percent at the end of 2007. AltaGas Income Trust is a buy up to USD28.

Artis REIT (TSX: AX.UN, OTC: ARESF) reported a 140 percent increase in first quarter FFO to CAD13 million; on a per-unit basis, FFO was up 43 percent to 40 cents Canadian. Revenue was up 95 percent to CAD34.3 million.

Net operating income (NOI) was up 105 percent to CAD23.8 million. Distributable income rose 124 percent to CAD13.2 million (41 cents Canadian per unit).

Portfolio occupancy increased to 97.5 percent during the first quarter from 97.4 percent as of Dec. 31, 2007, as Artis continued to add solid properties in Canada’s burgeoning western provinces. The REIT also earned a 30 percent increase in rents on expiring leases and will earn similar boosts in returns in coming quarters. The payout ratio sank to 65 percent.

As of March 31, 2008, mortgage debt-to-gross book value was 50.1 percent, compared to 49.2 percent as of Dec. 31, 2007 and 51.6 percent as of Mar. 31, 2007. Still on the right track, Artis REIT is a buy up to USD18.

Atlantic Power Corp (TSX: ATP.UN, OTC: ATPWF) reported a 42 percent increase in distributable cash for the first quarter, from USD21 million a year ago to USD29.8 million in the first three months of 2008. The increase was driven by Atlantic’s receipt of an USD8.2 million distribution from the Gregory project and USD4 million in cash flow based on Atlantic’s increased ownership in the Pasco project. Atlantic Power Corp is a buy up to USD12.  

Bell Aliant Regional Communications Income Fund (TSX: BA.UN, OTC: BLIAF) reported a 1.6 percent increase (CAD14 million) in operating revenue in the first quarter of 2008 on growth in its information technology (IT) and Internet segments. Internet revenue grew by CAD8.3 million, driven by 14.6 percent growth in its high-speed Internet subscriber base.

Local service and long-distance revenue declined by CAD8.4 million (2.4 percent) and CAD2.5 million (2.2 percent), respectively. Higher revenues, cost controls and lower provincial capital taxes resulted in an EBITDA increase of CAD5.6 million (1.6 percent) in the first quarter. Distributable cash increased by CAD14.7 million (7.7 percent). Buy Bell Aliant Regional Communications Income Fund up to USD33.

Canadian Apartment Properties REIT (TSX: CAR.UN, OTC: CDPYF) reported first quarter FFO increases of 28.9 percent and 17 percent to CAD16.2 million and 24.8 cents Canadian per unit, respectively, from CAD12.5 million and 21.2 cents Canadian per unit for the same period of 2007. Distributable income was CAD16.6 million (25.5 cents Canadian per unit), up from CAD13 million (21.9 cents Canadian per unit) for the first three months of 2007.

Average monthly rents increased 3.6 percent, and the occupancy rate rose to 98.2 percent. Operating revenue spiked 11 percent to CAD78.1 million because of recent acquisitions as well as higher rents and occupancy across the portfolio. Operating expenses improved to 50.8 percent of operating revenues, down from 53.3 percent a year ago.

NOI rose 17.1 percent to CAD38.4 million from CAD32.8 million in last year’s first quarter. As a percentage of revenues, NOI increased to 49.2 percent compared to 46.7 percent.

Canadian Apartment Properties REIT’s payout ratio came down to 88.1 percent from 102.6 percent a year ago. The ratio of total debt-to-gross book value was 60.03 percent as of March 31, 2008, down from 62.58 percent. Still with plenty of growth potential, Canadian Apartment Properties REIT is a buy up to USD20.

Energy Savings Income Fund (TSX: SIF.UN, OTC: ESIUF) was pinched by the weakening US dollar and economy. But it grew its customer base by 2 percent during the year ended March 31, 2008, and saw a seasonally adjusted 13 percent boost in sales to CAD1.7 billion.

Distributable cash for the three months ended March 31, 2008, was CAD54 million, representing a 2 percent increase from the first quarter of 2007. The payout ratio for the period was 61 percent, up from 54 percent, but it’s still well manageable.

Energy Savings added 54,000 customers in the first quarter, down 13 percent from the fourth quarter of 2007. Sales during the first quarter were up 11 percent over the comparable quarter to CAD652.6 million.

The fund earned 87 cents Canadian per unit, up from 66 cents Canadian a year ago. Battle tested and able to execute a long-term strategy, Energy Savings Income Fund is a buy up to USD18.

GMP Capital Trust’s (TSX: GMP.UN, OTC: GMCPF) first quarter numbers reflect what CEO Kevin Sullivan described as “some of the worst” market conditions he’s seen in his 23 years in the financial services industry. Distributable cash of CAD26.2 million (41 cents Canadian per unit) was down 47 percent from CAD49.9 million (80 cents Canadian per unit) a year ago.

GMP’s payout ratio rose to 102.7 percent from 47.1 percent. Net income was CAD21 million, down from CAD44.5 million in the first quarter of 2007. Revenue of CAD94.1 million was off 18 percent from the first quarter of 2007.

Excluding the prior year’s gains from the sale of the shares of Montreal Exchange of CAD12.8 million, revenue and net income decreased 8 percent and 36 percent, respectively. GMP’s strong balance sheet puts it in decent position to capitalize once some semblance of normalcy returns to the market.

Sullivan warned that “should the current business environment continue for much longer, it may impact our growth prospects and we would need to re-examine the sustainability of our current monthly distribution level of 14 cents.” GMP Capital Trust is a buy up to USD25.

Keyera Facilities Income Fund’s (TSX: KEY.UN, OTC: KEYUF) distributable cash flow per share rose 10 percent. The key is the trust’s ability to keep adding fee-generating assets, and it’s off to a good start already this year as well after closing deals on two new midstream facilities. Keyera Facilities Income Fund is a buy up to USD22.

Macquarie Power & Infrastructure Income Fund (TSX: MPT.UN, OTC: MCQPF) reported distributable cash of CAD16.5 million (33 cents Canadian per unit), up from CAD12.1 million (41 cents Canadian per unit) a year ago. Revenue was CAD43.7 million, up from CAD29 million because of the contribution of wind, hydro and biomass assets acquired as part of the June 2007 takeover of Clean Power Income Fund, higher rates and increased production.

The payout ratio ticked up to 80 percent from 64 percent in the first quarter of 2007 on the issuance of units in connection with the Clean Power deal and a distribution increase. The Leisureworld unit posted a 27.1 percent revenue increase and an 8.1 percent increase in operating income. Seven newly acquired homes, higher occupancy rates, increased use of private, higher-cost accommodations and more government funding boosted results.

Going forward, Macquarie will focus on boosting occupancy and private occupancy at its Leisureworld care facilities; routine major maintenance at the fund’s power plants is covered by “major maintenance reserve account,” which means no impact on distributable cash. Macquarie Power & Infrastructure Income Fund is a buy up to USD12.

Northern Property REIT’s (TSX: NPR.UN, OTC: NPRUF) distributable cash flow per unit rose 17.9 percent from 39 cents Canadian to 46 cents Canadian for the first quarter. FFO was 47 cents Canadian per unit, up from 41 cents Canadian per unit a year ago. Sales rose more than 33 percent as the trust continued to add new assets and raise rents and occupancy on existing ones.

The REIT’s focus on out-of-the-way markets and government-quality tenants continues to pay off. The payout ratio is now down to 80.5 percent, making a sizeable dividend hike likely. Buy Northern Property REIT up to USD25.

Pembina Pipeline Income Fund (TSX: PIF.UN, OTC: PMBIF) reported a solid 7 percent increase in distributable cash in the first quarter, driving its payout ratio down to 81 percent from 90 percent a year earlier. Conventional pipelines enjoyed an 8 percent boost in sales and 5 percent rise in income on robust traffic and higher margins.

Midstream and marketing enjoyed a 19 percent jump in sales and a 23 percent boost in income, as the company continued to steadily expand its asset base. Finally, the oil sands division reported only a 1 percent boost in earnings.

More important, however, it remained on track to complete the Horizon Pipeline on budget by July 1, which will effectively double that division’s operating income. Cash flow from Horizon should set the stage for another solid dividend increase this year for the trust.

In the meantime, it continues to yield well more than 8 percent and remains the safest way for income investors to profit from the continued robust growth of Canada’s oil sands region. Buy Pembina Pipeline Income Fund up to USD18 if you haven’t already.

RioCan REIT (TSX: REI.UN, OTC: RIOCF), hurt by aggregate onetime charges of CAD3.2 million and depreciation of income properties totaling CAD3.4 million, reported first quarter net income of CAD30.3 million (14 cents Canadian per unit), down from CAD37.4 million (18 cents Canadian per unit) a year ago. FFO, a key measure of REIT success, came in at CAD67.7 million (32 cents Canadian per unit), down from CAD71.3 million (35 cents Canadian per unit) in the first quarter of 2007.

Rental revenue rose 5 percent to CAD173.1 million from CAD165 million. The onetime cost relates to RioCan’s move to new corporate headquarters at RioCan Yonge Eglinton Centre and the departure of its now former chief financial officer.

RioCan’s portfolio occupancy at the end of the quarter was 96.6 percent. CEO Edward Sonshine said RioCan’s full-year results would be “in line with our expectations.” RioCan’s disciplined debt management gives it plenty of room to raise capital via the debt market, even amid the current crunch. RioCan REIT is a buy up to USD25.

TransForce (TSX: TFI, OTC: TFIFF) rebounded from a worrisome fourth quarter, though fuel costs, the weak US economy and the impact of a strong loonie continued to influence results during the first quarter. Distributable cash flow from operating activities was basically flat compared to year-ago levels, CAD45.1 million in 2008 versus CAD45.6 million in 2007.

The fund reduced its payout ratio during the first quarter to 90.5 percent from 102.2 percent during the first three months of 2007 and from 155.9 percent during the fourth quarter of 2007. Revenue climbed 13 percent to CAD526.3 million from CAD464.8 million; EBITDA rose from CAD56.9 million from CAD52.7 million, largely on the strength of acquisitions.

TransForce continues to hunt for takeover targets as it pursues its consolidation of the trucking market and has said it has more than CAD100 million in potential deals “that could be realized in the short term.” The fund announced that it would convert to a corporate form in order to better deliver for investors.

Holding onto more cash will allow TransForce to more easily pursue its growth, but it will still pay a relatively high dividend. Still a compelling income-plus-growth story, TransForce is a buy up to USD9.

Yellow Pages Income Fund (TSX: YLO.UN, OTC: YLWPF) continues to distinguish itself from the companies it’s often compared to by the investing establishment. Its successful transition from a print-based to a Web-based operation is revealed by 47.7 percent first quarter organic growth in online revenue.

Distributable cash increased by 11.6 percent to CAD183 million; on a per-unit basis, the increase was 12.9 percent to 35 cents Canadian from 31 cents Canadian in the first quarter of 2007. Net earnings amounted to CAD127 million compared to CAD121 million for the same period in 2007.

Income from operations increased 7.5 percent to CAD171.4 million versus CAD159.4 million a year ago. Yellow’s directories segment posted revenue of CAD338 million and an adjusted EBITDA margin of 60.2 percent, an increase of 100 basis points over comparable margin performance in the first quarter of 2007 and a record high for the company.

March 28, 2008, Yellow announced plans to repurchase up to 25 million units, approximately 5 percent of its outstanding units, through a normal course issuer bid. The unit repurchase will be financed through cash flow in excess of cash distributions throughout 2008 and 2009 and will be immediately accretive to distributable cash per unit.

The repurchase will accelerate the reduction in the payout ratio, which declined to 82 percent from 88 percent a year ago. In April, Yellow repurchased 2.8 million units for cancellation for approximately CAD31 million. Yellow Pages Income Fund is a buy up to USD16.

Aggressive Portfolio

Advantage Energy Income Fund (NYSE: AAV, TSX: AVN.UN) reported FFO increased to CAD94.6 million from CAD65.6 million; on a per-unit basis, FFO was up 15.3 percent to 68 cents Canadian from 59 cents Canadian. The payout ratio declined to 53 percent.

Daily production of natural gas was 125 million cubic feet per day (MMcf/d), up from 114 MMcf/d in the previous year. Crude oil and natural gas liquids daily production increased to 12.28 barrels per day (bbls/d) from 9.9 bbls/d a year ago.

Advantage expects 2008 production to be in the range of 32,000 to 34,000 barrels of oil equivalent per day (boe/d). With output rising and realized first quarter selling prices only a little more than USD8 per million British thermal units (MMBtu), gains should be even greater later in the year. Advantage Energy Income Fund remains a strong buy up to USD14.

Ag Growth Income Fund (TSX: AFN.UN, OTC: AGGRF) suffered a hit to its profitability in the first quarter because of supply bottlenecks that prevented it from taking advantage of robust sales and order backlog. Management reports that these logistics woes have now been resolved, setting the stage for a powerful recovery for the rest of 2008.

For the second quarter in a row, the payout ratio ballooned to more than 100 percent. That’s normally a disqualifier for a trust in my view. But with agricultural equipment and related products in a robust bull market, I’m willing to wait another quarter for AG to return to growth. Those who don’t already own Ag Growth Income Fund should buy it up to USD32.

ARC Energy Trust (TSX: AET.UN, OTC: AETUF) units have been surging this year in anticipation of rising cash flows from surging natural gas prices. First quarter earnings not only backed up the market’s rising expectations, they actually exceeded them.

Also spurred by a modest 4 percent rise in overall output and cost controls, cash flow per unit rose 18.1 percent from first quarter 2007 levels. And with realized selling prices during the quarter of less than USD90 per barrel for oil and less than USD8 per MMBtu for gas, cash flow is on track to grow further in coming quarters, particularly as recent British Columbia finds come on stream.

Reflecting its rising fortunes, ARC boosted its distribution 20 percent, effective with the next monthly payment. Shares aren’t as cheap as they were earlier this year. But ARC Energy Trust is still a solid buy up to USD30 for those who don’t already own it.

Arctic Glacier Income Fund’s (TSX: AG.UN, OTC: AGUNF) CEO promised us last month that there would be “no surprises” in the trust’s first quarter earnings. And, as this week’s report demonstrated, he delivered.

Sales in the seasonally weak first quarter totaled CAD24.2 million, a decrease of CAD2.1 million (8 percent) compared to the same period in 2007. The decrease was attributable to the stronger Canadian dollar, which reduced sales by CAD3.3 million. Operations acquired during 2007 and the first quarter of 2008 contributed CAD1.1 million to the total, while sales in previously serviced markets increased by CAD100,000 (1 percent) as a result of higher pricing, partially offset by less-than-favorable weather in certain markets.

Arctic’s chief challenge remains legal issues, and unfortunately, there’s no indication the clouds will blow away any time soon. It’s still not a target in the US Dept of Justice investigation of the US ice industry, however, and the acquisition of KoldKist indicates it’s sticking to strategy.

The most important thing about these results is they show Arctic is still executing on its plans, which include growing its way past any 2011 tax liability. That’s why we like the trust. Hold Arctic Glacier Income Fund.  

Boralex Power Income Fund (TSX: BPT.UN, OTC: BLXJF) realized higher electricity and steam prices during the first quarter, offsetting a decrease in total electricity generation, on recorded net income of CAD15.2 million (26 cents Canadian per unit), up CAD2.5 million from CAD12.7 million (21 cents Canadian per unit) in the first quarter of 2007.

The bottom line also benefited from a positive adjustment of CAD3.5 million related to the reversal of future income taxes. Revenue rose to CAD34.3 million, up from CAD33.9 million, while expenses ticked up to CAD12.6 million from CAD12.1 million.

Power production in the wood residue segment was lower because of a forced shutdown at the Senneterre unit in northwestern Quebec, while the hydro segment’s output was up 6 percent. The fund continues to benefit from high oil prices, which translate into higher steam prices.

Boralex continues to negotiate with AbitibiBowater (NYSE: ABH, TSX: ABH) to settle a dispute over the cogeneration plant at the Dolbeau paper mill. Its cash flow is more than able to cover the recently reduced monthly distribution. Boralex Power Income Fund is a buy up to USD6.

Enerplus Resources (NYSE: ERF, TSX: ERF.UN) reported first quarter cash flow of CAD256.2 million (CAD1.74 per unit), up from CAD193.2 million (CAD1.57 per unit) a year ago, on increased production and higher realized prices on its crude oil and natural gas. Net income was CAD121.4 million (82 cents Canadian per unit), compared to CAD107.9 million (88 cents Canadian per unit) in the first quarter of 2007.

After the CAD1.7 billion acquisition of Focus Energy Trust, Enerplus now has a production weighting of just more than 60 percent natural gas and 40 percent crude oil and natural gas liquids. Daily production volumes averaged 89,150 boe/d, reflecting the additional volumes from Focus since Feb. 13, 2008.

Production volumes in March, the first full month of Focus contribution, were approximately 100,000 boe/d. The fund forecast full-year production volumes to average 98,000 boe/d.

Cash distributions were maintained at 42 cents Canadian per unit per month, with a payout ratio of 75 percent versus 82 percent for the first quarter of 2007. Enerplus Resources is a buy up to USD50.

Newalta Income Fund (TSX: NAL.UN, OTC: NALUF) benefited from higher natural gas prices and a resulting increase in drilling activity during the first quarter, posting a 21 percent increase in FFO to CAD27.2 million. Revenue increased 27 percent to CAD150.2 million, mostly because of acquisitions in eastern Canada completed in 2007.

Newalta reported net earnings of CAD19.3 million, a 49 percent increase over the first quarter of 2007. The payout ratio fell to 70 percent from 83 percent. Buy Newalta Income Fund up to USD25.

Paramount Energy Trust (TSX: PMT.UN, OTC: PMGYF) reported FFO of CAD56.2 million (51 cents Canadian per unit) for the first quarter, compared to CAD65.6 million (76 cents Canadian per unit) for the first quarter of 2007. Lower realized gas prices in 2008 accounted for 93 percent of the reduction. The trust paid 30 cents Canadian per unit per month during the period for a payout ratio of 59 percent of funds flow.

Production increased 30 percent to 183.8 million cubic feet equivalent per day (MMcfe/d) from 141.7 MMcfe/d in the first quarter of 2007. Realized natural gas prices decreased to USD7.29 per thousand cubic feet equivalent (Mcfe) for the three months ended March 31, 2008, from USD8.94 per Mcfe in the first quarter of 2007.

In 2007, realized gains on financial instruments of CAD14.3 million as a result of the trust’s commodity price hedging activity significantly improved its realized gas price relative to the average AECO Monthly Index price. Paramount Energy Trust is a buy up to USD10.

Penn West Energy Trust (NYSE: PWE, TSX: PWT.UN) reported first quarter funds flow of CAD632 million (CAD1.76 per unit), up 81 percent from CAD349 million (CAD1.44 per unit) in the fourth quarter of 2007. Net income in the first quarter was CAD78 million (22 cents Canadian per unit), compared to net income of CAD127 million (53 cents Canadian per unit) in the fourth quarter of 2007, which included CAD106 million of onetime future income tax recoveries related to tax rate reductions.

Netbacks of USD40.57 per barrel of oil equivalent were 37 percent higher than the first quarter of 2007. Production averaged 192,291 boe/d, up from 128,024 boe/d in the fourth quarter of 2007. Oil and gas liquids production averaged 109,016 boe/d; natural gas output hit 500 MMcf/d. Penn West Energy Trust is a buy up to USD38.
    
Peyto Energy Trust’s (TSX: PEY.UN, OTC: PEYUF) numbers were basically flat with year-earlier totals, the result of management’s decision to build inventories rather than ramp up output. The good news is that should mean stronger results in future quarters.

FFO declined 9 percent to CAD71 million (67 cents Canadian per unit) from CAD78.3 million (74 cents Canadian per unit), and production declined 5 percent to 20,342 boe/d from 21,305 boe/d. The payout ratio ticked up to 63 percent from 57 percent.

Peyto’s scaled back activity during the trailing 12 months has allowed it to build up its reserves; it now boasts a proved producing reserve life of 13 years, total proved life of 16 years and proved plus probable life of 21 years. Poised for long-term, stable growth, Peyto Energy Trust is a buy up to USD21.  

Provident Energy Trust (NYSE: PVX, TSX: PVE.UN) reported FFO of CAD180 million (71 cents Canadian per unit), a 107 percent increase from CAD87 million (41 cents Canadian per unit) in the first quarter of 2007. The payout ratio was 59 percent, down from 91 percent in the first quarter of 2007.

Production for the quarter was approximately 52,300 boe/d, up 61 percent from 32,400 boe/d in the first quarter of 2007. Canadian oil and gas production averaged approximately 27,600 boe/d, up 13 percent from 24,300 boe/d in the first quarter of 2007. Production remained balanced at approximately 51 percent natural gas and 49 percent crude oil and natural gas liquids.

FFO in the Canadian oil and gas business was approximately CAD71 million in the first quarter of 2008, up 53 percent from CAD46 million in the same quarter in 2007. Provident’s midstream business delivered first quarter EBITDA of CAD76 million in 2008, up 44 percent from CAD53 million in the first quarter of 2007. In February, Provident announced plans to sell its US oil and gas production business. Provident Energy Trust is a buy up to USD14.

Trinidad Drilling (TSX: TDG, OTC: TDGCF) generated a 6.5 percent surge in revenue but a 7.2 percent decline in net income in its first quarterly report since converting from a trust to a corporation. Trinidad reported net earnings of CAD38.9 million (44 cents Canadian per share), down from CAD41.9 million (49 cents Canadian per share) a year earlier largely because of an unrealized foreign exchange loss and higher depreciation because of a larger rig fleet.

Revenue was CAD219 million, up from CAD206 million during the first three months of 2007. Cash flow from operations—a prime indicator of ability to finance growth—nearly doubled from fourth quarter levels.

Drilling rig utilization in the US rose to 87 percent. Drilling days rose by more than 49 percent. And although the rig count in Canada remained flat, drilling days nearly doubled from fourth quarter levels and were 5 percent above first quarter 2007 tallies. Buy Trinidad Drilling for growth and income up to USD14.

Vermilion Energy Trust’s (TSX: VET.UN, OTC: VETMF) first quarter numbers were depressed by the impact of a declining US dollar versus the loonie, which caused an unrealized foreign currency exchange loss of CAD28.2 million, or CAD9.18 per barrel of oil equivalent.

Net income was CAD26.2 million (38 cents Canadian per unit) on revenue of CAD229.5 million, down from CAD31.6 million (48 cents Canadian per unit) on revenue of CAD148.8 million during the first three months of 2007. Excluding the unrealized foreign exchange loss, earnings would have been CAD54.4 million. Vermilion generated FFO of CAD119.4 million (CAD1.59 per unit), up 57 percent on a total basis and 50 percent on a per-unit basis from 2007.

Vermilion produced 33,072 boe/d in the first quarter, compared to 33,070 boe/d in the fourth quarter, with Canadian production volumes boosted by the acquisition of properties in the Drayton Valley area of Alberta. The trust distributed 57 cents Canadian per unit during the quarter, or 56 percent of FFO. Vermilion Energy Trust, still with low debt and high free cash flow generation, is a buy up to USD40.