Canadian Energy Trusts
Tina Chen
Hardeep Gill
Amandeep Hundal
Bus 417 10-1
• Stock symbols ending with ‘.UN’
• Structured to own debt and equity, or royalty in
revenues of an underlying asset
• Purpose: to facilitate distributions to investors on a
tax-efficient basis
• Adopted by businesses that require a limit amount
of capital in maintaining their PPE (generate stable
cash flow)
• Earnings are distributed to investors each month or
quarter, with yield from 6-20% a year
• Business Trusts
• REITs
• Utility Trusts
•Energy/Royalty Trusts
• First listed in 1987; also known as Royalty Trusts
• Similar to mutual funds
• An integral component of the Canadian Oil and
Gas Industry
• Investment vehicle that
may engage in the
development, acquisition
and/or production of oil
and gas reserves
• A certain high percentage of
profits are distributed as
dividends
• Profits are not taxed at the
corporate level
• As interest rates rise, share prices
decline; as interest rates fall,
share prices rise
• Attract investors with relatively
high yields
1.Receives royalty income from producing
properties (net cash flow)
2.Sells interest in the trust (trust units) to investors
3.All of the cash flow generated by the oil and gas
assets, net of certain deductions and based on
payout ratios, is passed on to the unitholders as
royalty income
• In general, the largest variable in determining
the level of cash flow is prices for crude oil and
natural gas
American:
• Not allowed to acquire additional properties once
formed
• Maintain existing assets
• Distribute cash until their natural-resource assets
are depleted
Canadian:
• Allowed to be actively managed and run as
businesses
• Generate capital expenditures
OCTOBER 31, 2006
• Creating a level playing field between
income trusts and corporations.
• Stop the trend of corporate tax avoidance
• Stop shifting any future tax burden onto
hardworking individuals and families
• A Distribution Tax on income trust
• A reduction in corporate tax of 0.5% as of
January 1, 2011
• The new tax on income trust dividends will be
29.5% in 2011 and 28% thereafter
• Main production occurs in Alberta
• Largest single source of oil imports to the USA
• Seventh largest oil producing country in the world
• In 2008, it produced an average of 2,750,000 b/d
• 45% conventional crude oil
• 49.5% bitumen from oil sands
• 5.5% natural gas wells
• A naturally occurring mixture of hundreds of
different hydrocarbon compounds trapped in
underground rock
• Canada exports over 1,000,000 b/d of oil to US
markets accounting for 10.9% of US oil imports
• Refers to light, medium and heavy hydrocarbons
• Conventional crude oil is produced by drilling wells
• Cheaper to produce
• A naturally occurring mixture of sand, clay or other
minerals, water and bitumen
• Bitumen is a heavy and extremely
viscous(“thickness”) oil that must be treated before
it can be used by refineries to produce usable fuels
• Can be found in several locations around the globe
• Non-conventional crude oil deposits is too thick to
flow in its natural state and requires special methods
to bring it to the surface
• More costly to produce
• Mixture of sand, clay,
water, and bitumen
• Synthetic crude oil is
extracted from oil sands
and is often sold at a
premium because of its
high quality
• More costly to produce
• Light crude oil: liquid petroleum with gravity of 28
degrees API or higher
• API gravity measures how heavy or light a petroleum liquid is
compared to water
• If API gravity is greater than 10, it is lighter and floats on water;
if it is less than 10 it is heavier and sinks
• Heavy crude oil: liquid petroleum with gravity of 28
degrees API or lower
• Bitumen: petroleum in semi-solid or solid form that is
found in bituminous sands. It is so heavy (gravity below
12°API) and viscous that it will not flow unless heated or
diluted.
• Synthetic crude oil: a product similar to a high-quality
light crude oil. It is made by refining or upgrading heavy
oil or bitumen. From 31-33°API
• One of the cleanest, safest, and most useful forms of
energy in our day-to-day lives
• Can be found by itself or in association with oil
• Colourless and odourless; a mixture of hydrocarbons
• Impurities are removed before it is delivered to
homes and businesses
Users:
• Residential
• Commercial
• Industrial
• Upstream
Exploration and production
• Midstream
Pipeline, transportation and storage
• Downstream
Refining, marketing, and retailing
• Open-pit mining
Recovers bitumen closer to the surface (< 200 ft)
Uses trucks and shovels
Able to recover only 20% of oil sands
• In situ drilling
Recovers bitumen deeper underground (> 200 ft)
Uses advanced drilling technology
• directional drilling
Able to recover 80% of oil sands
Injects steam or solvents into the reservoir to
mobilize the thick bitumen so it can be pumped
to the surface
• CSS
• SAGD
• Huff & Puff method
• Used at Cold Lake
• Advantages:
• Requires only 1 well
bore
• Adaptable to thinner,
inter-bedded
reservoirs
• Disadvantages:
• Lower recovery factor
• Used at Athabasca
• Advantages:
• Higher bitumen
recovery
• Continuous process
• Disadvantages:
• Requires two wells
• Requires clean,
continuous reservoirs
An industrial process
where crude oil is
processed and
refined into more
useful petroleum
products
1. Fractional distillation
2. Conversion
3. Treatment
4. Combine
• Declining conventional means & increasing role
for non-conventional crude oil & natural gas
• Technology has unlocked vast supplies of
shale gas across North America
• Increasing interdependence with North
American markets
 Created in 1997, Calgary, Alberta
 Publicly traded Canadian limited partnership
 An energy infrastructure business that provides unitholders
with a stable source of monthly cash distribution
 Transport petroleum and extract natural gas liquids
 Operations:
 Oil Sands Transportation
 NGL Extraction
 Conventional Oil Pipelines
 Simon Storage Limited (Bulk Liquid Storage)
 Largest oil sands gathering
business in Canada
 Cold Lake Pipelines
 Corridor Pipelines
 Transport approximately 35%
of the total oil sands volume
(582,000 b/d)
 Cold Lake Pipeline system
is the sole transporter
 Transport approximately
560,000 b/d of bitumen
blend
Process pipeline quality natural gas
to remove NGL (ethane, propane,
butanes and pentanes-plus)
 Fraction NGL stream to produce
ethane product and a mix of
others)
Ownership: 100% in Cochrane and
Empress II plants; 50% in Empress V
plant
NGL are used directly as an energy
product and as a feedstock for the
petrochemical and crude oil
refining industries
 Deliver crude oil from
producer owned batteries
and truck terminals to key
market hubs in Alberta and
Saskatchewan
 Transports approximately
15% of the total conventional
oil (169,000 b/d of crude oil
in 2009)
 A wholly owned subsidiary
 Handles and distributes Bulk Liquid
Storage in the UK, German and Ireland
 Owns and operates 8 bulk liquid
storage terminals with a storage
capacity of approximately eight
million barrels in Western Europe
 Integrated with the operations of
major regional oil refining and
petrochemical complexes
 Complementary: Receive and
distribute products via ship, rail, truck
and pipeline
 Since November 1997
 Background
 BSc – Arizona State
 MBA – University of Calgary
 Employed in Esso Petroleum Canada
Ltd. and various geological consulting
firms
David W. Fesyk
1991-2002 – Senior Exec at various
affiliates of Koch Industries (petroleum,
pipelines, other commodities)
 Director of South Saskatchewan
Pipeline company
 Since October 22, 2002
 Background
 BSc – Boston College Business School
 Member of CFA institute
 Professional manager designation –
Canadian Institution of Management
 Founder, President, Chairman and CEO of
Sentry Select Capital Corp.
 Founder & Chairman of NCE Resources
John F. Driscoll Group and Petrofund Energy Trust
 Chairman of Strategic Energy Fund, Endev
Energy Inc., C.A. Bancorp. And Charter Realty
 President of J.F. Driscoll Investment Corp.
 Cash distributions to unitholders totalled $202 million or
$0.845 per unit (2008: $187 million)
 Throughout volumes on Inter Pipeline’s oil sands and
conventional oil pipeline systems averaged 751,800 barrels
per day
 Corridor pipeline system expansion project is
mechanically complete
 Entered into a 25-year, 60,000 b/d ship-or-pay diluent
transportation contract for the Kearl oil sands project
 Successfully raised over $260 million in equity capital
 Conservative year end recourse debt to capitalization
ratio of only 36% (2008: 42%)
P/E
Gross Margin
Operating Margin
Current Ratio
ROE
ROA
D/E
IPL
Industry
17.75
40.75
13.37
0.52
12.87
3.67
199.35
8.78
12.89
7.26
2.91
8.72
6.55
15.88
 Purchase longer life assets to
be less exposed to exploration
risk
Moderate
Buy
•Traded on the TSX as PWT.UN
and the NYSE as PWE
•421 million shares outstanding
•Market Cap of $9138.23
Million
•Currently has 1950 employees
• Based in Calgary, Alberta, Penn West is the largest
conventional oil and natural gas producing income trust in
North America.
• Have land equal to 7 million acres mostly in western Canada
• Penn West’s production averaged 177221 boe per day at
December 31, 2009, of which just under half was natural gas
• In May 2005 Penn West converted from a senior independent
exploration and production company into an income trust.
• The opening June 2005 cash distribution rate to unitholders
was $0.26 CDN per unit monthly, and was payable in July.
• Current Distributions are $0.15 per month
• Light Medium oil is less
dense then Heavy oil
• Heavy oil a lot harder
to transport which
makes it less desirable
• The oil that comes
from the oil sands in
Alberta is primarily
heavy oil
West Central Alberta- Cardium
•Largest land holder in Cardium with 570000 acres
•Production is about 25000 BOE per day with a
large portion of it as light-oil
•In 2010, Penn West is planning on drilling 35-50
horizontal wells in this area
Dodsland Saskatchewan- Viking
• Penn West owns about 120000 acres in the area with
light-oil potential
• Recently began production with the drilling of 35 oil
wells, which ended up producing 70-75 BOE per day
Waskada Manitoba- Lower Amaranth
• Penn West owns about 50000 acres in this area, which
has a majority of light-oil
• Currently produces about 1200 BOE per day
• Plans to drill 35-50 new wells in this area as they have
experienced recent success
• Recession has had a significant impact on crude oil
demand in 2009
• Oil prices started 2009 near their 2008 lows and then
steadily improved
• As a result of countries such as China moving out of the
recession quickly oil demand is expected to increase in
2010
• Natural gas prices have declined over most of 2009 but
began to pick up in the last quarter of 2009
• The demand for natural gas has however began to
increase as power generation is switching in a lot of
areas from coal fired plants to natural gas based ones
•Penn West will convert in to a corporation in mid 2011
William E. Andrew - President and CEO
• Petroleum Engineer with more than 30 years of oil and natural
gas industry experience, including 14 years with Penn West.
• Engineering diploma from the University of Prince Edward Island
in 1973 and a bachelor degree in engineering from Nova
Scotia Technical College in 1975.
• He previously held senior positions at Gulf Canada, Shell
Canada, Canadian Occidental Petroleum, Ocelot Industries
and served as a Vice President at Opinac Exploration.
• Joined Penn West in 1992 as a director and a key member of
the board.
• He was named President of Penn West in 1995 and President
and Chief Executive Officer in June 2005.
• On the Board of Governors of the Canadian Association of
Petroleum Producers and is the Chancellor of the University of
Prince Edward Island.
David Middleton - Executive Vice President and COO
• Professional Engineer with more than 25 years of oil
and natural gas industry experience since
graduating from the University of Toronto with a
degree in Engineering.
• He has been with Penn West since 1999 holding the
Vice President, then Senior Vice President,
Production positions between 2001and 2005.
• In 2005, Mr. Middleton assumed overall day-today responsibility for Penn West’s oil and natural
gas operations as its Chief Operating Officer.
Todd Takeyasu - Senior Vice President, and CFO
• Chartered Accountant and a Certified Internal
Auditor with more than 23 years of oil and natural
gas industry and public accounting experience.
• He has been with Penn West since 1994 in various
positions including Financial Controller, Treasurer
from 2001 to 2005 and Vice President, Finance until
2006 when he was promoted to Chief Financial
Officer.
•
He is a 1983 business school graduate of the
University of Lethbridge.
•The total component of goodwill is based on the
acquisitions of Petrofund energy trust, Canetic
Resources Trust, and Vault Energy Trust
•Majority of
their debt is
in the form
of prime
rate loans
• Majority of their Risk Management is in the form of collars
on the spot price of oil
• Penn West received a large, unrealized, hit on their
earnings as a result of the hedging practices in 2009 but in
2008 it led to a net gain
HOLD
• Traded on TSX and NYSE
•Tickers: BTE.UN (TSX)
and BTE (NYSE)
•Unit Trust- plans to
convert to a corporation
by the end of 2010
•Shares: 109.299 million
•Market Capitalization:
$3,858.42 million
Baytex Energy Trust is a Calgary, Alberta based
conventional oil and gas income trust engaged in
the acquisition, development and production of oil
and natural gas in the Western Canadian
Sedimentary Basin with an emerging presence in
the United States. Baytex is focused on
maintaining its production and asset base through
internal property development and delivering
consistent returns to its unitholders. Trust units of
Baytex are traded on the Toronto Stock Exchange
under the symbol BTE.UN and on the New York
Stock Exchange under the symbol BTE.
• Heavy Oil production is cornerstone for Baytex
• Heavy oil Business unit- more than 60% of current
production and more than 70% of oil-equivalent
reserves- averaged 25,900 boe per day (95% crude
oil)
• Mainly cold primary production- but waterflooding
and thermal operations are also used
• Key properties- Llyodminister region (west central
Saskatchewan), Kerrobert (southwest
Saskatchewan), and Seal (Northwest Alberta)
• June 4, 2008- acquired Burmis Energy Inc.- public
company with interests in Natural Gas and Light Oil in
west central Alberta
•No Goodwill on purchase
Anthony W. Marino
President and Chief Executive
Officer
• Appointed on January 1, 2009
• Joined Baytex in November 2004 as COO
and was promoted to President and COO in
November 2007
• Prior to joining Baytex he was the President
and CEO of Dominion Exploration Canada
Ltd.
• Registered Professional Engineer, CFA, and
over 25 years experience in the North
American Oil and Gas industry
•Bachelor of Science from the University of
Kansas and a MBA from California State
University
BUY