Financial Post / Athabasca Oil Sands Investments Inc. Suspends Payments
Low commodity prices, oil sector woes hit royalty trust
Athabasca Oil Sands Investments Inc. has become the first royalty trust in the ailing oil sector to cancel income distributions for the second quarter.
The trust, managed by Gulf Canada Resources Ltd., blamed the "difficult decision" on continuing oil price weakness, large capital spending obligations for expanding the Syncrude Canada Ltd. oilsands plant in northern Alberta and the unscheduled shutdown of one of two coking units, which will reduce the project's overall production.
After yesterday's announcement, the trust units (AOSu/TSE) closed down 85› yesterday at $16.40. They traded as high as $27.45 last fall.
"Our view is that we came out on the market as an oil price play," said chief financial officer David Carey. "When oil prices were strong, we were able to make tremendous distributions to unit holders. We could have borrowed to maintain distribution, but it seemed more prudent to conserve our cash for investment to build the long-term value of Syncrude."
The trust, with an 11.74% interest, is one of the 10 owners of the Syncrude plant. The Fort McMurray, Alta., operation, Canada's largest single source of crude oil, has budgeted $525 million in capital spending this year as part of a $6-billion expansion over the next decade.
The trust received about $20.27 a barrel of oil during the quarter, down from $27.19 last year.
It expects distributions of 20› a unit for the year, down from $1.65 last year, assuming oil prices average US$16 a barrel. So far this year, unit holders have received 5› per unit, down from 65›.
While other oil trusts have reduced distributions to reflect lower cash flow related to continuing oil price weakness, "it's the first
time we see trust distributions cut to zero," said oil and gas analyst Brian Ector, oil and gas analyst with CIBC Wood Gundy Securities Inc. in Calgary.
The decision was not unexpected, he said. He had predicted distributions of nil to 5› a unit for the period.
"What investors have to take comfort in is there is significant underlying net asset value ... and despite the weak commodity price environment, we expect significant value will be realized over the next few years."
One of Canada's first oil trusts, Athabasca was launched by then Gulf Canada chief executive J.P. Bryan in November 1995, when his company bought the Alberta government's interest in the operation.
The investment vehicles then became popular with small investors because they provided a regular stream of income at a time of low interest rates, while becoming a major source of industry financing particularly for mature properties.
Oil trusts have lost their appeal since as low commodity prices cut into distributions. Observers predict consolidation between oil trusts if commodity price weakness persists.
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