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Gold/Mining/Energy : Canadian REITS, Trusts & Dividend Stocks -- Ignore unavailable to you. Want to Upgrade?

To: a.handbag. who wrote (3423)	6/12/2002 12:35:42 AM
From: Lorne Larson	Read Replies (1) \| Respond to of 11633

One often hears the "return of capital" and "depleting reserves" arguments when it comes to oil and gas trusts. What the proponents of these arguments fail to understand (or perhaps purposely ignore) is that the oil and gas trusts are basically a developed reserve monetizing vehicle for the E&D energy compamies. An E&D company which has developed fields wants to use that value to fund further exploration. One answer is to borrow against that asset. Another answer is to sell the field. However up until the arrival of the oil and gas trusts, there was a limited number of possible purchasers. Now, the oil and gas trusts fill that niche very nicely. The E&D company can either sell the developed fields to a trust, or spin-off a trust (Paramount being the most recent example). The trust is looking for steady cash flow and low capex (or at least capex where they are dealing with proven reserves). The key is that the trust buys the assets at less than market value. In other words buy at $8.00 per BOE, and sell at $25 per BOE. The E&D is prepared to sell because it is a convenient way of completely monetizing its developed assets, and there are few alternatives, except more debt. The trusts are of course constantly on the acquisition trail because they have to replace depleting assets. As long as they buy low and sell high, there is no element of a Ponzi scheme. Unfortunately many of the trusts were buying way too high last year. The PWI/Cypress deal is the prime example, although PWI covered their risk a bit by immediately hedging a large part of their production. AVN and PVE, on the other hand, appear to have delayed major acquisitions until prices dropped. This is not rocket science. Any analyst who criticizes the oil and gas trust sector as a whole based on "Ponzi Scheme" type arguments is either lazy in his analysis, too stupid to understand how these things work, or intentionally misleading. In the absence of libel laws I would mention a few names.

To: a.handbag. who wrote (3423)	6/12/2002 3:36:24 PM
From: Peter W. Panchyshyn	Respond to of 11633

The question to ask is "are the reserves depleting?". Of course without additions they would. But don't they acquire new reserves? Yes, but they use new money to do so. ------- Much like any company that is trying to grow itself over the years. And that is the key. Any company will borrow to grow its buisness. Any company will issue new stock to grow its buisness. As I said that is the key. The energy trusts are no different. Look to the trusts annual reports to see if over the years they are increasing their production and growing their buisness. In all or near all the answer to this is yes that is what they are doing. And to a unitholder that is all that matters or should matter --------- I have heard that there is some research that shows that reserves per share are still declining. -------------- That could be. Or not. As each and every year trusts have and will continue to replace and increase reserves. That is documented in their annual reports. But as I said above to unitholders production and increases in production over the years is of a more immediate interest or bearing. So the question becomes have they been doing this , are they still doing this, and will they continue to do this. The answer is a resounding YES. ---------- --------- If the commodity price were stable then the above phrases would apply, although in such a long drawn out manner that I don't think I care. However, I'm betting on an increase in commodity prices, which will surely trump depletion. So it comes as no surprise to me that there is widespread distrust of trusts. But where else do you want to re-invest your distributions? And don't you want to invest in something that's hated