Fuck Those Political Tax-Happy Canadian Fuckers!

IT’S DONE

For those who held and hoped that the folks in Ottawa wouldn’t pass the federal budget legislation, it’s over and done. Late last week, the Canadian House of Commons passed the budget which included the new massive tax on income trusts, including business and petrol trusts. Granted, it still mustpass the Senate. But in the history of Canadian budgetlegislation, it’s extremely unlikely for any reversal in thebudget process at this point.This is exactly what we’ve been waiting for. After the initial shock and awe, followed by disgust and a fight for reversal, acceptance is the best means to get the better trusts in Canada restructured and ready for our renewed investment.In fact, most trusts continue to whine and complain about the tax change and are still holding out with hope that somethingwill happen to the trust tax law. But anybody who’s doing thatis really defining faith-based investing.As prayer groups are being formed in Ottawa and Calgary, Alberta, some trusts are already beginning to work on plans todeal with the tax. Some have already begun to implement them.Right after the budget passage in the House, Enerplus Resources issued a press release stating some of its potentialplans to transition into the new tax law conditions.Enerplus Resources was one of our first trusts inside PersonalFinance (http://www.pfnewsletter.com/) nearly five years ago.It was one of the first companies to really capitalize on thestructure and has been an easy company to maintaincommunications with over the years.*

{This e-newsletter writer has an interest in this concern, read and do you own diligence. SOC does not currently recommend any action on this particular company}

In addition to the trust tax law issue, Enerplus was concernedabout our sell recommendation in Personal Finance. Managementasked to set up a conference call to further discuss the trustand our concerns. I asked Associate Editor Elliott Gue to sitin to help with our energy market issues and Managing EditorDavid Dittman to listen to some of the legal concerns overvarious corporate changes. We chatted with CFO Rob Waters, along with other seniorexecutives. The meeting provided some very interestinginsights into the company as well as the petrol trustindustry.Right now, the company could do many different things to dealwith the trust tax law. It could move to become a corporationagain, or it could have the corporation that operates and ownsthe trust’s assets redeem all trust units and replace themwith common shares.It could also transition itself into a real estate investmenttrust (REIT), which is exempt from the tax if it meets locallegal conditions. Or it could simply transfer the assets to alimited partnership structure, again bypassing the trust taxlaw.The trust could also become a takeover target for anothertrust, corporation or private equity or other investmentgroup.On this front, Enerplus, although attractive on a cash-flowbasis now, is fully priced and then some. As with other petroland business trusts, the high current dividend justifies amuch-higher price to net assets or price to revenues thantraditional corporations and/or lower-dividend-paying trustsor partnerships with similar balance sheets and incomestatement conditions.Meanwhile, we also went through the US petrol partnershipmarket with Enerplus’ management, which was very interested inour reviews and opinions on several key partnerships that itlikes, including Linn Energy and BreitBurn Energy Partners LP.BreitBurn was the spin-down of Provident Energy, another largeCanadian trusts.Enerplus discussed its own US-based operations with itsheadquarters in Denver, Colo., and disclosed that more than 14percent of the entire company’s producing assets were in theUS. Of the company’s whole investment program, more than 50percent is involved in grabbing and expanding its USproperties.This means that the US and non-Canadian production will beramping up significantly to rival the Alberta assets.Given the discussion of the assets and the direction of thecompany’s new investment, along with the partnership market, abig change in Enerplus' pre-tax change will most likely involvea move similar to Provident’s spin-down of BreitBurn.At that point, we’d be ready to go with the initial publicoffering of the new Enerplus partnership.