The Oil Drum: Canada

Canadian Energy's "Exit Stage Right" Plan

As early as 1984, Canadian companies began merging into much larger trusts, taking advantage of trust-friendly Canadian regulations.

In a Canadian Energy Trust, operating companies are acquired by the trust, usually through equity offerings, using third-party debt and funds in exchange for grants of royalties, debt and shares. The operating company's cash flow from sales (from oil, natural gas, etc.) is transferred to the Trust as distributable cash flow.

This means that the majority of the revenue is able to be paid out as monthly dividends to the Trust's shareholders.

But there's a catch there, if you look hard enough.

The characteristics of the companies these trusts acquire are pretty interesting. Due to the need to provide their investors with a constant cash flow, Canadian Energy Trusts purchase only assets that are mature, low-exploration-risk properties and toll-based energy infrastructure with predictable operational profiles and minimal or at least low capital expenditures.

This assures the trust of a higher drilling success rate than is typical of exploration and production companies.

So companies find themselves in a predicament.

They can either continue to actively spend their incoming money on exploring for new oil or organize into these Canadian Energy Trusts, thereby giving their shareholders bigger dividends.

In light of the argument by some that there is no easy and cheap oil left to find, it's interesting to note that many of these companies have chosen the latter option.

Perhaps they know something about the reality of Peak Oil that we don't.

I am heartened to see a report in Grist To John so many environmental groups taking on Robert Kennedy Jr's NIMBY opposition to wind power off the coast of Cape Cod. RFK Jr has been a prominent attorney for the Natural Resource Defense Council and has framed this issue as industry versus natural preservation:

"Some places should be off limits to any sort of industrial development. I wouldn't build a wind farm in Yosemite National Park. Nor would I build one on Nantucket Sound ... All of us need periodically to experience wilderness to renew our spirits and reconnect ourselves to the common history of our nation, humanity, and to God."

However, his continued vocal opposition  to the proposed 420 Megawatt wind project has forced a near civil war among environmentalists. However it seems that RFK Jr is being increasingly isolated on this issue as the alarm over global warming forces a long overdue prioritization within the environmental movement.

The best expression of the environmental movement's new tough love attitude was this:

Passacantando, executive director of Greenpeace USA, the debate comes down to weighing local NIMBY concerns against global climate concerns. "I respect people who wage NIMBY battles -- the environmental movement was founded on people protecting their local, sacred areas," he said. "But today, solving the climate crisis has become so urgent that it trumps NIMBYism. It's as simple as that."

This is a milestone for the environmental movement. It shows a new maturity to prioritize clean renewable energy production over NIMBY opposition even within their own ranks.