Canadian Political Tide Possibly Turning for Energy Trusts

The headline of the Bloomberg article reads: "Harper May Be Toppled as Canada Lawmakers Debate Economy, War." Indeed, due to a sluggish economy and discontent over the country's continued military presence in Afghanistan, Canada's minority parties are thinking about bringing down the government in the Spring. In a parliamentary system like theirs, national elections can be brought about anytime if the ruling coalition loses a confidence vote; being a minority ruling coalition-holding the most seats of any party, but not more than half-is a particularly tenuous, and usually temporary, condition that makes national elections in Canada this year a very real possibility.

What does this have to do with Canadian energy trusts? In the bizarro-world of Canada's current energy politics, the return to power of the Liberal party would be a positive for this sector. Why? Ever since their Halloween, 2006 announcement changing the tax status of energy trusts starting in 2011 (subsequently passed into law early in 2007), rhetoric on the topic from conservatives has been so strident as to prevent any possibility of their backtracking and altering their plan.

Thus, the Liberals have filled the void, promising to either extend that conversion deadline out to 2017 or to significantly decrease the trusts' post-2011 tax rate. Either of these would represent huge positives for the trusts and this strange situation of the liberals-as-energy-trust-defenders explains why many life-long conservatives from the Albertan energy patch are devoted to helping bring down this government.

All that said, while national elections are increasingly likely, they are not a done deal by any stretch. In fact, all you need to know for now was said in the last paragraph of the above-referenced article:

A survey conducted this month by the Strategic Counsel for the Globe and Mail newspaper showed the Liberals with 30 percent voter support, compared with 36 percent for the Conservatives. The poll of 1,000 Canadians has a margin of error of 3.1 percent age points.

Unless those poll numbers start showing the Liberals with an advantage, national elections will remain merely an idea; no minority party is going to choose to bring on an election knowing it will not prevail. Such numbers can change very rapidly in Canada, however.

Don't rush out and buy energy trusts based on the possibility of a change in power north of the border. For now, this is merely a developing story to watch.

A very big one.

*Note: you can click here to learn about the Canadian energy trust portfolio on which we advise.

Disclosure: Author is long HTE, PDS, AAV, BTE, ERF, PWE and PVX.

Comments

[erniem:]

It is pretty much a certainty that such an announcement would add $30 billion to the worth of the above stocks in one day. With reason.

2008 Jan 29 11:31 AM

[granger:]

Thanks for the update. Keep us posted. Thank you again.

2008 Jan 29 05:13 PM

[Calif. Inve...:]

Hungry for good news but need to know the bad too.Thank you for any information.

2008 Jan 30 10:43 PM

[K. Argenta:]

I own a lot of 'canadian' energy trusts,especially H.T.E.,which pays an attractive dividend, and it's a lot better than some U.S. "stocks" that pay dividends but not equal to "canadian" energy. They(Canada) do take out foreign taxes on your investments,but for me it's not that much. I say invest in Canada's energy as you get a nice return for your money.KPA

2008 Feb 01 11:52 AM

[digivision:]

I am with K Argenta on this I own PVX and the dividend is so attractive it's hard to pass out

2008 Feb 01 10:40 PM

[BERNARD HALL:]

I HAVE SHARES OF PGH THAT PAYS A LARGE DIVIDEND I HAVE NOT SEEN ANY COMMENTS ON THIS STOCK ! WOULD YOU COMMENT ON PGH .

2008 Feb 03 04:47 PM

[petersl:]

Most interesting piece by Mr. Hanlon. I own ERF, PGH, PWE, PVX, AAV and HTE. The dividends are very welcome each month. I also believe that being paid to wait while this story sorts itself out and the Canadians wrestle with what should be the tax treatment of these oil and energy trusts. I believe that the only news that is pretty much guaranteed, is that the tax situation will be ameliorated to some degree, how much is the question. In the meantime, we are being paid (handsomely) to wait.

2008 Feb 16 11:24 AM