Challenges in the Oilpatch

Canada's oil and gas trusts cashed in last year as record-level oil prices held and touchy natural gas prices shot through the stratosphere. Recently, however, the sector's been getting hit from all sides. In the months since Ottawa first talked about raising the tax-free portion on dividend income, long-term interest rates have continued to climb. Natural gas prices have tumbled 50% since peaking at a record US$15.78 per million British thermal units in December and the rising cost of doing business in Canada's oilpatch is weighing on all producers. Some observers are predicting the biggest players among the oil and gas trusts are closing in on an inflection point. Who better, then, to take stock of the situation than Jim Kinnear, a trust-sector pioneer who was flogging innovative ways for pension funds to invest directly in the oil and gas sector as far back as 1982. In a recent interview with the Financial Post's Jon Harding, Mr. Kinnear, chief executive of Calgary-based Pengrowth Energy Trust, admits some of the sheen might have come off the sector as the spectre of potential distribution cuts grows. Mr. Kinnear said Pengrowth, which 17 years ago became Canada's fourth publicly traded oil trust, has plenty of flexibility to avoid such a fate.

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