The Oil Drum

Royal Dutch Shell Inherits Explosive BC Conflict

When Royal Dutch Shell's directors took the reins of Shell Canada earlier this month, they inherited a brewing resource conflict in a remote corner of British Columbia that bears a striking resemblance to Royal Dutch's difficulties in other parts of the world.

The setting is a remote alpine basin southeast of Dease Lake, where the shared origin of the Nass, Stikine and Skeena Rivers gives the area its local name: the Sacred Headwaters. A stunning, expansive wilderness, it is the territory of the Tahltan people, who have hunted and trapped there for generations. It also happens to be underlain by one of British Columbia's largest potential coalbed methane deposits, to which Shell Canada -- and now Royal Dutch Shell -- holds drilling rights.

Trust bounty slips away

Most income trusts that have sold themselves -- since Ottawa decided to increase taxes on these investments to stem tax leakage -- have ended up in the hands of entities that don't pay Canadian taxes.

Twelve income trust deals with a total enterprise value of $7.3-billion, including yesterday's proposed sale of KCP Income Fund, are pending or have closed since the end of October. Nine of these transactions, worth $5.76-billion, are set to end up in the hands of foreign private equity shops, foreign corporations, Canadian private equity or Canadian pension funds -- all outfits that don't pay taxes into Ottawa's coffers. The findings were made by Chris Rankin, an analyst at Canaccord Adams....

...."We're seeing cash flow moving from taxable Canadian investors' hands to offshore investors and non-taxable hands," said Sandy McIntyre, a fund manager at Sentry Select Capital Corp.