The Oil Drum

Barb Isman, president of the Canola Council of Canada, expects the government to put forward regulations requiring five per cent renewable content in Canadian gasoline and diesel fuel by 2010, as promised in the Conservative election platform.

She said the package will include a $200-million program under which farmers can obtain part ownership in biodiesel plants expected to sprout in coming years.

Isman expects the regulations to state that two per cent of fuels be biodiesel, for which canola can be a prime ingredient.

She said the measures are welcome but will not be sufficient to kickstart the renewables industry unless there are tax changes in the next federal budget to make Canadian farmers competitive with those in the United States and Europe.

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.