Enterra Energy Corp. became the latest Canadian energy trust to convert to a corporation due to the tax legislation that was passed by the Canadian government in 2006 that will tax trusts, which are similar in design and set-up to American master limited partnerships (MLPs), at the same rate as corporations in 2011.
The company announced it will change its name to Equal Energy Ltd., which will reflect the company’s new branding efforts.
“Enterra must eventually convert from a trust to a corporation because of the taxation changes in Canada … The name Equal Energy reflects the balanced approach that we take to asset development, financial responsibility and our strategic corporate direction. We’ve worked extremely hard since late 2007 to stabilize our balance sheet, our asset base and our credibility within the capital markets as we move toward a growth-oriented energy and petroleum corporation,” Don Klapko, the company’s president and CEO, said.
The company is expected to reorganize on or before May 31 and will continue to focus on E&P operations at the Hunton natural gas and non-gas-liquid play in Oklahoma, which has reserves composed primarily of 55% natural gas, 37% natural gas liquids (NGLs) and 8% oil. Equal Energy will also seek to develop oil and gas prospects in Western Canada, as well as oil prospects in Circus, Okla.
It is anticipated that by January 1, 2011, no more energy trusts will exist in that format due to the legislation the Canadian government passed on Oct. 31, 2006, which will tax energy trusts at the same level – 31.5% – as other corporations.
This change took away the primary purpose for the energy trust, which was that their profits are not taxed at the corporate level since they disseminated to the company shareholders via distributions, which are then taxed on the investors’ end. A dual-taxing entity makes the entire set-up unattractive to both companies and investors. The government stated the tax policy for energy trusts was costing Canada more than $500 million in annual revenue (see Gas Processors Report 02/0/1/08). – Frank Nieto
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