Friday, October 23, 2009

Starved for capital as a trust by Harper, Harvest Energy falls victim to Korean state takeover

Notice how the Globe and Mail spins this story about the takeover of Harvest Income Trust in today’s paper. They cite the fact that Harvest was constrained for capital without any reference as to causality. The causality is obvious. Harper effectively shut down access to domestic capital for income trusts and the energy sector on October 31, 2006, leaving them both devalued and vulnerable. That is a known fact that the Globe fails to acknowledge in their ongoing attempt to conflate the facts about income trusts and Harper’s destructive actions, adversely affecting all Canadians. Harper also placed arbitrary constraints on income trusts ability to grow in classic Central Politburo fashion, as the final nail in their coffin. This had the effect of making beggars of 20% of Canada’s oil patch and the rest of the once vibrant $225 billion income trust market, not to mention the beggars that he made of Canadian taxpayers who had based their retirement plans on Harper’s deceitful and empty promise to never (double) tax income trusts.

This is the real Harper door knob story of the day.

These companied were “set up” to fall victim to foreign takeover by state owned enterprises and those with deep pockets looking for artificially “event driven” lowered value. That “event” which artificially depressed their value was Harper’s Halloween Surprise. This “set up” has played our exactly as I and other had predicted, which can only mean that our trained economist PM was acting with foresight when he made these companies vulnerable to foreign takeover and income stripping techniques like leveraged buyouts.

In the oil patch we have witnesses state owned Abu Dhabi Energy and Korea National Energy acquire $9 billion in artificially devalued trusts whose access to capital was destroyed by Harper, Flaherty and Carney.

And now for the absurdity of all absurdities, the absence of capital for Harvest CAUSED by Harper/Flaherty?Carney is about to become the sole rational and “net benefit” upon which Harvest and the Korean state will justify this purchase to Industry Canada, whereas the basis on which Harper’s self destrictive income trust tax was based and “sold” tp Canadians, namely tax leakage, will probably not even be a factor, for if it were then this proposed transaction wouldn’t have a hope in hell of being approved, because gone will be the hundreds of millions in taxes collected annually from Harvest’s present income trust unitholders, to be replaced by the complete absence of taxes paid by Korea, since they will acquire Harvest with debt whose interest payments are serviced by the pretax earnings of Harvest and leave this country FREE of taxes and FREE of withholding taxes.

Why is the Globe and Mail intent on spinning its lies and falsehoods about Harper’s income trust tax and not reporting on the truth about the circumstances that set Harvets up for foreign takeover?

Here was an email I received from a trust company CEO not long ago that testifies to this reality and dynamic in the marketplace now that the once vibrant income trust market which afforded these companies with abundant capital was yanked from beneath their feet with ZERO warning, ZERO justification......but aided throughout by the Globe and Mail and their grossly biased and incorrect reporting

“I'm on way to New York tomorrow for meetings with US investors (much more frequent since the SIFT rules drove RRSP money away from the trusts). Keep pushing. Income trusts are tax efficient vehicles that are perfect for RRSPs. Unbelievable that politicians would legislate against the made in Canada income trusts and then support the fast money ideas like ABCP, derivatives and hyper leverage. Mind boggling, and they wonder why their tax revenue has shrunk so dramatically. Maybe they need to cut and paste those 18 pages back in and have a good look.”

South Korean firm snaps up Harvest Energy

State-owned company pays $1.8-billion to get a stronger foothold in Alberta's oil sands

Nathan VanderKlippe

Calgary — Globe and Mail Update Published on Thursday, Oct. 22, 2009 8:15PM EDT Last updated on Friday, Oct. 23, 2009 6:23AM EDT

One side was struggling under a heavy debt load, strapped for cash and searching for new partners. The other was smarting from a high-profile loss against China.

And so, weeks after state-owned Korean National Oil Co. was the loser in a bidding war for Addax Petroleum Corp. in the summer, it began takeover negotiations with Harvest Energy Trust (HTE.UN-T9.792.4934.11%) .

Those talks ended late Tuesday, in a deal that will mark South Korea's biggest foreign energy purchase and another step forward in its bid to export Canadian petroleum resources to Asia.

KNOC agreed to pay $1.8-billion or $10 a unit for Harvest Energy, in a cash deal whose hefty premium serves as another indication of the strong global interest in Canada's oil patch.

It comes less than two months after PetroChina agreed to pay $1.9-billion for a majority share in two Athabasca Oil Sands Corp. projects, and has raised concerns about the growing ownership of Canada's oil patch by state-owned companies.

KNOC has already picked up a small corner of Canada's oil sands, and a company official said Wednesday that it hopes to ship Alberta bitumen to South Korean refineries. Such a move would mark a further progression in the country's plans to more than quadruple its current production to 300,000 barrels a day by 2012, a goal born of concern over energy security and a bid to move resources from the U.S. dollar into commodities.

In the past few months, the South Korean firm has either bought property or explored for oil in Peru, the U.S. Gulf Coast and northeastern Iraq.

The Harvest deal, which must be approved by unitholders and governments in Canada and South Korea, will double KNOC's oil output.

For Harvest, the rationale was simple: South Korea had money. Harvest, which is based in Calgary and produces just over 50,000 barrels a day of oil equivalent, did not.

A victim of low commodity prices and the credit crunch, Harvest slashed its annual distributions from about $550-million to $100-million in March, and had been casting about for a way forward. Its plans to bring in a partner to help pay for a $2-billion expansion of its Newfoundland refinery had crashed into the credit wall last year.

Though it succeeded in raising $120-million in new equity in June, that was far from enough. Harvest needed to spend $250-million this year just to maintain its current oil flow. It only had the cash to spend $170-million. The markets noticed, and discounted the company's stock. CEO John Zahary was looking at extending the company's borrowing, and contemplated selling assets. “We knew we had to look at our capitalization and see what was the best way to move forward.”

So when KNOC came in with its offer – which totals $4.1-billion once assumed debt is factored in – Harvest couldn't refuse the 47 per cent premium over its previous 30-day average. KNOC has told Harvest it intends to boost the company's capital spending, maintain its assets – including its Newfoundland refinery – and hold on to its 1,000 staff and management.

“At the end of the day, the premium to the trading price, and the certainty – the fact that it was an all-cash transaction – was so compelling I think the board was obliged to present it to the unitholders,” said chairman Bruce Chernoff.

Expectations that further deals may be coming boosted shares at Provident Energy, Penn West and Enterra.

KNOC has yet to produce any oil in Canada, although it hopes to receive environmental approval for the first 10,000 barrel-a-day phase of its already-purchased BlackGold project by year's end. It has supported, although not invested in, Enbridge Inc.'s Gateway pipeline project, which proposes to transport crude from the oil sands to the West Coast for offshore shipping. KNOC sees that pipe as a way to lessen its dependency on Middle Eastern oil, said Byeong-il Kim, the administration and finance manager of the nine-person KNOC Canada.

Buying Harvest will give KNOC access to another one billion barrels of oil sands bitumen. Although that land is not close enough to BlackGold to develop together, if the company can figure out how to profit from the oil sands, it is in a position to buy more, said Tom Grieder, an energy analyst with IHS Global Insight. “KNOC is interested to go there and build its technical expertise,” he said. “If this is working out and it is making money there, then perhaps it will buy other assets in Canada.”

Still, the deal has stoked worry that the Canadian government will eventually step in to block transactions like it, after watching other parts of its oil patch go to other state-owned companies. However, Mr. Zahary said he believes the South Korean commitment to boost spending will win Canadian favour.

“We see this as an opportunity for increased jobs in the country, increased capital investment in the assets,” he said. “Ultimately, I think that's good for all Canadians.”


Dr Mike said...

"Still, the deal has stoked worry that the Canadian government will eventually step in to block transactions like it, after watching other parts of its oil patch go to other state-owned companies."


What a freaking joke.

These clowns caused this devastation , so why stop it.

There are only two possibilities here , just two --this must have been the outcome they wanted in the first place or they did not foresee what was to occur.

If they foresaw these buyouts , then they should be charged with treason as they have shown absolute disregard for our status as a sovereign nation.

If they were ignorant of the outcome , then they have no business as a government.

I have rapidly grown sick & tired of what has been happening to this country & it`s citizens under the so-called Conservative rule where the citizens have become second class citizens to big business.

Come on Iggy , get off your duff here & stand up for the rest of us before it is too late.

If not . stand down & let someone else take the controls.

Dr Mike Popovich

Anonymous said...

Hi Brent-

Thanks for writing. I was going to suggest that I forward your note to our letters page, but I see that you've already ensured its broad distribution.

It's probably worth noting that if you weigh the relative impacts of Stephen Harper's policy changes and $35 oil, I suspect Mr. Harper will not come on top.

Best regards

Nathan VanderKlippe
Calgary Reporter | The Globe and Mail | Report on Business
708 - 11th Avenue SW, Suite 450, Calgary, AB T2R 0E4
o: 403.209.4776 | c: 403.462.5404 | f: 403.244.9809

CAITI said...


By all means please forward my comments to your letters page rather than assuming it has received widespread distribution.

As for your argument about the effects of $35 oil. That is a worthless argument, again designed to provide “cover” for Harper’s culpability in these negative outcome of his policies, since governments have no control over oil price but they do have ABSOLUTE control over policies (in the same way that you have absolute control over how you choose to spin a story).

I learned that lesson over 30 years ago about the effects of oil price and bad policy, when I worked in the Corporate Planning and Economic Department of Dome Petroleum at the time the NEP was ushered in by a similarly reckless federal government.

Brent Fullard