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Yield Gushers to
Fatten Your Wallet

Dear Investor,
Canadian oil and gas income trusts have been the source of double digit monthly
dividend income for a number of years. Concerns about the impact of tax
changes which are scheduled to take place in 2011 have kept prices low and made
yields even more attractive.
These trusts today represent a hugely undervalued investment for a number of
reasons. The outlook for oil prices and supply constraints will put a premium on oil which can be trans-
ported to the U.S. market by pipeline. The tax concerns about 2011 are overdone and unlikely to affect the
dividend payout rate for the trusts recommend here. Most important, the dividend payments continue to
receive the 15% dividend tax treatment for U.S. taxpayers and the 15% withholding tax by the Canadian
government is fully recoverable on your U.S. tax return as a tax credit. Hence, the net dividend payments,
which are still double digit, come to you tax free. Compare this to a U.S. oil and gas partnership which gen-
erally trade with an 8% yield which is taxable as ordinary income.
Most trusts receive their income from both oil and natural gas sales. Natural gas and oil prices have been
weak of late and are subject to winter weather conditions in their primary market, the U.S. Midwest. Over time,
this vulnerability will diminish since it is projected that as oil sands development expands it will require most of
the available Canadian natural gas.
The three trusts recommended here are among the strongest trusts with huge and growing reserves. Don't let the
share price declines hold you back, the yields will reverse this trend, eventually. Meanwhile, collect a double digit
yield while you wait.

Richard Lehmann
Editor, Forbes/Lehmann Income Securities Investor


BUY: Enerplus Resources Fund (ERF)
RECENT PRICE: $23.41 52 WEEK RANGE: $20.25 - $50.63


Enerplus is an oil and gas trust fund which produces both oil (47%) and gas (53%). It is one of the
largest trusts with 258 million barrels of proven reserves which is equivalent to 10.1 years of production
at current rates (note all reserve numbers are for oil and oil equivalents, i.e. natural gas expressed in bar-
rel equivalents). It also has extensive undeveloped properties including oil sands. It recently acquired
Focus Energy, a smaller trust which found it did not have the size needed to operate profitably. Con-
solidation is the watchword for this industry so look for growth through both property development
and acquisition. The trust has built up significant tax offsets to protect against the 2011 onset of cor-
porate taxation.


BUY: Penn West Energy Trust (PWE)
RECENT PRICE: $16.39 52 WEEK RANGE: $13.00 - $35.49


Penn West has been one of the more aggressive trust in mergers. In 2006 it acquired Petrofund, one of my
then favorite Canadian trusts. It followed this up in 2007 with the acquisition of Canetic Resources. Be-
fore the Canetic merger, Penn West had 290 million barrels of reserves (58% oil, 42% gas) or 9.1 years at
current production levels. Canetic will add another 167 million barrels of reserves making PWE by far
the biggest Canadian trust. This enhanced size will allow it to develop its extensive properties without en-
dangering the dividend payouts.


BUY: Harvest Energy Trust (HTE)
RECENT PRICE: $10.58 52 WEEK RANGE: $7.00 – $26.08


Harvest is a different energy trust in that it has a major investment in a U.S. refinery. Its oil and gas
reserves are 161 million barrels (73% oil, 27% gas) which is equivalent to 7 years production at
current levels. Its refinery offers a major income diversification, but also, a source of profit volatility
since refinery margins fluctuate widely. In fact, recent weakness here led to a 21% dividend cut which
caused prices to decline and lift the yield to 30%. The stock has significant upside potential given the
diversity of its income, but could also face more dividend cuts, something the current valuation seems
already to have priced in. The low exposure to natural gas prices is a plus here, as well as the profit
potential from its U.S. based refinery, which is a valuable asset these days.


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