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PTCH News Source Press: Canada's Plan to Tax Income Trusts Seen as Disadvantage by Some Oil and Gas Companies

TORONTO--(BUSINESS WIRE)--Canadian as well as U.S. investment bankers see Canada's plans to tax income trusts as a disadvantage for oil and gas company properties that could cut prices as much as 10 percent, though some companies are taking advantage of it.

Most stocks in the energy sector on the Toronto Stock Exchange have seen a downturn in market price recently and in the U.S., many oil and gas companies have followed suit after the Representative Nancy Pelosi-led Democratic Congress has said it too plans to cut tax breaks the Bush administration awarded to oil and gas exploration companies earlier this year.

The new Canadian tax will reduce the amount of money available for trusts to bid on oil and gas assets, and make it harder for them to finance bids.

Energy income trusts such as ARC and Penn West Energy Trust have spent C$13.2 billion ($11.7 billion) on properties this year, accounting for about 60 percent of purchases, according to a report by Calgary brokerage Peters & Co. But that figure is expected to drop considerably due to the income trust tax.

The impact is expected to be felt most in properties worth more than C$250 million. But that doesn't appear to be affecting Canadian junior oil and gas company Patch International, Inc. (OTCBB: PTCH), which appears to have gotten a break out of a recent SEC decision to reject a dividend request over its over two-year back dividend date.

Patch, which as of the last filing by Australian-based Pharmaxis Corp., owned 5.2 million Pharmaxis shares that were to be sold with 50% of the proceeds going to shareholders of record July 30, 2004. But with the American securities regulators saying it was too far back to justify the dividend date, Patch in effect has doubled its forward cash position to US$12.116 million, based on Monday's closing Pharmaxis Nasdaq share price.

The Canadian junior oil and gas Company also said last week Thursday that it acquired 8 more sections of oil sands leases at the recent Alberta Crown sale in the Athabasca oil sands region in Calgary, Alberta, adding to the properties there Patch already owns.

Earlier this month, the Company said it was ahead of schedule on its Columbia gas play and a few days later said it entered into a Farmout and Option Agreement in the Medicine Hat area of Alberta for shallow oil wells. Now, Patch is apparently looking to use the extra cash that was to go out in dividends to expand its oil and gas well activities.

Shares of Patch have fallen steadily ever since the price of oil came off its peak this summer, but with the oil majors across Canada frowning over the disadvantages from the income trust tax, this small player looks to be taking advantage of it on an aggressive scale. Other Canadian juniors may join Patch in acquiring more properties but the cash needed for them to compete may be harder to come by.

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