What’s with Canada and the word fair, in all its forms?

“Tax Fairness Plan.”

“Our Fair Share.”

Are we looking at another Halloween ruined?

The surprise this year is likely to be to the upside. But no matter what comes down, it will be a stretch to call it pleasant. Oil and gas companies operating in Alberta will have to pony up a greater chunk to the provincial government; however, the measures spelled out by the Alberta Royalty Review Panel in its “Our Fair Share” report aren’t going to be adopted in whole.

Alberta Premier Ed Stelmach defended the province’s existing royalty structure before an audience of Tory cash contributors last week. According to The Canadian Press, he noted “…the policy to encourage investment has drawn billions of dollars and generated economic activity and tax revenue that has benefited all Albertans” and said that Alberta’s current royalty system “has created one of the most successful economies on earth.”

He’ll announce what he plans to do with the Review Panel’s recommendations in a televised address Wednesday evening. Based on Stelmach’s recent public statements, Review Panel Chairman Bill Hunter, who strongly suggested that the recommendations all be adopted, is going to be disappointed.

Stelmach, who met last week with members of the Review Panel to discuss their methodology and the numbers they used to justify their conclusions, will balance the interests of business with the “birthright of all Albertans,” i.e., the province’s resources.

The Parkland Institute has reported that Alberta’s royalties will remain among the lowest in the world even if the government accepts all of the Review Panel’s recommendations.

The institute said countries like China, Libya and Nigeria charge rates as high as 90 percent.

Diana Gibson, the Parkland Institute’s director of research, wondered why Alberta, “a stable and safe country,” would sell its resources cheaper than those countries. Well, successful development of those resources by industry has allowed Alberta pay down debt and fund public health and education programs to a degree unmatched in Canada.

All due respect to Gibson, is that a tier to which Alberta should aspire, one occupied by the likes of China, Libya and Nigeria? It sounds like Stelmach will announce this week that he has his own definition of fair and that he’ll follow that up with details next week. “It will be full-text by the end of the month,” Stelmach said, according to Reuters. “It’s such a complex issue. It will require breaking it down into manageable pieces.”

The two-stage rollout suggests his answer will be something more than “we accept and adopt the recommendations of the Alberta Royalty Review Panel.”

Jason Markusoff of The Edmonton Journal summarizes the issues and data Stelmach will evaluate here.

Up with Asia

Growth in the developing world and corresponding demand for Canadian exports–oil and other vital resources–are keeping the economy north of the border immune from the kinks working through the system to the south. US weakness in eras past used to spell big trouble for Canada and the rest of the world.

But “the US sneezes, the world catches cold” is no longer a hard-and-fast axiom. Outgoing Bank of Canada (BoC) Gov. David Dodge provided further illustration of that fact last week in a press conference following the release of the BoC’s semiannual monetary review.

The BoC reported that the Canadian economy is showing signs of slowing, but GDP should continue to grow in the next two years, albeit at rates lower than previously forecast. Projections for US GDP growth have been scaled back, and the Canadian dollar’s rapid rise has also had its effects on exports.

But the BoC noted that Canada would suffer more under its strong currency and the slumping US economy if not for continued robust growth in the developing world, which will keep demanding more of what Canada has to sell: oil and gas, minerals and other natural resources.

The BoC projects the US will slow to 1.9 percent GDP growth in 2008 and expects the rest of the world to grow by 5.2 percent. China and emerging Asia should see growth of about 10 percent.

Our colleague Yiannis Mostrous is on top of the Asia story in his weekly advisory The Silk Road Investor. He details what’s shaping up as an epochal change in global economics–and provides guidance on how to best allocate investment dollars.

Here’s a bit of what he talked about in last week’s SRI:

As I’ve warned for the past few months, the next couple weeks will be the most important of this quarter. They will determine whether the market ends the year significantly up or down.

So this week, I pored over the Fresh Money Buy list and prepped it for the rest of the quarter.

The most important change is that Singapore is now my favorite market. Its strong earnings potential and good valuations, together with the strong economic growth, are what you need now.

The fourth quarter is historically a period of strong performance for Asia. Currently, the markets look a bit uncertain. But if we clear October bruised–a 10 percent correction or a 30 percent slide–the year will end strongly on the upside.

You’re certainly aware, through one or several of the oodles of information sources out there, about China and the rest of emerging Asia. Yiannis is the real deal. He knows the history, he understands the present, and he’ll help you make money.

The Roundup

Oil & Gas

Canetic Resources (CNE.UN, NYSE: CNE) is buying Titan Exploration for CAD98.5 million (USD100.5 million) to expand its oil and gas operations in southwest Saskatchewan. Canetic has offered 0.1917 of a Canetic unit for each Titan class A share and 0.6609 of a Canetic unit for each Titan class B share.

Canetic expects to issue about 6.5 million units for the acquisition. It will also assume CAD17.5 million in debt, bringing the total value of the deal to CAD116 million. Canetic will acquire production of more than 1,800 barrels of oil equivalent (boe) per day and more than 49,000 gross acres in Saskatchewan, close to land on which Canetic already operates.

Oil accounts for 63 percent of Titan’s output. Proved and probable reserves are pegged at 7.3 million boe with a reserve life, assuming current production, of 11 years. Canetic Resources is a buy up to USD15.

Fairborne Energy (FEL.UN, FELNF) has announced a plan to convert from a trust into a regular corporation that also entails raising CAD100 million by selling a 16 percent stake to Denham Commodity Partners Fund IV LP. Denham, a US private equity fund, would acquire 13.4 million common shares of the new firm at CAD7.45 each. Denham’s investment is conditional on the successful closing of the reorganization.

Fairborne intends to invest all of its cash flow in existing assets and growth opportunities rather than continue as a high-distribution-paying trust. Proceeds from the private placement will initially be used to reduce outstanding debt.

Fairborne plans to continue its current monthly distribution until the closing of the reorganization, including the November distribution payable Dec. 17. Holders of trust units would receive an equal number of common shares of the new corporation. Sell Fairborne Energy Trust.

Provident Energy Trust (PVE.UN, NYSE: PVX) announced that it will restate its first and second quarter 2007 unaudited interim financial statements principally because of an overstatement of midstream petroleum product inventory and a corresponding understatement of cost of goods sold. Provident anticipates that the impact of the restatement on total 2007 results from operations will be immaterial.

Regular internal auditing controls revealed that commercial transactions recorded between two wholly owned Provident midstream subsidiaries resulted in overstated inventory balances. Related cash settlements were all handled correctly with no impact on day-to-day operations or third parties. Provident management and the audit committee of the board of directors recommended the restatement.

For the six months ended June 30, 2007, the restatement won’t affect cash flow from operations but will reduce funds flow from operations by approximately CAD18 million, or 9 percent of funds flow. This will, in turn, increase the six-month payout ratio to 88 percent from the 80 percent originally reported. Net income for the period will be reduced by approximately CAD13 million, which results in a net loss for the period of approximately CAD4 million compared to the net income of CAD9.3 million originally reported.

Provident will provide a breakdown of the restatement as note disclosure in its third quarter earnings report, expected Nov. 8. Provident expects to meet all previously disclosed 2007 guidance and doesn’t expect any impact on distributions. Provident Energy Trust is a buy up to USD14.

Business Trusts

A&W Revenue Royalties Income Fund (AW.UN, AWRRF) reported profits for its second quarter were flat compared to the same period of 2006 on revenues that were 6 percent higher year-over-year, but the fund boosted its monthly cash distribution by 2.9 percent from 10.3 cents Canadian per unit to 10.6 cents Canadian per unit beginning with the October distribution.

A&W earned CAD2.5 million (30 cents Canadian per unit) on sales of CAD158.7 million; a year ago, the fund earned CAD2.5 million (30 cents Canadian per unit) on sales of CAD149.8 million. Same-store sales increased by 3.3 percent. The number of restaurants in the royalty pool increased to 660 from 654 a year ago. A&W Revenue Royalties Income Fund is a hold.

Priszm Income Fund (QSR.UN, PSZMF) has cut its cash distribution and will sell up to a quarter of its restaurants and close another 25 in an effort to address falling sales and rising costs. Those measures are expected to save about CAD4 million in 2008; the sale of as many as 120 restaurants over the next two years could add CAD20 million to CAD30 million in net proceeds.

Priszm will cut monthly distributions to 3 cents Canadian a unit from 10.7 cents Canadian a unit for the next three months because of a CAD5 million restructuring charge it will take in the fourth quarter. Priszm plans to boost the distribution in January to CAD1.20 annualized for 2008.

The fund will withhold distributions for its subordinated limited partnership units until the third quarter of 2008. It will then review its distribution policy as it assesses restructuring progress. Third quarter total sales growth declined by 4 percent to CAD122.4 million as same-store sales growth fell by 4.7 percent. Earnings before interest, tax, depreciation and amortization declined to CAD12.1 million from CAD13.7 million in the same period last year. Sell Priszm Income Fund.

Real Estate Trusts

Canadian Apartment Properties REIT (CAR.UN, CDPYF) will raise CAD99.8 million to pay off costs from past acquisitions and to fund potential new ones by selling 5.4 million units at CAD18.65 per unit to a syndicate of underwriters led by RBC Capital Markets on a bought-deal basis. The deal dilutes the company’s outstanding capital of about 61 million units.

A portion of the proceeds will be used to repay part of the estimated CAD159.2 million owed under its acquisition and operating facilities, which were used to partially fund five acquisitions worth a total of about CAD260 million in recent months. The remainder will go toward future acquisitions, capital expenditures and general purposes. Buy Canadian Apartment Properties REIT up to USD20.