It was a statement clearly meant to inspire the young people to whom he spoke. But anytime the leader to the country with the largest store of oil reserves on Earth suggests crude is a finite resource that must be preserved the world is going to take notice. Speaking to a group of students studying in America thanks a scholarship program he funds, King Abdullah Bin-Abdulaziz said, according to the Saudi Gazette, that he ordered the halt of recent underground exploration activities because the oil should be left for future generations.

The King, reports the Gazette, told the story of a meeting of his cabinet during which he asked his advisors to pray with him, “May Allah prolong its life,” without saying what “it” was. When asked to clear up the mystery the King said he said, “It is the oil wealth. Just leave the underground wealth for our sons and their sons.” Saudi leaders have well-earned reputations for using only the most optimistic language to describe the state of the kingdom’s oil. To concede, even in the most unstructured environments, for the most benign purposes, that Peak Oil is something to be reckoned with is to cede significant ground.

King Abdullah’s remarks, even after efforts to walk them back by other Saudi officials, are simply the latest reminder that cheap oil is a thing of the past. We’re going to extreme depths, at exorbitant cost, to find and produce crude reserves, which is necessary right now because there is no alternative or alternatives that alone or in combination can replace fossil fuels, still the cheapest way to power cars, cool homes and otherwise light up our lives.

Something another prominent leader of a major oil interest said last week also resonates, but this remark is likely to have much more tangible short- and medium-term ramifications for business and investors than King Abdullah’s symbolic words. During an interview with the Toronto Globe & Mail the head of China National Offshore Oil Company’s (CNOOC) operations in Canada forecast that “there will be more billion-dollar deals between Chinese and Canadian companies.”

The government has issued marching orders to its litany of state-owned and state-sponsored companies and investment funds to invest overseas. Further stimulated by recently eased travel restrictions to Canada over the next five years “a lot of companies will come here to look for resources and to make an investment,” said Zheng Li, president of CNOOC Canada Ltd. CNOOC Canada was one of the first Chinese companies to buy into the Canadian oil sands story, paying CAD150 million for 16.7 percent of MEG Energy Corp in 2005.

One thing the global economic downturn and still-unfolding recovery have revealed is that we’ve entered a period where the per barrel price of oil is likely to remain in an elevated range far higher than what we’d grown accustomed to in the post-World War II era. It’s easy to forget now, but the West won the Cold War. Its ideas about free markets and capital flows have prevailed for almost two decades. Although the practice is sloppy, uneven and painful for many, these global imbalances that must be smoothed out are among the very fruits of the great struggle for ideas that punctuated the last century.

And with the maturation of this consensus now comes burgeoning middle classes–and their concomitant consumption habits–in China and India, most prominently, but in other pockets of the Middle East and in Southeast Asia as well. This new demand has more than offset consumption declines in Europe and North America amid the recession. The bottom line is supply is getting shorter, while demand is rising.

Our favorite way to play the oil sands for income-oriented investors is through Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF), which holds an exclusive contract to transport production from the Syncrude consortium to terminals in Edmonton, Alberta. Pembina Pipeline’s cash flow is based on throughput; its fee-for-service revenue is not directly tied to the price of crude oil.

Canada, perhaps the most hospitable environment among the world’s major oil exporters, is in terrific position to benefit from China’s resource needs. His reign remarkable for its relative placidity during a time of turmoil for most of his peers, Prime Minister Stephen Harper has managed to turn around what was a tense relationship for Ottawa and Beijing at the outset of his tenure as the head of Canada’s minority Conservative government. The flowering Sino-Canadian friendship must now be considered among his top achievements.

Although there are legitimate human rights concerns that Mr. Harper continues to pursue with his counterpart President Hu Jintao, he has placed the long-term economic interests of his country at the center of his China policy. The oil sands, for example, represent the second-largest store of recoverable oil on the planet, trailing only Saudi Arabia’s vast reservoirs. The US, still Canada’s largest market for oil and everything else, has on several occasions advanced legislation that would restrict the inflow of oil-sands-derived crude on environmental concerns.

For Canada to maintain its newfound strength among developed economies it must continue to foster ties to emerging markets. Its best connection to the world beyond North America is on a bridge built by resource-focused capital investment.

Describing the relationship of his company with the Chinese government during the Globe & Mail interview Mr. Li noted that CNOOC receives “no political direction or order. We are businessmen. We are not politicians. China is focused on economic development. We really don’t have any interest in politics.”

Say what you will about Mr. Harper’s long reign as the leader of a minority government. Carry the refrigerator that is the Halloween 2006 income trust tax decision on your back. But by setting aside matters of ideology–at least insofar as his dealings with China are concerned–the Prime Minister of Canada has put his country in unique position to prosper while its developed-market peers wallow in debt- and deficit-driven austerity movements that threaten what’s still a weak recovery in the historical context.

Canada entered the downturn on stronger footing than its G-7 peers, with a decade of balanced budgets and deficit reduction behind it and a robust regulatory framework to deal with its major banks. It entered the recession later than all of them and emerged from it in much better condition. Continuing to reduce its dependence on its southern neighbor through closer ties with the East is the best way to ensure Canada’s good economic fortune continues.

The Streets of San Francisco

Roger Conrad and David Dittman will be patrolling the San Francisco Marriott Marquis during the San Francisco Money Show August 19-21 for Maple Leaf Memo readers who are interested in learning more about Canada’s growing global presence, who want to learn how to apply the tools we use to identify viable high-yielding business in the Great White North to establish sustainable income streams around the world, who want to know the latest on income trust conversions and who are curious about what the activities of sovereign wealth funds (SWF) such as China Investment Corp (CIC) say about the future of the world economy.

Eight score and two years ago, with the onset of the California Gold Rush, San Francisco earned a reputation as a prospector’s town. It’s time again to seek paths to prosperity–and to enjoy one of the most beautiful natural settings in the US, if not the world. Click here or call 800-970-4355 and refer to priority code 019366 to register as a guest of Maple Leaf Memo.

The Roundup

It’s been a rather quiet few days, what with Canada Day taking place July 1 and Americans celebrating Independence Day over a long July 4 weekend. But all that changes tomorrow when Conservative Holding Colabor Group (TSX: GCL, OTC: COLAF) kicks off second-quarter reporting season tomorrow with a numbers release and a conference call.

We’ll have details in the July Canadian Edge, available Friday afternoon. Here’s the news from the Portfolio and the How They Rate universe.

Aggressive Holdings

Daylight Resources (TSX: DAY, OTC: DAYYF) is selling oil and gas properties in Eastern Alberta to privately held Gear Energy for CAD125 million, including CAD100 million in cash and CAD25 million in equity. The sale is part of Daylight’s effort to focus on core assets in its plays in the Pembina, West Central Alberta and Elmworth formations.

Production from the divested assets during the first quarter of 2010 was 2,300 barrels of oil equivalent per day, mostly heavy oil.

Proceeds from the sale will be used to pay down existing credit-line debt. Daylight Resources is a buy up to USD11.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) announced the completion of the spinoff and merger of its natural gas production business with Midnight Oil Exploration (TSX: MOX, OTC: MDOEF); the new company will be known as Pace Oil & Gas (TSX: PCE).

Transaction proceeds are comprised of CAD120 million in cash and approximately 32.5 million Pace shares issued directly to Provident unitholders. Provident will use the cash to pay down existing debt. Provident unitholders of record on July 9 will receive 0.12225 shares of Pace for every unit of Provident held.

Provident also announced a new three-year revolving credit facility with a syndicate of Canadian and foreign lenders. The CAD500 million facility includes an accordion feature that can boost the limit to CAD750 million at Provident’s option and a separate CAD60 million letter of credit facility. Interest on the line is based on a pricing grid that includes the trust’s debt-to-rolling 12 month adjusted earnings before interest, taxes, depreciation and amortization. As of June 29 approximately CAD235 million was drawn.

Provident Energy Trust, now a pure play natural gas liquids midstream infrastructure business, is a buy up to USD9.

Here are second-quarter earnings announcement dates for Aggressive Portfolio recommendations:

• Ag Growth International (TSX: AFN, OTC: AGGZF)–August 12
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–August 4 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–July 28
• Daylight Energy (TSX: DAY, OTC: DAYYF)–August 5
• Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF)–August 10
• Newalta Income Fund (TSX: NAL, OTC: NWLTF)–August 6
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–August 6
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–August 12
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–August 12
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–August 13
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–August 11
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–August 6

Conservative Holdings

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) has completed its conversion into a dividend-paying corporation. Within two to three days AltaGas will begin trading on the Toronto Stock Exchange under the symbol ALA.

AltaGas has also finalized a new three-year, CAD600 million credit facility with a syndicate of nine banks. The credit facility will be used to retire and replace a CAD150 million credit facility and a CAD375 million credit facility that would have matured in August and September, respectively. AltaGas Income Trust is a buy up to USD20.

Artis REIT (TSX: AX-U, OTC: ARESF) closed a previously announced bought-deal offering of units; after full exercise of underwriters’ over-allotment options the REIT sold 7.3 million units at CAD11 per for gross proceeds of CAD80.6 million. Artis will use the net proceeds to fund acquisitions, pay down debt and for general working capital purposes. Artis REIT is a buy up to USD12.

Atlantic Power Corp (TSX: ATP, OTC: ATLIF) is buying 27 percent of Idaho Wind Partners 1 LLC for approximately USD40 million. IWP recently commenced construction of the 183 megawatt wind power project comprised of 11 wind farms located near Twin Falls, Idaho. Construction is expected to be finished by the end of 2010. IWP has 20-year power purchase agreements with Idaho Power Company under which all electricity produced by the wind farms will be sold at fixed prices.

Atlantic Power will fund the investment–its first wind-power project–with cash on hand and USD20 million from its credit line. According to management, “Additional details about permanent financing of the project and guidance about its accretive cash flow to the Company will be released at a later date.”

Atlantic’s application to list has been approved by the New York Stock Exchange, and US regulatory approval “is in its final stages.” The company will trade on the NYSE under the symbol AT. Atlantic Power Corp is a buy up to USD12.

Here are second-quarter earnings announcement dates for Aggressive Portfolio recommendations:

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–July 29 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–August 12
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–August 11
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–July 28 (confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–August 11
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–July 28
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–August 11
• Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF)–August 13
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–August 12
• Colabor Group (TSX: GCL, OTC: COLFF)–July 7 (confirmed)
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–July 28
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)–August 5
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–August 13
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–August 6
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–August 4 (confirmed)
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–August 5
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–August 6
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–July 29
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–July 29 (confirmed)
• TransForce (TSX: TFI, OTC: TFIFF)–July 29 (confirmed)
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–August 6

Electric Power

Northland Power Income Trust (TSX: NPI-U, OTC: NPIFF) unitholders have approved the company’s conversion, which will be completed by December 31. The new corporation, Northland Power Inc, will begin operating Jan. 1, 2011.

Management forecast that, because of its significant tax pools, Northland Power Inc will continue with the CAD1.08 annual distribution currently paid by the income trust. Northland Power Income Trust is a buy up to USD13.

Gas/Propane

Arctic Glacier Income Fund (TSX: AG-U, OTC: AGUNF) settled an antitrust investigation by the US Dept of Justice (DoJ) for USD9 million, but its legal problems are far from over after the company’s motion to dismiss a class-action suit in the US was rejected by a district judge. Arctic Glacier faces a similar customer suit as well as a CAD165 million shareholder action in Canada.

Meanwhile, nineteen US states are investigating the company and its ice-making peers to determine if state antitrust laws have been broken, and the DoJ is still looking into criminal and civil remedies for its past behavior. Paying lawyers will be a drag on cash flow and an impediment to a regular dividend for the foreseeable future. Sell Arctic Glacier Income Fund.

Business Trusts

IESI-BFC (TSX: BIN, NYSE: BIN) and Waste Services (NSDQ: WSII) have completed a merger that creates North America’s third-largest solid waste management company. The new entity, to be known as IESI-BFC, will be headquartered in Toronto; it will trade under the ticker symbol BIN on both the New York Stock Exchange and the Toronto Stock Exchange. 

The new IESI-BFC will have more than 6,000 employees serving commercial, industrial and residential customers in 11 US states and the District of Columbia and in six Canadian provinces. Management forecast savings of USD25 million to USD30 million by the end of the second year following closing.

IESI-BFC also announced a new four-year, USD950 million US credit facility; interest on amounts drawn will be the London Interbank Offered Rate (LIBOR) plus 300 basis points. Remaining capacity under the restated line is approximately USD160 million. IESI-BFC also executed a new four-year, CAD525 million Canadian credit facility; initial pricing for amounts drawn is bankers’ acceptance plus 287.5 basis points. Remaining capacity is approximately CAD66 million. The combined company’s long-term debt-to-trailing 12-months earnings before interest, taxation, depreciation and amortization is approximately 2.7 times. IESI-BFC is a hold.

Information Technology

Shaw Communications (TSX: SJR/B, NYSE: SJR) generated net income of CAD158.2 million (CAD0.37 per share) in its fiscal third quarter (ended May 31), up from CAD132.2 million (CAD0.31 per share a year ago. Revenue surged 9.5 percent during the period to CAD943.6 million on acquisitions, rate increases and customer additions. Cable revenue was up 11 percent, while satellite revenue increased 4 percent.

Cash from operations was CAD328.5 million, compared to CAD328.1 million in the year-ago quarter. Free cash flow was CAD177.8 million, up from CAD164.1 million in the third quarter of 2009. At the end of the third quarter Shaw’s debt-to-capitalization ratio was 0.59, up from 0.52 at the end of fiscal 2009.

Shaw reported modest customer additions across all its operating lines. Management forecast operating income growth of 14 percent year over year for fiscal 2010 and said the company will try to enter the Canadian wireless market before the end of calendar 2010. Shaw Communications is a buy up to USD20.

Financial Services

CI Financial (TSX: CIX, OTC: CIFAF) reported gross retail sales of CAD741 million and net sales of CAD24 million for June. Assets under management as of June 30 were CAD64.6 billion.

Net sales consisted of CAD36 million in net sales of long-term funds and CAD12 million in net redemptions in money market funds. Year-to-date gross retail sales as of June 30 were CAD5.4 billion, while net sales were CAD1 billion.

Total fee-earning assets at June 30 were CAD85.6 billion, a 2.1 percent month-over-month decrease. CI Financial is a hold.

Transports

WestJet Airlines (TSX: WJA, OTC: WJAFF) benefitted from a return to pre-recession travel patterns in May; the latest data from the International Air Transport Association (IATA)  indicate passenger traffic rose 12 percent year over year, while cargo traffic jumped 34 percent.

According to the IATA, “Demand rebounded strongly in May following the impact of the European volcanic ash fiasco in April.” The industry group reported that passenger traffic is now 1 percent above pre-recession levels and freight traffic is up by 6 percent. Airlines increased capacity by only 4.8 percent in May, which pushed the worldwide load factor–or average amount of seats filled on planes–to 76 percent.

WestJet’s traffic grew almost 19 percent in May on a capacity increase of 13.4 percent. Its 77 percent load factor was up 3.6 percentage points from year-ago levels. WestJet Airlines is a buy up to USD12.