International Energy Agency (IEA) executive director Nobuo Tanaka noted that “world leaders gathering in Copenhagen next month for the UN Climate Summit have a historic opportunity to avert the worst effects of climate change” in a statement released following the publication of the 2009 World Energy Outlook.

This analysis also concluded that, if more efficient methods of production can be implemented on a large scale, Canada’s carbon-intensive oil sands will prove critical to satisfying global energy demand in coming decades.

At this point, oil sands production of 3.2 million barrels a day by 2020 seems more inevitable than a United Nations-brokered agreement on climate change. Global leaders managed expectations for a treaty down to zero even before they got to the Copenhagen Climate Summit, while Suncor Energy (TSX: SU, NYSE: SU), after its recent acquisition of Petro-Canada one of the biggest players in the oil sands, accelerated its efforts to reorient toward Athabasca.

The IEA report echoes an American Petroleum Institute-sponsored report by the Canadian Energy Research Institute on the potential economic benefits of oil sands development for North America. The CERI report concludes that oil sands development would add USD40 billion to the US economy by 2020. The IEA notes that USD150 billion in new projects that would have added 1.7 million barrels of daily production were suspended or cancelled because of the global recession.

Global upstream oil expenditures–spending by exploration and production (E&P) companies–is forecast to fall by nearly 20 percent, or more than USD90 billion, in 2009 alone. This is the first such decline in a decade.

How fast–or even whether–E&Ps should resume normal capital investment is a difficult question, and the variables facing these companies right now are many.

This is the worst economic downturn since at least the early 1970s, and it’s still an open question whether the nascent recovery can take hold without government intervention. These interventions–both the monetary and fiscal varieties, particularly in the US–in turn are driving inflation expectations and a corresponding appetite for commodities, gold, obviously, and oil. Recent data suggest prices for more and more commodities–hard and soft–also correlate with the inflation trade.

Speculation can drive up prices, but at a certain point those prices get so high that recovery is hampered–consumers will have to spend more and more of what little disposable income they have left on fuel to power their cars and heat their homes.

It’s difficult to isolate any specifically negative role the oil-price spike from late 2007 to mid-2008 played in the recent downturn. Trouble in the financial markets played a much greater role than the price of crude oil in exacerbating what was a rather run-of-the-mill recession until Lehman Brothers collapsed. There is, however, some predictive value for the price of oil when it comes to making GDP forecasts.

Suffice it to say at a certain point consumers started driving less, flying less, spending less–using less carbon-based fuel. As aggregate demand for energy declined steeply along with the global economy, however, companies began to scale back, postpone and/or cancel planned development projects.

At the same time, the era of easy energy is over; more and more development is focused on hard-to-reach and/or difficult-to-produce reserves. Satisfying global energy needs is becoming more and more complex. Marginal production costs are clearly rising, and realized prices must remain at elevated levels to make certain critical projects economic.

Determining what seems a magical level of sustainability–the per barrel price that allows E&P companies to efficiently find and deliver supply and demand isn’t destroyed because prices at the pump are too dear– is difficult, to say the least. But even in the model described here oil has to get back above USD130 before it would matter again for GDP growth.

But against (and to some degree contributing to) this murky backdrop there are powerful new forces impacting long-term demand, namely China and, to a lesser degree, India.

Niall Ferguson, a professor of history at Harvard and one of the more compelling if a little dramatic talk-show circuit riders, likes to point out that China’s economy might be bigger than the US economy as early as sometime in the 2020s. Most of those who make these kinds of guesses put the date closer to the middle of the century. But the common thread is that China will one day, relatively soon, be bigger than the US.

But at the same time, a vocal and growing movement would impose behavior-altering levies on carbon-based fuel consumption that would drive up costs in favor of environmentally friendlier energy solutions. Developed economies benefitted mightily from the availability of cheap, carbon-based fuel. Resistance to any legislation that raises the price of carbon-based fuels in these jurisdictions is fierce; populism is easy to come by when you’re in the minority and there’s a recession on.

Imagine how citizens and governments of emerging economies, just now getting a taste of “middle class” life, would react to strict controls on carbon dioxide and other greenhouse gas emissions. Putting a price on carbon in the absence of a viable, large scale and cost-effective alternative for generating, for example, baseload electricity could stunt these new engines of economic growth.

The primary long-term driver of global energy demand trends is perhaps the most significant force in economics: demographics. This trend–more people consuming more of what is an increasingly costly resource–will keep oil prices at historically elevated levels, perhaps in an entirely new neighborhood for the duration.

The question for E&P companies is when is it time to ramp up production? Is there another “demand shock” looming that will force the shut-in of development projects?

E&P managers downshifted in 2008 as demand slackened because of the deteriorating global economy. It would cost a lot of money to get projects back in gear. Although recent data suggest a broad recovery for the global economy–the signs are particularly strong in China, where the government is on track to deliver 8 percent-plus growth, again–management must appreciate the short- as well as the medium- and long-term consequences of decisions about ramping up production.

On the other hand, and this is as much a concern for policymakers as it is for private managers, will capital investment rebound quickly enough to prevent a supply shortage? A supply shortage could mean a surge beyond the (potentially) demand-destroying USD130 per barrel threshold.

Into this breach steps Suncor Energy, which is now firing up projects shelved amid the economic downturn and corresponding oil-price slide; it’s also lifted an internal hold on new spending in place since it completed the takeover of Petro-Canada in August.

Management describes its recent path as conservative. “Can we bring some projects back? Yes,” CEO Rick George said on a conference call to discuss the spending plans, reported Bloomberg. “But what I don’t want to do is go back to a world where we were making $10 billion project commitments upfront and then at some point have to pull back in.”

Management also described a CAD5.5 billion capital budget that includes CAD1.5 billion to grow production in the oil sands; Suncor is re-starting the delayed Firebag project in northern Alberta, which was 50 percent complete before the economy went deep in the tank in early 2009.

Suncor will spend CAD900 million on the third phase of its Firebag SAGD facility. Suncor now expects production to start in the second quarter of 2011 but wouldn’t say when production would approach capacity of 68,000 barrels a day. The company will spend another CAD50 million to target first production from the fourth phase of Firebag, which has the same potential capacity, in the fourth quarter of 2012. Existing Firebag operations produced about 54,300 barrels a day in the third quarter.

Although Suncor noted in its third-quarter earnings announcement that it may sell up to CAD4 billion in non-core assets, as much as CAD3.7 billion worth in 2010, to focus on the oil sands, the company will hold off until the fourth quarter of 2010 an announcement of plans for re-starting the 200,000 barrel-a-day Voyageur upgrader, the refinery-like plant that was 15 percent complete at the end of 2008, and the Fort Hills oil sands mine acquired along with Petro-Canada.

The third quarter was marked by cost-cutting, shut-in production, drastically lower commodity prices on a year-over-year basis, generally horrible comparables to 2008. (CE subscribers can read about Suncor’s third quarter as well as that of all non-Portfolio Oil and Gas companies in the How They Rate coverage universe in The Roundup.)

However, the best oil and gas companies reduced debt, hedged well and maintained production within reasonable range of historical averages. Their balance sheets relatively healthy, these companies are positioned to grow once the global economy approximates normal.

For E&Ps it’s a matter of “be quick, but don’t hurry.” Suncor’s move suggests the time to move, at least, is now.

Agents Provocateur

The fine and acerbic crew at ZeroHedge (“On a long enough timeline the survival rate for everyone drops to zero.”) consistently threads the entertain/inform needle, at once suggesting our friends in financial television might change the message and bash the recovery, then pointing out an interesting factoid that could form the basis of an opportunity to profit:

With everyone focusing exclusively on gold these days, what has received little media attention is that over the past year, silver has actually outperformed gold substantially, and on a relative basis the comparable outperformance has been material. The chart below is a simple relationship between the spot price of gold and silver. As the declining line demonstrates, while the Gold/Silver price ratio at the end of 2008 was 84, it has now dropped to to [sic] just under 62. For the Fibonacci fans, that represents a 0.50 retracement. With Gold popping, will silver continue its price acceleration as it attempts to hit the lower trendline, which crosses at about 52, and implies a silver price of $22/ounce?

Source: ZeroHedge, Bloomberg

Spot silver was trading at USD18.38 an ounce as of 1 pm ET Tuesday, about 20 percent below the implied “crossover” price described above.

“Thatcher Has Died”

It’s a well-known fact that our colleague Elliott Gue is a Thatcherite at heart; a framed photo of the Iron Lady hangs next to the PF editor’s University of London sheepskins in his office here at KCI Central.

Couldn’t help but think of Elliott when reading this story of Canadian Minister of Transport, Infrastructure and Communities John Baird texting dumb things on his smart phone:

A misconstrued text message announcing the passing of a beloved pet has sparked a flurry of diplomatic activity in Canada.

Transport Minister John Baird sent a message reading: “Thatcher has died”.

Conservative Prime Minister Stephen Harper was soon informed that 84-year-old former British Prime Minister Margaret Thatcher had passed away.

But it was actually Mr. Baird’s beloved cat, named after his political heroine, who had died.

Elliott’s cat is actually named Mr. Bigglesworth, an homage inspired by a little different style of Anglophilia.

The good news is Baroness Thatcher is alive and well.

The Roundup

Click here to read summaries of third quarter earnings from the last group of Canadian Edge Portfolio recommendations to report. Below is a roundup of third quarter results from non-Portfolio Oil and Gas companies tracked in How They Rate.

Next week we’ll provide the third-quarter highlights from the remainder of the How They Rate coverage universe.

Oil and Gas

Advantage Oil & Gas (TSX: AAV, NYSE: AAV) reported a 55 percent year-over-year decline in funds from operations (FFO), as a production decline of approximately 24 percent in terms of barrels of oil equivalent per day (boe/d) and a precipitous drop in commodities prices, particularly for natural gas,  constrained results compared to the third quarter of 2008. A hedging gain of CAD24.6 million mitigated the impact of lower production and prices.

Operating costs were down 16 percent year-over-year and 7 percent compared to the second quarter. Advantage completed its conversion into a corporation during the quarter, a move that’s led to further efforts to shore up the balance sheet. The company reduced total debt by 44 percent by selling assets and raising capital through a new equity offering. Advantage has an estimated CAD1.5 billion in remaining tax pools that will shield future cash flows from corporate taxation.

Advantage continues to pour its development efforts in its Montney Shale assets, to which it plans to devote more than 80 percent of its 2010 capital budget. The 2010 plan will be released prior to the end of the year. Trading at a significant discount to the net value of its assets in the ground, Advantage Oil & Gas is a buy up to USD7.

Avenir Diversified Income Trust (TSX: AVF-U, OTC: AVNDF) reported a 60 percent year-over-year decline in FFO, the result of lower natural gas prices.

Production averaged 3,502 boe/d, a 4 percent increase from second quarter levels. Prices averaged USD61.41 per barrel for oil and USD5.04 per thousand cubic feet (Mcf) of natural gas. The average unhedged price for natural gas in the quarter was about USD2.90 per Mcf. To protect against continuing weakness in the natural gas market Avenir has more than 50 percent of its natural gas production hedged at average prices of approximately USD6.90 per Mcf through to the end of 2010.

The FFO payout ratio was 76 percent, well within the trust’s target range of 75 to 80 percent. Avenir Diversified Income Trust is a hold.

Baytex Energy Trust (TSX: BTE-U, NYSE: BTE) generated FFO of CAD88.8 million, an increase of 2 percent from second quarter totals but 39 percent lower than a year ago. Baytex produced an average of 42,623 boe/d in the quarter, a record for the trust and a 6 percent quarter-over-quarter increase; production was flat compared to year-ago totals.

The FFO payout ratio came in at 37 percent. Baytex Energy Trust is a buy up to USD27.

Bonavista Energy Trust (TSX: BNP-U, OTC: BNPUF) reported FFO of CAD104.9 million for the third quarter and an FFO payout ratio of 53 percent. Production volume reached a company-record 56,125 boe/d, up from 53,473 boe/d during the third quarter of 2008.

Though the trust continues to tread lightly given the still-weak economic environment, it did close a CAD700 million acquisition of long-life, liquids-rich natural-gas weighted assets near its existing properties. Bonavista also ramped up its exploration and development efforts from second-quarter levels, drilling 22 wells with a 100 percent success rate. Bonavista Energy Trust is a buy up to USD18.

Bonterra Oil & Gas (TSX: BNE, OTC: BNEUF), as was the case for all oil and gas producers, reported significantly lower cash flows compared to year-earlier levels; however, it, like other similarly situated companies, also reported sequential improvement cash flows, reflecting the improvement what’s still a weak broader economy.

Revenue and FFO in the first nine months of 2009 decreased 39 percent and 57 percent, respectively, compared to the same periods in 2008, primarily due to a 42 percent decrease in crude oil prices and a 54 percent decrease in natural gas prices over the same time frame. Healthier crude prices have begun to help numbers, and prices have continued to improve following the conclusion of the third quarter.

Bonterra actually boosted its dividend from CAD0.14 per share to CAD0.16 per share for the October payment (based on September 2009 production). The company reported a 76 percent FFO payout ratio for the period. Bonterra Oil & Gas is a buy up to USD28.

Canadian Natural Resources (TSX: CNQ, NYSE: CNQ) reported a 77 percent decline in third quarter net income on lower commodities prices.

Oil and natural gas liquids production was up 17 percent to 359,269 barrels a day, though this figure was lower than analysts expected. Gas output slipped 13 percent to 1.29 billion cubic feet a day. The company realized CAD62.90 per barrel of oil, down 39 percent from the third quarter of 2008, and CAD3.80 per Mcf of gas, a 57 percent decline from year-earlier levels.

Management reported difficulties at its Horizon open-pit oil sands upgrading project. The project experienced numerous mechanical failures during the quarter and into October that reduced production during the third quarter by about 17,000 boe/d. Canadian Natural Resources is a buy up to USD60.

Canadian Oil Sands Trust (TSX: COS-U, OTC: COSWF) reported FFO of CAD213 million, down from CAD921 million a year ago and reflecting the “significant decline in crude oil prices in 2009 over 2008.” Revenue was CAD808 million on volume of 115,000 barrels a day, compared with revenue of CAD1.46 billion on 117,000 barrels a day in the third quarter of 2008.

Despite the apparently underwhelming results management boosted the distribution from CAD0.25 per unit per quarter to CAD0.35 per unit, effective with the November 30 payment. The increase is based on healthier crude prices and rising output from the Syncrude oil sands venture, of which Canadian Oil Sands owns 36.7 percent. Canadian Oil Sands Trust is a buy up to USD30.

Crescent Point Energy Trust’s (TSX: CPG-U, OTC: CSCTF) year-over-year FFO decline was just 15 percent; the trust produced an average of 46,322 boe/d in the third quarter, a 12 percent increase over the second quarter and a 23 percent increase over the third quarter of 2008. Crescent Point boosted its full-year annually daily production guidance by 1,000 boe/d to 44,500.

Strong operating results allowed Crescent Point to support its distribution despite a 41 percent drop in realized oil prices and a 61 percent drop in realized natural gas prices from third quarter 2008 levels. The company continues to aggressively explore and develop its existing properties and also closed deals to acquire approximately 7,000 boe/d of production as well as 28.7 million boe during the quarter.

Its results to date and its efforts to secure future production suggest Crescent Point Energy Trust will be able to support a market-beating dividend well beyond 2011. It’s a buy up to USD37.

EnCana Corp (TSX: ECA, NYSE: ECA), which will soon split into two companies, reported third quarter net income of USD25 million (CAD0.03 per share), down from CAD3.55 billion (CAD4.73 per share); excluding one-time items, profit was CAD1.03 a share.

EnCana shut in 500 million cubic feet per day of natural gas production in the third quarter, and realized prices for its gas, including the impact of hedging, were 8 percent lower than a year ago. Total production fell 7 percent year-over-year.

Shareholders will vote November 25 on management’s plan to split the company into a pure-play natural gas company, which will maintain the EnCana name, and an integrated oil company, which will be known as Cenovus Energy. EnCana Corp is a hold.

Enterra Energy Trust (TSX: ENT-U, NYSE: ENT) registered a 70 percent year-over-year decline in FFO, although the company was able to continue to reduce overall debt during the quarter.

Third quarter production of 9,907 boe/d was basically flat compared to the second quarter’s 10,059 boe/d and was 2 percent lower than year-ago levels of 10,117 boe/d.

Enterra, which has reduced bank debt by more than 20 percent in 2009, hopes to spud its first well in its new Oklahoma oil property in December. Enterra’s estimates peg initial gross well production rates could be about 200 barrels per day of oil with gross reserves averaging 130,000 barrels per well.

During the third quarter the trust’s production swung from 48 percent crude to 55 percent crude, availing Enterra of much better oil prices than natural gas prices. Success in Oklahoma could help Enterra extend its shift to oil.

A recently completed acquisition in the Cardium resource play in west central Alberta–initial oil well production rates have been reported in excess of 170 barrels per day, and internal forecast estimates potential gross reserves of 170,000 barrels per well–would also help this effort. Enterra Energy Trust is a hold.

Freehold Royalty Trust (TSX: FRU-U, OTC: FRHLF), despite year-over-year declines of 53 percent in FFO, 8 percent in average daily production, and 47 percent for both realized prices and operating netback, announced along with third quarter results a 17 percent increase in its monthly distribution; the monthly payout will be CAD0.14 per unit “until further notice.”

Along with the November distribution (payable December 15 to unitholders of record November 30) Freehold will pay an “extra distribution” of CAD0.06 because management expects “to have excess cash from operating activities this year.”

This is a move that reflects the improvement crude prices generally, the persistently narrow price spread between light and heavy oil as well as the fact that demand for Freehold’s heavy product has held up beyond the summer paving season. Management is also hopeful that because depressed drilling activity has led to record-low inventory levels natural gas prices will also rebound along with the arrival of winter heating season.

Freehold reported a 70 FFO payout ratio for the period, down from 71 percent a year ago. The trust also reported a 20 percent decline in interest expense, although total debt increased modestly. Freehold Royalty Trust is a hold. 

Harvest Energy Trust (TSX: HTE-U, NYSE: HTE), soon to be a part of Korea National Oil Corp (KNOC), reported a 26 percent year-over-year decline in cash from operating activities for the third quarter, but also registered a 22 percent sequential increase; it, too, is enjoying the return to normalcy of the global economy. Harvest also paid its last distribution on November 16.

Harvest announced October 21 that Korea’s state-owned oil company, KNOC, would buy the trust’s outstanding units for a total of CAD1.8 billion in cash and assume CAD2.3 billion in debt. The purchase price represented a 47 percent premium to Harvest’s 30-day average unit price up to October 20, and served further notice that the competition for global resources is in full gear. Sell Harvest Energy Trust.

NAL Oil & Gas Trust (TSX: NAE-U, OTC: NOIGF) reported a 32 percent decline in third quarter FFO, from CAD79.2 million to CAD53.8 million; the FFO payout ratio declined as well, from 58 percent a year ago to 56 percent.

NAL maintained steady production levels despite the tumult in oil and gas markets, generating 23,418 boe/d versus 23,808 in the third quarter of 2008. Operating netback was CAD31.61 per boe, down 28 percent from CAD44.11, holding up that well due in part to hedging gains. Continuing efforts to reduce costs paid off with a 10 percent decrease from year-ago levels.

Following the conclusion of the quarter NAL announced the acquisition of Breaker Energy (TSX: WAV, OTC: BKYRF), a junior oil exploration and production company operating near NAL’s existing projects in west central Alberta’s Cardium play. Management expects the acquisition to boost production by 28 percent and reserves more than 30 percent. NAL Oil & Gas Trust is a buy up to USD20.

Nexen Corp’s (TSX: NXY, NYSE: NXY) net income dropped 86 percent to CAD122 million (CAD0.23 per share) from CAD886 million (CAD1.66 per share) a year ago. Average production slipped 14 percent to 214,000 boe/d on planned maintenance work; management noted in its earnings announcement that output is back up to 275,000 boe/d.

Nexen’s average realized oil price was CAD72.95, down approximately 37 percent year-over-year but up nearly 6.8 percent on a sequential, or quarter-over-quarter, basis. Its average realized natural gas price was CAD3.04 per Mcf, down 6.5 percent year-over-year and 19 percent sequentially.

At the end of the quarter Nexen had CAD2.1 billion in cash and CAD7.4 billion in long-term debt, with a debt-to-capitalization ratio of 50.1 percent.

Nexen’s ability to boost production rests on progress at its Long Lake oil sands project, one of the sites that was shut-in for work during the third quarter. CEO Andrew Romanow noted in the company conference call that reaching capacity levels for bitumen is “the toughest thing to predict.” Nexen Corp is a buy up to USD25.

Pengrowth Energy Trust (TSX: PGF-U, NYSE: PGH) reported production in the quarter was 78,135 boe/d, down 5 percent from second-quarter production of 82,171 boe/d and 4 percent from year-ago levels of 80,981 boe/d. Management also raised its annual production guidance to a range of 79,000 to 80,000 boe/d.

Cash flow from operations was CAD144.7 million (CAD0.56 per unit) in the third quarter of 2009, down from CAD160.1 million (CAD0.62 per unit) in the second quarter and CAD239.6 million (CAD0.96 per unit) in the third quarter of 2008. The difference from second to third quarter 2009 is based on the decrease in production and slight increases in royalty and operating expenses. Lower commodity prices explain the year-over-year decline.

The trust reported a payout ratio of 44 percent. Management reduced the distribution from CAD0.10 to CAD0.07 per unit per month “to provide funds for Pengrowth’s expanded capital program and maintain fiscal discipline.” Pengrowth Energy Trust is a buy up to USD10.

Progress Energy Resources’ (TSX: PRQ, OTC: PRQNF) year-over-year comparables reflect the steep decline in natural gas prices that continues. Progress–which produces 87 percent gas, 6 percent oil and 7 percent natural gas liquids–realized an average natural gas price of CAD3.10 per thousand cubic feet, down from CAD9.12 a year ago. Revenue was off 55 percent.

Progress’ production for the third quarter averaged 30,122 boe/d, 157,522 Mcf per day of natural gas, 1,874 barrels per day of crude oil and 1,995 barrels per day of natural gas liquids. Production was 22 percent higher than the same period in 2008 because of the production acquired through the ProEx deal of Jan. 15, 2009.

Progress also reported across-the-board increases in expenses. Operating expenses increased 38 percent, transportation expenses 99 percent, general and administrative expenses 44 percent, and interest and financing expenses 3 percent–all a result of the ProEx acquisition. Royalties decreased 82 percent due to lower commodity prices. The company’s average royalty rate for the quarter was 9.5 percent compared to 23.7 percent in 2008.

Progress also noted progress in its Montney shale efforts. Three wells generated a total stabilized rate of 13.3 million cubic feet of gas per day. GLJ Petroleum Consultants Ltd estimates the discovered petroleum initially in place (DPIIP) around Progress’ current drilling activity in the Montney at 1.7 trillion cubic feet.

Management noted that gas prices continued to fall throughout the third quarter but had risen off their lows. Despite the fact that natural gas in storage is at historical highs, Progress anticipates a resumption of normal economic activity and favorable winter weather conditions will provide tailwinds for gas prices.

The combination of a significant drop in drilling activity over the past couple years and a recovering economy  suggests to Progress management that supply and demand will come back into balance heading into the winter. Progress Energy Resources is a hold.

Suncor Energy’s (TSX: SU, NYSE: SU) third quarter results include two months’ contribution from Petro-Canada, which Suncor acquired August 1 to form Canada’s  largest energy company and a potential national champion immune to potential foreign acquirers.

Suncor reported third quarter 2009 operating earnings were CAD288 million (CAD0.23 per share), compared to CAD810 million (CAD0.87 per share) in the third quarter of 2008. Cash flow from operations was CAD574 million, compared to CAD1.15 billion a year ago. Lower commodity prices impacted Suncor just like they did other oil and gas producers.

Suncor also reported higher operating expenses at its oil sands operations, the result of increased production and sales volumes. These factors were partially offset by increased upstream production resulting from the merger with Petro-Canada and improved operational performance in Suncor’s existing oil sands assets.

Suncor also announced plans to divest non-core assets to focus its resources on its oil sands projects. The company will sell nearly CAD3.7 billion in assets in 2010, including gas fields in Western Canada and the US Rocky Mountains as well as properties in the North Sea and in Trinidad and Tobago. Suncor will use the proceeds to reduce its CAD12. 4 billion debt burden.

The company said that by the end of the year it will have saved about CAD400 million through job cuts, product marketing, and supply chain optimization, above the original cost-cutting target of CAD300 million. Suncor Energy is a hold.

Talisman Energy (TSX: TLM, NYSE: TLM) beat analysts’ third quarter expectations but on a year-over-year basis adjusted earnings per share slumped approximately 77 percent, while revenue declined 42.3 percent to CAD1.5 billion. Talisman, too, was hurt by lower oil and natural gas prices. Production declined 9.5 percent to 401,000 boe/d on asset sales and maintenance downtime. Realized prices were down 42.9 percent.

Cash flow from operations was CAD828 million, a decline of 46.6 percent from the third quarter of 2008. Talisman spent CAD871 million on exploration and development activities. At the end of the quarter Talisman had cash and cash equivalents of approximately CAD2 billion and long-term debt of CAD3.9 billion, representing a debt-to-capitalization ratio of 33.5 percent.

Management hiked its 2009 capital budget by 25 percent to CAD4.5 billion, primarily to increase drilling on its shale properties and acquire new exploration lands. The company also announced that it plans to reorganize its North American operations into separate conventional and unconventional (focusing exclusively on shale gas) assets. Talisman Energy is a buy up to USD20.

Trilogy Energy Trust’s (TSX: TET-U, OTC: TETFF) sales volumes averaged 19,033 boe/d for the third quarter, down 4 percent from 19,800 boe/d during the second quarter largely because of an unplanned outage.

Sequential FFO increased to CAD24.9 million during the third quarter from CAD21 million as lower average realized prices for natural gas and the decline in sales volumes were offset by higher prices for liquids and reductions in royalty and operating costs. Nine-month FFO was 52 percent lower than 2008 levels.

Trilogy’s FFO payout ratio for the third quarter was 59.5 percent, down from 70.2 percent in the second quarter. Operating costs were CAD10.08 per boe, down 21 percent from CAD12.71 per boe in the second quarter; year-to-date operating costs have averaged CAD12.09 per boe.

Trilogy incurred higher interest expenses in the third quarter than in the second after its credit facility was renewed at a higher rate and because amounts outstanding increased. Hold Trilogy Energy Trust.

True Energy Trust (TSX: BXU, OTC: BLLXF) became Bellatrix Exploration on November 1 and is now trading under new Toronto Stock Exchange (BXU) and US over-the-counter (BLLXF) symbols.

Announcing quarterly results for the final time as True Energy Trust, the company reported sales volumes averaged 7,432 boe/d, down from 9,767 boe/d in the second quarter, the decrease the result of asset sales completed in the second quarter and early in the third.

FFO was CAD11.1 million on gross sales of CAD23.9 million, up from FFO of CAD10.8 million on gross sales of CAD29.8 million in the second quarter. True’s average realized natural gas price for the third quarter of 2009, including hedging, was CAD5.84 per Mcf compared to CAD7.80 per Mcf a year ago.

The company reduced net debt by $111 million during the first nine months of 2009 on asset sales, continuing a healthy trend of debt reduction from fiscal 2007 and 2008. Sell True Energy Trust/Bellatrix Exploration.

Zargon Energy Trust (TSX: ZAR-U, OTC: ZARFF) reported FFO of CAD22.8 million for the third quarter, up from CAD20.9 million in the second quarter but down from CAD29.7 million in the third quarter of 2008. Third-quarter production averaged 10,088 boe/d, up 6 percent sequentially and 8 percent year-over-year. The FFO payout ratio was 60 percent.

Debt net of working capital increased 12 percent from the second quarter to CAD87.1 million, which represents approximately 48 percent of the Trust’s available credit facilities. Zargon sports a net debt-to-annualized FFO ratio of 1.06 times.

Zargon’s now two-year old effort to refocus its efforts on oil have paid off, as it wasn’t as exposed to the battered natural gas market. In the two years since the third quarter of 2007 Zargon has boosted oil volume by 50 percent and increased oil production weighting from 42 percent to 53 percent.

Because of improved field and service costs, strong oil production netbacks and promising oil exploitation drilling results, Zargon is expanding its Williston Basin and Taber horizontal drilling programs and will also proceed with an enhanced facility upgrade and modification program; these initiatives will boost its 2009 capital budget to CAD48 million from CAD37 million.

Zargon’s third quarter production exceeded guidance by 3 percent, averaging 10,088 boe/d. This performance, coupled with the late September Churchill acquisition, prompted management to boost full-year production guidance to 10,400 boe/d. For 2010 Zargon forecast production of 10,400 boe/d on a CAD58 million capital budget. Zargon Energy Trust is a buy up to USD20.