In the first six months of 2003, the trust spent $8 million in its capital budget, compared to $20.6 million in the first half of this year. Fitzpatrick would not say how much of the increase is allocated to drilling, but said the trust would drill approximately 30 net wells this year.
Speaking about the sector generally, he said trusts with an �economic� drilling inventory are well-suited to a �capital re-investment� model for some of their cash flow. On the other hand, those with a poor inventory will have to rely on the �acquisition trail� and older development techniques to maintain distributions, he said.
At Advantage Energy Income Fund, capital spending for 2004 was bumped from a planned $60 million to $100 million, partly in response to last year�s acquisition of MarkWest Resources Ltd., and to continuing development of the trust�s Nevis oil field. Advantage President Kelly Drader, said all of the increase will go to drilling.
Another oilpatch executive sensed a change in the trusts. The original business model, he said, saw them as passive producers of petroleum and generators of cash flow, with payouts frequently in the 80% to 90% range.
�There has been a fairly strong business evolution in trusts in the last eight years,� he said. �They�ve gone from being passive to active producers and exploiters. As a result, there�s a requirement for capital. To be active, you have to be able to re-invest money.�
Despite record cash flows, the payout ratios at some trusts are declining, a move some executives say will better ensure stable distributions in the future. Also, by holding back more cash flow than their predecessors, newer trusts like Harvest Energy Trust, Peyto Energy Trust, and Zargon Energy Trust can build cash reserves that will soften the blow if oil and gas prices plunge.