1.5 1.0 0.5
2.0 1.5 1.0 0.5
02 03 04 05 06 02 03 04 05 06
800 700 600 500 400 300 200 100
Cash Available for Distribution
2.0
2.5
Cash Distributions ($/unit)
Cash Distributions ($/unit)
2.5
Cash Available for Distribution
*** includes units issuable *** includ for exchangeable shares excha
800 700 600 500 400 300 200 100
02 03 04 05 06 02 03 04 05 06 Cash Flow Cash Flow Cash DistributionsCash Distributions
The following items may be deducted from cash flow to arrive at cash distributions to unitholders: • An annual contribution to the reclamation funds and interest earned on the fund balances. The reclamation funds are segregated bank accounts or subsidiary trusts and the balances will be drawn on in future periods as the Trust incurs abandonment and reclamation costs over the life of its properties. The contribution level is reviewed annually based on a detailed assessment of the Trust’s total future abandonment obligation, an estimated return based on current interest rates and a future funding period approximating 50 years. The funding amount is approved by the Health, Safety and Environment committee. As future abandonment and reclamation obligations will be settled with reclamation fund balances over the life of the properties, the Trust does not anticipate any separate deductions from cash flow for abandonment and reclamation costs. The annual contribution was $12.1 million in 2006 or two per cent of cash flow and will vary in future periods depending on acquisition and capital development activity and abandonment cost estimates to reclaim the Trust’s oil and natural gas properties. The most significant annual contributions to the reclamation funds are expected to occur in years 2007 through 2015. The 2007 contribution is currently estimated to be $12 million. • The portion of capital expenditures that are funded with cash flow. The Trust’s distribution policy guideline is to withhold at least 20 per cent of cash flow to fund a portion of capital expenditures. In 2006, the Trust withheld 34 per cent of 2006 cash flow to fund 72 per cent of the capital program excluding acquisitions. The objective of the Trust’s capital expenditure program is to replace natural production declines resulting in stable production. This level of capital expenditures may not replace the Trust’s reserves produced out during the period, but rather bring non-producing reserves on stream. • Debt principal repayments to the extent that required principal repayment cannot be refinanced by other means. The Trust’s current debt level is well within the covenants specified in the debt agreements and, accordingly, there are no current mandatory requirements for repayment. Refer to the “Capital Structure and Liquidity” section of this MD&A for a detailed review of the debt covenants. • Income taxes that are not passed on to unitholders. The Trust has a liability for future income taxes due to the excess of book value over the tax basis of the assets of the Trust and its corporate subsidiaries. The Trust currently minimizes or eliminates cash income taxes in corporate subsidiaries by maximizing deductions, however in future periods there may be cash income taxes if deductions are not sufficient to eliminate taxable income and if proposed changes in Trust taxation are enacted. Taxability of the Trust is currently passed on to unitholders in the form of taxable distributions whereby corporate income taxes are eliminated at the Trust level. If the proposed Trust taxation legislation is enacted, the Trust anticipates that the resulting tax commencing in 2011 at the Trust level would decrease cash flow and thus reduce cash distributions to unitholders. • Working capital requirements as determined by the Trust. Certain working capital amounts may be deducted from cash flow, however such amounts would be minimal and the Trust does not anticipate any such deductions in the foreseeable future. • The Trust has certain obligations for future payments relative to employee long-term incentive compensation. Presently, the Trust estimates that $18.2 million to $58.6 million will be paid out pursuant to such commitments in 2007 through 2009 subject to vesting provisions and future performance of the Trust. These amounts will reduce cash flow and in turn cash distributions in future periods.
ANNUAL REPORT REPORTF
Management’s Discussion & Analysis
41