With the final days (thankfully) of 2008 coming to a close, I thought I would provide investors an updated outlook on Energy Trust Distributions for this upcoming winter. The outlook is intended as a guide for announced distributions through to the end of winter, as predicting distributions beyond more than one quarter would prove folly in such turbulent times. Only a few trusts declare distributions for more than one month at a time and of course, one, Canadian Oil Sands Trust, pays quarterly.

The final few trading sessions will provide investors plenty to think about regarding should one view a particular trust investment as yet another tax-loss selling opportunity, or as a high-yielding keeper, for times good and bad. Not surprisingly, the outlook for many trusts is for lower monthly distributions and since I issued my initial Winter Distribution Outlook six weeks ago, forecasts for payouts are even lower, given ever-tumbling energy prices. However, one could easily argue that the market has already priced this in, given the

On a positive note, two Energy Trusts likely will not have to cut distributions at all (Daylight and Vermilion) and it is possible Peyto and Paramount may keep distributions at fall 2007 levels as well. Unfortunately, buying a basket of trusts and letting the cash register ring, simply won’t work in this environment. A few trusts are approaching a crossroads, where their viability and potentially, solvency, could be called into question in the not too distant future, should commodity prices stay near current levels. Even more damaging would be if market perception were to be that $25 oil is right around the corner. This fate has befallen a number of trusts since Flaherty’s Halloween massacre, but so far victims have generally been smaller trusts. This time around could look very different.

One caveat with distribution projections is that one needs to consider that most Trusts have a series of options, including selling off assets, joint ventures, reducing Capex, closing out in the money hedges and such actions could easily alter my outlook.

Currently, the financially weakest of the 15 trusts in the coverage universe appears to be Advantage.  Historically, payouts have been far too high and cash flows cannot support and payout anywhere near current levels of 12 cents/month would damage an already overleveraged balance sheet. Should the trust remain in its current form and using current energy pricing, a monthly distribution of 2 to 4 cents appears likely.

A handful of trusts appear susceptible to large distribution cuts as well. Canadian Oil Sands Trust, Pengrowth and Penn West are likely candidates to cut distributions one third or more. In the case of COS, the trust’s recent 2009 forecast calls for distributions to remain high to effectively overpay distributions before the 2011 deadline for trust taxability. Unfortunately, the Trust’s assumptions call for WTI to average US $75 in 2009, so it is not hard to see where the Trust may have difficult decisions to make before winter comes to a close.

Pengrowth and Penn West both have significant debt levels and flat to negative drill bit growth. Further, Penn West appears to have far too many exploration-oriented projects to be paying such a high monthly payout, in the current financial climate.