Constant Cash Flow with Lower Risk
A Resource Trust is an Income Trust where the principal business of the underlying corporation or other entity is the exploitation, production and/or sale of commodities such as fossil fuels, metals, minerals, timber and their by-products. The amount of distributions paid on a Resource Trust’s units will vary from time to time based on production levels, commodity prices, royalty rates, costs and expenses, and deductions. Currently, most Resource Trusts focus on the oil and gas sector.
The Oil & Gas Income Trust generally includes royalty trusts and other types of income trusts where the principal business of the underlying company is the production and sale of crude oil and natural gas. These trusts pay out to unitholders a varying amount of the cash flow that they receive from the production and sale of underlying crude oil and natural gas reserves. The amount of distributions paid on an Oil & Gas Income Trust’s units will vary from time to time based on announced payout ratios, production levels, commodity prices, royalty rates and certain expenses, deductions and costs. As a result of distributing the bulk of their cash flow to unitholders, the ability of an Oil & Gas Income Trust to finance internal growth is limited. Therefore, Oil & Gas Income Trusts typically grow through acquisition of additional oil and gas properties or producing companies with proven reserves of oil and gas, funded through the issuance of additional equity or, where the trust is able, additional debt. Consequently, Oil and Gas Income Trusts may be considered to be less exposed to the risks and uncertainties faced by a traditional exploration and production corporation because they tend to purchase longer life assets and may be less exposed to exploration risk than such enterprises.