In Canada, oil and gas royalty trusts have become the ticker-tape parade of investments. They are all the rage and most of them have lived up to investors’ high expectations.

Practically every week we hear about a new CEO hooking his oil and gas wagon to the trust parade and converting to the trust model, often out of frustration that the market wasn’t giving the company a fair shake.

Retail and institutional investors can’t seem to get enough of the oil and gas trusts and their alluring monthly distributions. Analysts and money managers have been falling head-over-heels in love with them.

So their popularity is unquestioned.

The question that begs answering is whether they have really provided the best returns for oilpatch investors?

This may be a shocker to many but the answer, based on 12-month returns for the largest trust and non-trust oil and gas companies on the TSX, is a resounding no.

In fact, based on returns that don’t include yields, it’s not even a horse race. It’s a rout in favour of the old-fashioned, non-trust senior oil and gas companies that don’t seem to get the respect they deserve after lagging the trusts’ performance in previous years.

A scan of the 10 senior, non-trust oil and gas companies with the largest market caps shows a return of 43.9 per cent, compared to a 25.7-per-cent return for the 10 trust-model companies with the largest market caps.

The average oil and gas trust yields an average of about 10 per cent in distributions to unitholders but, even when those yields are factored in, the old-fashioned non-trusts, which generally pay dividend yields of about one per cent, still have a comfortable edge.

No doubt you’ve heard about how Don Gray, the brash whizkid of royalty trusts, walks on water (his Peyto Energy Trust has returned 67 per cent on unit price alone over the past 12 months).

Gray certainly deserves the accolades but there are two non-trust oil and gas companies that have outperformed Peyto (PEY.UN) in the past 12 months.

PetroKazakhstan (PKZ), the international oil company, has returned 73 per cent year to date, to boast a staggering four-year run from 40 cents to $44, and Canadian Natural Resources (CNQ) is up 70 per cent.

Rounding out the Top 10 non-trusts are Suncor Energy (SU), +46 per cent; Western Oil Sands (WTO), +44 per cent; Talisman Energy (TLM), +43 per cent; Shell Canada (SHC), +39 per cent; Nexen (NXY), +37 per cent; Husky Energy (HSE), +36 per cent; EnCana (ECA), +35 per cent; and PetroCanada (PCA), +16 per cent.

On the trust side, only four other companies besides Peyto boast returns on unit price of 30 per cent or more – Canadian Oil Sands Trust (COS.UN), +49 per cent; Bonavista Energy Trust (BNP.UN), +45 per cent; Acclaim Energy Trust (AE.UN), +37 per cent; and Paramount Energy Trust (PMT.UN), +36 per cent.

The bottom five among the largest oil and gas trusts are Vermilion Energy Trust (VET.UN), +27 per cent; Pengrowth Energy Trust ‘B’ units (PGF.B), +3 per cent; Progress Energy Trust (PVE.UN), +3 per cent; and PetroFund Energy Trust (PTF.UN), -11 per cent.

By running out these numbers, we hope to bring some perspective to investors.

* Bottom Line: Sometimes it can pay to take a long, hard look at individual companies without being influenced over whether or not they are trust models.

* Mutual Admiration: If you’re a fan of the royalty trusts and looking for a diversified way of playing that market, there’s a mutual fund that is a pure play. The Dynamic Focus Plus Energy Income Fund, managed by Ned Goodman, has been on a roll, boasting a one-year return of 35.7 per cent. A word of caution: Funds with gaudy returns often are ripe for a correction.

OIL SLICK PREZ: The oilpatch was in a celebratory mood over George W. Bush’s victory in the U.S. election, and it’s no wonder.

The price of oil rose 54 per cent during the oil industry- savvy Texan’s first four-year term, and some pundits believe that trend could continue for the next four years.

However, Bush’s policies scare the hell out of Wall Street and, if Wall Street had more votes, there’s no way he would’ve been re-elected.

During Bush’s first four years, all the major U.S. indices were down. The Dow Jones tumbled six per cent, the S&P 500 20 per cent and the Nasdaq a whopping 42 per cent.

Stephen Roach, chief economist at U.S. bank Morgan Stanley, believes continued strength in oil could lead to a recession in 2005.

“Oil prices are 65 per cent above the average that prevailed over the preceding four years,” Roach noted in a recent speech at an economic forum in Singapore. “If oil holds at $50 for another month or two, that will qualify as a formal shock that has significant recessionary risk for 2005.” ONE YEAR AGO IN THE EDGE: Andrew Boland, an oil and gas analyst with Peters & Company, took a bearish stance on oil and natural gas prices in his outlook for 2004.

Said Boland at the time: “I think 2004 will be a bit of a down year with oil reserves heading toward normal levels and gas storage full. So, unless you’re a good weatherman able to predict the coldest winter on record, I think we’ll see some price weakness for natural gas in the first half of 2004.”

As things turned out, Boland was well off the mark but he wasn’t alone. Most analysts undershot big time on oil prices in 2004 forecasts.

Over the past 12 months, oil prices have almost doubled from $27.50 US per barrel and natural gas prices, then in the $5 range, have shot up more than 70 per cent.

* SAGE WORDS: “Luck is a big myth.”

– veteran Calgary oilman Bob Lamond.

(Gyle Konotopetz can be reached at gyle@businessedge.ca)