Canadian Oil Sands Barely Affected by Syncrude-Alberta Agreement

Syncrude reached a new royalty agreement with the Alberta government Tuesday, and Canadian Oil Sands Trust (COSWF.PK), the joint venture's largest partner, will barely be scratched by the changes. As part of deal, Syncrude will have to cough up C$975-million between 2010 and 2015 because of deductions it took under the old regime but are not allowed under its new bitumen-based royalty deal.

Sounds like a lot of dough, but investors don't need to sweat it, analysts said in research notes on Wednesday.

Gordon Gee, an analyst at RBC Capital Markets said:

We view the change in value to [Canadian Oil sands] as not material to our investment perspective. With respect to other Syncrude owners, the impact on valuation is immaterial given the value of their other assets.

Imperial Oil Ltd. (IMO), Nexen Inc. (NXY), Petro-Canada (PCZ), ConocoPhillips (COP), Mocal Energy Ltd., and Murphy Oil Co. Ltd. (MUR) are Syncrude's other owners.

Mr. Gee stuck with his C$32 price target and "outperform" rating on Canadian Oil Sands, while UBS Securities Inc. analyst Andrew Potter also left his C$36 target and "buy" recommendation untouched. 

Comments

[cyberclark:]

The new royalty program was a sham from start to finish!
Their numbers were down to 19% royalty from 25% original agreement.
That put 6% onto their profit.

The Government changed the royalty from US dollars to Canadian Dollars
That put 15-18% onto their profit.

The new royalty regime starts them back at 25%, restored from the 19%

That still leaves them paying 16% less in royalty at the first of the year.

What a bonus!

2008 Nov 21 06:35 PM

[jamino1:]

It's my understanding that the new agreement taxes the value of the bitumin extracted and not the higher prices finished light crude so this would make it appear to be a push even assuming tht the floating currency rate deviations even out to zero over time.

2008 Nov 22 06:46 AM

[Steven Ward:]

It is more evidence that Alberta is placing its economic bet on tar sands and unconventional gas than the conventional producers. The bet pays off only if the oil picture rights itself and the cancelations of projects and slow down on projects stops and the estimated 250 billion dollars in construction starts anew.
Otherwise, Alberta has shot herself in the foot with conventional production scattering to the other provinces. But then again, I believe this was planned.

COSWF.PK was in the driver's seat all along with cancelations announced on future projects and an iron clad contract with the Alberta government until 2015.

COSWF.PK CEO, Marcel Coutu, is a shareholders dream. After being directly lied to by the Harper regime he mounted an industry effort that went all the way to the Gates of Ottawa. Then he pounded on the Gates. It's about time a CEO expended some passion for the benefit of his shareholders. Hats off to Coutu playing the game well.

2008 Nov 23 06:53 PM