Setting a conservative tone, the 2009 budget released late December 9 for buy-recommended Canadian Oil Sands Trust (COSWF.PK) indicates a likely quarterly distribution rate of C$0.25 a unit. That contrasts to our recent expectation of about C$0.50 a unit at capacity operations and an oil price of US$50 a barrel.
Allowing for more major maintenance while oil price is low, Syncrude Production is budgeted at 315,000 barrels daily (bd) rather than at capacity of 350,000 bd as we had projected. Management targets 350,000 bd for 2010. The other noticeable changes, as we bring our projection of distribution closer to the budget, are more “Maintenance Cap Ex” and an arbitrarily cautious expectation for the price of Syncrude Sweet Premium compared to the Light, Sweet Crude oil industry benchmark. Ironically, despite the possible inhibiting impact on distributions, accelerated maintenance is a sign of strength.
The Syncrude partners are able to take advantage of lower labor and contractor costs in the changed industry conditions. As a result, the oil sands mine and upgrader will be able to operate longer without interruption when oil price rises again. In these uncertain times, we believe units of financially secure COSWF represent ownership of one of the choicest long-term assets in the global oil and gas industry.
Originally published on December 10, 2008.