We believe that long-term oil price will justify unlevered appreciation potential of more than 100% to estimated net present value (NPV) of $42 a share for buy-recommended Canadian Oil Sands Trust (OTCQX:COSWF). Declared after the market close on January 28, the new quarterly distribution of C$0.15 a unit is only 30% of our projected cash flow per unit (Ebitda minus interest) for 2009.
The retained 70% of cash flow would be applied to capital expenditures and to build a cushion should more adverse conditions materialize. Syncrude Production is budgeted at 315,000 barrels daily (bd) in 2009, below capacity of 350,000 bd targeted for 2010. Our price projection incorporates management’s conservative allowance of a C$4 a barrel discount in 2009, as opposed to a premium in 2008, for Syncrude Sweet Premium compared to the Light, Sweet Crude oil industry benchmark.
Pointing to expected oil price recovery, futures prices for the next six years averaged US$62 a barrel recently.
Originally published on January 29, 2009.