Canadian Oil Sands' Distribution Set to Rise

Aug.24.09 | About: Canadian Oil (COSWF)

Buy-recommended Canadian Oil Sands Trust (OTCQX:COSWF) offers unlevered appreciation potential of 61% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$42 a share. Announced late today, the next quarterly distribution will be C$0.25 a unit, up from C$0.15 paid most recently. That is less than levered cash flow (Ebitda minus Interest) of C$0.73 a unit projected for the third quarter and more than C$0.14 cash flow per unit for the quarter just ended.

Major maintenance activity reduced volume and raised costs compared to normal operations. After peaking at C$50 a barrel in the latest quarter, operating costs are likely to fall below C$30 a barrel for the second half of 2009. Management estimates Syncrude volumes at 330 thousand barrels daily (mbd) in the second half, up 60% from the second quarter and near capacity of 350 mbd.

On that basis and on current oil futures, we project a double in the distribution in the fall and another 20% increase early next year for a twelve months distribution yield of 7%. Looking further ahead, futures prices for the next six years for oil crossed the 40-week average into an uptrend at the end of May and stand currently at $81 a barrel.

Originally published on July 27, 2009.