Buy-recommended Canadian Oil Sands Trust (OTCQX:COSWF) offers unlevered appreciation potential of 46% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$42 a share. Third quarter results released late on October 28 indicated Ebitda minus Interest of C$0.70 a unit, up from a depressed C$0.14 in the second quarter of 2009.
Despite a steep increase in cash flow, management took a more deliberate approach to increasing the quarterly distribution for the fourth quarter by C$0.10 a unit to C$0.35 from C$0.25 for the third quarter and C$0.15 for the second quarter. Chief Executive Marcel Coutu forecasts full capacity operations, about 350,000 barrels daily, at the Syncrude Joint Venture (36.7% COSWF) for the remainder of 2009. Perhaps looking to the higher profitability of capacity operations and noting high interest by potential buyers, Chief Executive Jim Mulva of ConocoPhillips (COP) may sell all or part of the company’s 9% of Syncrude.
Last week the Korean National Oil Company agreed to buy Canadian refiner/producer Harvest Energy Trust (HTE) for some $3 billion. Suncor’s (SU) 12% of Syncrude, gained in its acquisition of Petro-Canada, may also be available should a stronger market develop. COSWF would be a consolidator of Syncrude holdings if a transaction increases Syncrude ownership per unit on a low risk basis. In any case, we like COSWF as an investment in secure, long-life oil for which the price trend continues positive with futures prices for the next six years above the 40-week average.
Originally published on October 29, 2009.