Canadian Oil Sands: An Investment in Secure, Long-Life Oil

| About: Canadian Oil (COSWF)

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 (NYSE: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 (NYSE: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.