Canadian Oil Sands Plans Oil Growth by 70%

| About: Canadian Oil (COSWF)

Buy-recommended Canadian Oil Sands Trust (OTCQX:COSWF) confirmed last week that preliminary design work is underway to expand oil sands capacity by 70% to 600,000 barrels daily (bd) from current capacity of 350,000 bd. Expansion to 425,000 bd would be in upgraded synthetic crude oil at relatively modest cost because the main processing unit erected during the last expansion was built with latent capacity. Remaining expansion to 600,000 bd would be in mining capacity only, without a new upgrader. Instead, the Syncrude joint venture (36.7% COSWF) would do some modest refining at the mine location and sell the raw bitumen product. The price of bitumen, or heavy oil, is high these days at some 80% of synthetic crude oil.

It looks like sufficient refining capacity elsewhere in the industry may be available to upgrade the bitumen if economic growth is slower for a while. We recognize explicitly only current capacity of 350,000 bd for mining and upgrading in our estimate of Net Present Value (NPV) of US$38 a unit. Meanwhile, cash flow rises in the second half of 2010 when operations are expected to run smoother after a slower start in the first quarter.

Long-term oil price continues in an uptrend with current quote of $85 a barrel above the 40-week average of $83. Finally, McDep Ratio for COSWF is among the lowest for buy recommendations.

Originally published on March 2, 2010.