Buy-recommended Canadian Oil Sands Trust (COSWF.PK) offers unlevered appreciation potential of 21% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$38 a share. Providing some good news at the start of the annual meeting on April 29 after the market close, management announced a long-awaited increase in quarterly distribution to C$0.50 a unit.
New guidance issued along with first quarter results points to further increases in cash flow for distributions as the Syncrude mining and upgrading facility reaches full capacity in the fourth quarter. At the same time, the trust will become a corporation as the Canadian government intends to raise taxes on trusts. A low debt ratio places COSWF in a strong position to finance some of its expansion with debt in order to earn the deductions that would facilitate continued tax-efficient dividends. Moderate capital spending will be required to expand oil sands capacity by 70% to 600,000 barrels daily (bd) from current capacity of 350,000 bd.
Finally, while no one wishes to see another’s misfortune, the tragedy unfolding in deep water offshore oil may make all other sources of energy supply more valuable, including oil sands in Canada. The fallout from the Gulf of Mexico accident may strengthen the trend in futures prices of oil for the next six years currently at $92 a barrel and above the 40-week average of $85.
Originally published on April 30, 2010.