Canadian Oil Sands: Oil Price Trumps Alberta Tax Hike

With recent market action giving clearer vision of the possibility of $150 oil in 2010, we like the prospects for buy-recommended Canadian Oil Sands Trust (COSWF.PK) despite the intention by the Premier of Alberta to increase the oil sands royalty rate to 40% from 25% after 2015.

Meanwhile, in reporting third quarter results today, management increased the quarterly distribution to C$0.55 a unit from C$0.40. Quarterly free cash flow of more than C$1.00 a unit next year suggests a continued rapid rate of distribution increase.

Looking ahead to possible long-term oil price rise to $150 a barrel, we calculated that net present value [NPV] would increase to $93 a share from $39 a share currently. Higher taxes to be charged by Alberta announced last week could reduce the estimate of $93 a share to perhaps $74 a share.

In a tight supply position as appears to be the global situation now, price would go up at least as much as taxes add to costs. Indeed, six-year oil price is rising again, perhaps to another double as was the case from the end of 2004 to mid 2006, subject to short declines from time to time.

Originally published on October 31, 2007.

COSWF 6-mo chart:

Comments

[Tom B:]

Oil sands are very dirty; I would avoid getting involved with them.

2007 Dec 05 09:40 PM

[Philip Obal:]

People are already pinched... so saying $150/barrel is way too optimistic in order to promote oil sands.... With the upcoming royalty rate going up in 2015, as mentioned, in the article, and the OVERHEAD of getting the oil out... it is a HIGH RISK game and investment that OIL SANDS is in.... Beware!

2008 Feb 11 04:27 PM