Canadian Oil Sands Trust: $100 Oil Gem

A long-term oil price of $100 a barrel would imply Net Present Value [NPV] of $57 a unit for buy-recommended Canadian Oil Sands Trust (COSWF.PK), a pure play on long-life, light, sweet crude oil in North America. Six-year futures currently at $90 a barrel are carrying the 40-week average upward from $75 a barrel.

The potential for the current producing rate to be sustained almost indefinitely is a source of comfort in the face of economic uncertainty. Similarly, even though last year’s tax rate increase proposed by the province of Alberta was an unwarranted negative, it is not likely to be repeated for several years. The pendulum may be swinging back with corporate tax rate reductions promised.

Projected free cash flow supports quarterly distribution increases toward C$1.00 a unit from the latest declaration of C$0.55. We take most of our estimates from management’s guidance as of December 14 with the notable exception that we use the futures market quotes for oil price.

Originally published on January 4, 2008.

Comments

[Philip Obal:]

What are the proposed tax increases to the oil sands? Will this happen and does that impact profitability to a severe level?

2008 Jan 24 06:11 PM