Canadian Oil Sands Trust: Increased Distribution Necessary to Meet Debt Target

Canadian Oil Sands Trust (COSWF.PK) investors could be in for a small windfall, thanks to high oil and gas prices. 

Jeff Martin, an analyst at Peters & Co. Ltd, reckons the company needs to increase its distributions by C$7 — or 70% — between now and 2010 in order to hit its debt target of C$1.6-billion. 

In a note to clients, he said:

Distributions are the most likely way that the trust will manage its balance sheet, although acquisitions could also be a factor.

He increased his recommendation on the company to “sector outperform” and has a C$59 price target.

The price of oil has continued its relentless rally, breaking through $140 per barrel recently.  However, oil fell as much as $6 per barrel on Tuesday morning, and about $4 on Monday, pushing the price below $140 per barrel.

Mr. Martin said the company will be able to maintain its current distribution of C$1 per unit per quarter and its debt target even if oil drops to $95 per barrel.

In the longer-term, Canadian Oil Sands, the largest partner in Syncrude, may also benefit from surging sulphur prices. (Mr. Martin doesn’t expect sales to begin until 2010.)

Given the long time frame, he used a netback of C$300 per tonne, well below the current potential netback of C$500 per tonne.  The C$300 estimate translates into another buck per unit for Canadian Oil Sands, he said.

There was one gloomy point in Mr. Martin’s note.  Based on current production rates Canadian Oil Sands will need,

a very strong second half of production to meet the lower end of its production guidance range.

Our current full year estimates are approximately 6% lower than the trust’s guidance range. 

The trust will report its second quarter results on July 29. 

Comments

[Jack Yetiv:]

Wouldn't most of what was said above also apply to quite a few of the other Canroys--eg, PWE, AAV, PVX, ERF?

And, indeed, wouldn't it apply to many domestic E & P companies?

Jack Yetiv

2008 Jul 09 11:24 AM

[wsigler:]

Jack....yes - both positive and negative....

2008 Jul 09 11:28 AM