The Long Case for Canadian Oil Sands Trust 20 comments
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About a year ago, I wrote an article in one of my newsletters about a highly-successful Toronto money manager named Eric Sprott who had given a speech predicting oil would hit $200 a barrel in the near future. At the time, the price of crude was well below $100 a barrel so it's not surprising that many people were skeptical. In fact, a few even wrote to me suggesting Mr. Sprott had lost it – this despite the fact the mutual fund he runs churned out 30%+ annual returns in five of the seven years from 2001 to 2007. (In the other two, the gains were a paltry 13%.)
Today, of course, he looks like a genius. With oil flirting with $150 a barrel, can $200 be far behind? Of course, we could see a much-desired pull-back in the price, but to what? Oil could drop 25% from today's levels and it would still be priced at over $100 a barrel. And any respite will almost certainly be temporary. As soon as the next economic upturn begins (and it will happen, trust me!) the price will shoot higher again. That's why we at The Canada Report newsletter continue to be bullish on high-quality oil stocks. In our first issue, published in January, we recommended that readers buy shares in Canadian Oil Sands Trust, which trades on the Toronto Stock Exchange as COS.UN and over the counter in the U.S. under the symbol COSWF.PK. At the time, the price was C$37.20. On July 10, they closed on Toronto at C$51.25.
Here's some background on the company. COS is a major player in the Alberta Oil Sands through its 36.74% interest in the Syncrude Project, located near Fort McMurray. Syncrude operates Oil Sands mines and an upgrading facility that produces a light, sweet crude oil. COS is currently structured as an income trust. However, management is evaluating alternatives, including possible reversion to a corporate structure before the new Canadian trust tax takes effect in 2011. The corporate tax rate in Alberta is less than the planned trust distribution tax.
Most conventional oil companies have proven and probable reserves of about 12 years. The Oil Sands reserves, in contrast, have a much longer life expectancy. Syncrude has proven and probable reserves of five billion barrels, representing a life-span of approximately 35 years at current capacity. There is potential to extend reserve life beyond the year 2050 as the leases are developed. Syncrude produced about 265,000 barrels per day (bbl/d) in the first quarter of 2008, well down from the 2007 average due to a cold weather disruption during the winter. However, output should improve over the summer and Syncrude projects total output of between 105 and 112 million barrels in 2008. Plans are in the works to increase production to as much as 500,000 bbl/d after 2016.
This is not just a growth story. The shares offer good cash flow with quarterly distributions of C$1 per unit for a yield of 7.5% based on the recent price. 
For U.S. residents, COS has stated it believes the payments qualify as dividends under American tax law. However, a 15% withholding tax is assessed on cross-border payments. Because of its good cash flow, Canadian Oil Sands is a fine choice for investors who want to combine growth potential with current income. The caveat is that if the trust decides to convert to a corporation before 2011, there is the risk of a distribution cut which would have a negative effect on the share price. However, if oil keeps rising any cut would be from an even higher payout level than investors currently enjoy.
I expect the shares to be trading in the $60-$65 range within the next year.
Disclosure: Long
Gordon Pape is Editor and Publisher of The Canada Report.
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This article has 20 comments:
I don't mean to be a douche, but any investment advice that has the words "trust me" in a non-ironic context is suspect at best.
In essence the oil sands operators are "borrowing" the land for a relatively short period of time. They promises - and are delivering - to put it back in "like new" condition when they are finished. If govt. does their job, these claims will be fulfilled.
Here is the full interview: www.energyinvestmentst.../
As it says at www.canretire.com/arti...
Garth Turner, former federal revenue minister, said a reverse mortgage "is an ideal strategy if you hate your children."
In the "normal piplines" the tar sands oil contains a lot of sludge and wrecks the insides of the pipes.
there is a company in Minnesota that has products that prevent the pipes from being damaged by the sludge.
Yahoo finance has a little on it, but you will have to go to the website to get the info. irproducts.com
INRB.pk
The Athabasca is not an endless water supply. It has dwindled enormously in the last thirty years due to less rain and snow. Add on the oil industry production and the picture gets far worse.
The Department of Fisheries and Oceans says the issue is real and huge.
A report says:
Summer flows and winter low flows in the Athabasca have declined by nearly 30% since 1970 and could fall by more than 60% by 2050 if the trend continues, he says.
If oil sands production triples to 3 million bbl/day by 2015, as predicted, industry would require 15 cubic meters of water per second, more than allowed by the critical red-zone threshold, the report says.
In other words, the production will diminish the river to levels where it kills the fish population and denies people who depend on the river WATER.
Interesting User 44226 does not mention the enormous amounts of waste water left over that are stored in perpetuity. Kinda like storing the water you use to wash your dishes. FOREVER.
en.wikipedia.org/wiki/...
The comments are a bit more interesting and informative than the article. Keep up the good work.
A better bet in my opinion would be to use Nuclear Plants to generate power and then use it to produce oil from oil sands. Also the waste water will need to be cleaned.
Look for more excuses on poor production performance. funny how the well known Arctic weather never was a cause for extended production interuption over the last 40yrs...only when the warm weather yanks arrive!!!!
> jack
Sorry, not a believer.
Until then hold and you could argue buy even more.
However, I favor Nexen and OPTI over COS but COS will make even more money until the social change regime takes over. Remember, Liberals need lots of money to work their "magic" COS can supply the lucre.