Canadian Oil Sands Project Not Affected By Rising Costs

Rising costs at Canadian Oil Sands Trust's (COSWF.PK) Syncrude sulphur emissions reduction [SER] project are significant, but not enough to threaten the company's annual distribution through 2010, says Raymond James analyst Justin Bouchard.

Canadian Oil Sands announced last Friday a 107% cost increase in the SER project from C$772-million to C$1.6-billion.    

Mr. Bouchard said in a note to clients:

The cost increase was not a surprise but the magnitude certainly was. Although our expectation is that the C$5 annual distribution is safe for the next ten quarters (given our oil price outlook), the increased cost estimate does chip away at the safety margin somewhat.

Based on the new costs, Mr. Bouchard said the distribution is sustainable to approximately $100 WTI until the end of 2010, assuming Syncrude operates at 350,000 barrels a day. If Syncrude operates at 330,000 barrels a day, he said the distribution is sustainable to approximately $105 WTI until the end of 2010.

Mr. Bouchard adjusted his net asset value for Canadian Oil Sands downwards from C$60.62 per unit to C$59.97 per unit and maintained his "outperform" rating and C$60 price target on the stock.

Comments

[algo41:]

Very helpful.

2008 Sep 24 09:23 AM