Oil Sands Truth: Shut Down the Tar Sands

"Tar Sands Still Good Investment Long Term"

Canadian Oil Sands Looks Attractive Despite Near Term Risk
by: Kurt Wulff
October 06, 2008

We are committed to the belief that Canadian Oil Sands Trust (COSWF.PK) is an attractive long-term investment despite suspending our buy recommendations for near-term financial market price risk.

Meanwhile, estimated Net Present Value of US$57 a unit remains reasonable should long-term oil price fluctuate around US$100 a barrel. On oil futures settlement prices as of September 11, we estimate that the current quarterly distribution of C$1.25 a unit would be maintained for the next four quarters indicating a distribution yield of 11.7% a year. Operations for the past three months at 347,000 barrels daily or 99% of capacity support our estimate for next year. If the price of oil declined to $80 for the next year, coincidentally near the economic breakeven price for new projects like Syncrude, management might take the quarterly distribution back to C$1.00 a unit. The Distribution Yield would drop from 11.7% to 9.4% a year, hardly enough of an impact to warrant a stock price decline to under US$40 a unit, in our opinion.

Weekly Income Stock Valuation
Lower stock prices mean more attractive value measured by a median McDep Ratio of 0.75 for thirteen income stocks. The median unlevered market cash flow multiple (EV/Ebitda) at 8.8 times has changed less as both the numerator and the denominator fluctuate with market conditions. Median estimated distribution yield is a high 10.1%.

Originally published on September 12, 2008.


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