So what will happen to COS.UN tomorrow? It can hardly be held for its yield, which is hardly higher than a bond. Its future production is more or less assured. From the recent CIBC report (which is less bullish than BMO- CIBC set a target price of C$32, BMO $38):
Q3/06 Results In-line; Sets Record Production
For A Month In September
Canadian Oil Sands reported average net sales of 95,438 Bbl/d for Q3/06. Sales
in Q3/06 increased 10% over Q2/06 levels following the ramp up of the Stage 3
Expansion. Production volumes for the trust represented a record for one
quarter of operations, as were volumes of 121,000 Bbl/d during the month of
September. This average for the last month of the quarter was quite impressive
given that management had indicated that reaching full capacity of 125,000
Bbl/d was not expected to be reached until later in 2007. At 121,000 Bbl/d in
September, this bodes well for reaching full capacity at some point early next
year. From a cash flow perspective, Canadian Oil Sands reported cash flow from
operations of $0.77/unit, which compared with our estimate of $0.76/unit and
$0.70/unit in Q2/06.
At $19.68/Bbl in Q3/06, operating costs (including energy costs) were well
below our estimate of $25.68/Bbl, as we had expected to see a significant
decrease from Q2/06 levels at $28.48/Bbl (relating to lower gas costs, lower
incentive costs and higher production volumes), but not to this degree. Costs
should modestly increase in Q4/06 to a forecast of $22.50/Bbl (reflecting the
recent rebound in gas prices). Over time, the trust expects to see operating
costs trending down to the $20.00/Bbl level (including gas costs at $8.00/Mcf).
The strong improvement in operating costs was offset in part by higher-thanexpected
royalties. Going forward, this should be expected given that royalties
are now calculated at 25% of net revenue (i.e. revenues after operating costs
and capex costs) – implying that lower operating costs will partially be offset by
higher royalties and vice versa going forward. Over the long-term, we forecast
royalties at $11.00/Bbl assuming a WTI oil price of US$65.00/Bbl.
Overall, the trust delivered solid results in Q3/06, with the strong production
volumes in September a positive sign moving into 2007 as the Stage 3
Expansion moves to full operational capabilities. A full summary of the trust’s
Q3/06 results is provided in Exhibit 1. |
