Canadian Oil Sands Trust Could Remain Good Investment as Stock
By Judy Monchuk
25 Jul 2007 at 05:17 PM GMT-04:00
resourceinvestor.com
Calgary (CP) -- Investors aren't likely to be hit hard if the corporate conversion musings by Canadian Oil Sands Trust [TSX:CSO.UN] come to fruition.
The trust's majority partner status in the Syncrude oilsands project provides production stability that will ensure strong dividends even if it switches to a traditional corporation before Ottawa starts taxing trusts in 2011, says an oil and gas analyst.
''As far as concerns about what the company would look like in 2011, you should continue to be reasonably confident that this is going to continue to be a high dividend paying stock,'' Randy Ollenberger with BMO Capital Markets-Canada said Wednesday.
''It won't be a cash distribution in the sense that it is now, but it will it probably be a dividend,'' he said. ''I suspect the number they'll be paying out in 2011 will be at least as big, if not bigger, than it is currently.''
Late Tuesday, Canadian Oil Sands reported its first-ever net loss after recording a C$665 million future income tax expense in the quarter ending June 30. Trust CEO Marcel Coutu blamed Ottawa's decision to change the tax structure, saying the entity must plan for the hit four years down the line and may convert to corporate status.
''Although we reported strong cash from operating activities for the second quarter, we also reported the only net loss in our history as a result of accounting for a new tax on income trusts that will take effect in 2011,'' Coutu said in a release after markets closed.
That accounting change led to a net loss for of C$395 million, or 82 cents per unit. Without the charge, the trust said its net income would have been C$271 million in the second quarter of 2007.
In comparison, Canadian Oil Sands reported net income of C$337 million for the second quarter of 2006, or 72 cents per unit.
Ollenberger said unit holders in the trust should view the ''net loss'' with a grain of salt.
''It's not a real loss, so the right thing to do is ignore it,'' he said. ''It's irrelevant.''
A traditional oil and gas royalty trust would generally have no idea what production would be in four years, since the investment model relies on squeezing the most out of declining energy assets. That's not the Syncrude project.
The trust is the largest shareholder in Syncrude, which supplies 15% of Canada's oil needs from the site near Fort McMurray, Alta. It employs 4,400 people directly at a large oilsands mine, utilities plant, extraction plant and upgrading refinery that processes tar-like bitumen into light, sweet crude oil.
''Canadian Oil Sands is a bit unique,'' said Ollenberger. ''They have a pretty good idea of what their production is going to be in 2011 and 2020 for that matter.''
Cash from operating activities in the quarter was C$324 million, or 68 cents per unit, compared to C$209 million, or 45 cents per unit in the same period of 2006.
The energy trust market has been hard hit since Oct. 31, when Federal Finance Minister Jim Flaherty's announced the financial playing field would change.
A new 31.5% tax applied to distributions of income is to be phased in by 2011, and many trusts dealing with oil and gas are looking at the ramifications of shifting to a corporation before then.
Last month, the founder and CEO of CCS Income Trust [TSX:CCR.UN] offered unit holders C$3.5 billion to privatise the oilfield waste management giant. Other trusts are looking to merge into large enough entities to keep themselves sustainable.
In the past, Coutu has blasted the proposed changes as being poorly thought out, and impacting negatively on Canada's overall economy, but said it would not significantly impact the trust's future plans.
Canadian Oil Sands units closed up 3.3% or C$1.10 to C$34.25 on the Toronto Stock Exchange Wednesday.
The trust's 2007 results reflect a 36.74% working interest in the joint venture, after acquiring a 1.25% stake from Talisman Energy Inc. [TSX:TLM] in early January. Other partners in the project include Imperial Oil Ltd. [TSX:IMO], Nexen Inc. [TSX:NXY], Petro-Canada [TSX:PCA], U.S. oil giant ConocoPhillips [NYSE:COP] and two smaller players.
© The Canadian Press 2007 |
