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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Umunhum who wrote (83526)	4/24/2007 6:05:01 PM
From: RWS	Respond to of 206325

You may experience a helluva drawdown when all that cheap Iraqi oil is flushed into the market. RWS

To: Umunhum who wrote (83526)	4/25/2007 9:23:09 AM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 206325

This is by far and away the best bang for the buck you can get for playing Peak Oil. if you're talking about leveraged dollars, you may be right. on unleveraged dollars, though, i like the equities better. if God were to freeze CL at $67 for the next 8 years, you'd make no money on these contracts. the same money in COS would be getting free cash flow of nearly 10% unleveraged. if crude were to double, to $134 (which it could well do), you'd have a double on those CL contracts. COS would have fcf of over 25% based on today's share price, so COS would likely be repriced much higher. if it were repriced to 5% fcf it would be a quintuple. if it were repriced to 10% it would gain 150%. so a gain of 100% in CL might correspond to a gain of 150% to 400% in COS. in addition, the COS holder would receive any dividends COS distributes between now and 2015. and the above estimates exclude the estimated 30-50Kbpd incremental gain to production Syncrude is expected to see with the completion of Stage 3 debottleneck in 2012, and any incremental gain in price per barrel COS may see with the transition from SSB to SSP grade later this year. (all that fcf would be paid out as dividends if the status quo were maintained, which it won't be after 2011 and after COS runs through its tax-loss carryforwards. but the fundamental operating cf should be there, and if we know anything it's that managements will alter corporate structures so as to minimize taxes. overall corporate taxes in Canada are only 6% or so, far below the widely advertised 41% tax which many are expecting. still, if COS is not acquired, i would expect that the dividends they distribute between now and 2015 would represent a significant percentage of today's share price, perhaps even exceeding it if CL goes up enough. all this would effectively lower the unleveraged shareholder's basis, from an invested-dollars perspective although not from a tax perspective.) i realize you know all this, but i just state it to put in perspective what "bang for the buck" means. with most US borkers you would need to pay 100% cash for COS. with CL, you only need to put up the regulatory minimum per contract, which was around $3500 per contract when i owned the longdated contracts. if the minimum is now 4K then that is more than 15x leverage. so at 15x leverage a double in the underlying would increase the investor's capital by 15x--a feat COS is not likely to accomplish. of course, there's that other aspect of leverage--downside risk--that keeps me from taking that trade.