Opinions
Norman Levine
Canadian Oil Sands
COS-T
TOP PICK
Mar 21, 2014
Stock price when the opinion was issued
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They have a hostile bid from Suncor (SU-T). They own the same asset, Syncrude, an oil sands producer. This has been down over the last few years because the price of oil has gone down, also the whole oil sands situation and the difficulty in getting it to market. There is likely a higher bid forthcoming. Dividend yield of 2%.
Should the offer from Suncor (SU-T) be accepted? He thinks Suncor is going to do a better job with those assets than Canadian Oil Sands. This is very opportunistic of Suncor to be doing this at this time. Doesn’t expect there will be a better offer coming. There aren’t a lot of companies that can buy an asset this size.
100% correlated to the price of oil, and he is not bullish on the price of oil. This is the biggest part of Syncrude, which keeps having operational problems. Thinks Suncor (SU-T) wants to buy this and become the majority owner of Syncrude, throw Imperial Oil (IMO-T) out as an operator, and run it themselves. He would tender to Suncor’s offer.
Oil sands producers in general have been treading water. In this company’s case, it has been largely because Syncrude has been expanding a lot and there have been huge capital expenditures so the debt level has gone up a lot and the dividend has not gone. Starting next year, capital expenditures start to plummet as the expansion becomes complete. Thinks production will start to go up. Unlike a lot of other producers, Syncrude produces light sweet crude, which gets a slight premium to market price, not a discounted price. They are not subject to Keystone. 6.4% dividend yield.