Wednesday, December 10, 2014

"Canadian Oil Sands Announces 2015 Budget" $COSWF

The COS budget announcement from last week:

"Based on the 2015 budget, COS will continue to generate positive free cash flow; however, at the current dividend level, net debt would grow at a pace that would quickly exceed $2 billion. To moderate the growth in net debt and based on the budget assumptions, COS intends to reduce the quarterly dividend to $0.20 per share concurrent with the release of its fourth quarter results in late January. COS views this as a prudent step to preserve balance sheet strength and provide flexibility in this lower oil price environment."
The 2015 budget assumes $75 WTI oil. The futures market is saying that oil will eventually rise to $72 by the end of 2023.

I think the COS budget and the futures market are probably both wrong. They should budget based on what the futures curve is right now: $61 oil rising to $64 by the end of 2015. At that price, they will be about cash flow breakeven for 2015. They may have to cut the dividend again, which would be $388 million at 20 cents per share.

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