Lower Profits For the Oil Sands

Those Canadian oil-sands that looked like winners a few months ago are having to reduce their forecasts because oil prices don't just rise:

CALGARY (CP) - Western Oil Sands Inc. is predicting a 2006 profit of $140 million and earnings per share of 87 cents, a number that seems to fall short of current analysts' forecasts.

Analysts' consensus estimate was for diluted earnings of $1.35 a share, before one-time items, according to Thomson Financial.

Calgary-based Western (TSX:WTO) said Wednesday it anticipates cash flow from operations of about $270 million. The Thomson Financial consensus forecast targeted revenue of $745 million.

"These estimates are based on production of approximately 30,000 barrels per day net to Western, which accounts for the 40-to 45-day scheduled turnaround at the Athabasca Oil Sands Project planned for the second quarter of 2006," Western Oil Sands said in a release.

The guidance is based on a West Texas Intermediate oil price of $52 US per barrel, a natural gas price of $11.53 Cdn per thousand cubic feet and a Canadian dollar worth 82 cents US.

Here's a previous entry on the oil sands.

Comments

[Woodrow]

Joe,

While I love your blog, I think you miss the mark on "these oil sands companies" by a mile. All oil sands companies were not created equal...those involved in the Syncrude venture are sitting reasonably well. Stage 3 is on schedule and on time [in fact, slightly ahead of budget], ramping production to 350K per day by 2H06. Canadian Oil Sands Trust just doubled their distribution ahead of schedule.

Unless you honestly believe the price of oil is heading back into the low $30s, the economics of Syncrude are difficult to argue against.

[The Stalwart]

Jason, thanks for the comment.

I don't mean to suggest that the oil sands are bad investments, only that a couple months ago, everyone was calling them a can't miss, and now companies like Western Oil are down over 20% in just a short time.

There are rarely slam-dunks on Wall St., and they're even rarer when everyone says there is one, like was the case just a few months ago.

[Woodrow]

Joe,

Understood and thanks for the clarification. On these we agree completely, there are rarely if ever slam dunks in the investment world.

Keep up the great work,

Jason

[marvin]

I like your blog on oil information. One thing I don't understand is why COS.UN's profit level has always been so much higher than SU, let alone WTO. I also wonder what the cost differential per barrow of oil is between a conventional oil producer and a oil sands producer in Western Canada. Your view is appreciated.
Marvin