Canadian Oil Sands Ltd. (TSX:COS) continues to battle its way through the oil rout and investors with a contrarian edge are wondering if the stock has finally bottomed.

Let’s take a look at the company to see if there is a chance to pick up some big gains over the next year.

Syncrude challenges

Syncrude’s recent fire and production shutdown is just one extra setback in a long line of operation headaches at the massive oil sands facility.

Canadian Oil Sands owns the largest stake in Syncrude, which makes it responsible for the biggest part of the expenses.

For the past three years, the project has been a disaster. When oil prices traded above $100 per barrel, margins were high enough to cover all the inefficiency in the operation, but the rout in the crude market is now taking its toll on producers with sub-optimal production and high operating costs.

Canadian Oil Sands is making progress on its efforts to reduce expenses, but production is still not improving.

The company reported a Q2 operating cost per barrel of $52.63, down from $59.64 in the same period last year. For the first half of 2015, the average cost per barrel was $42.83 compared to $52.33 in the first six months of 2014. To put things in perspective, Suncor reported a Q2 2015 oil sands operating cost of $28 per barrel.

Syncrude has a design capacity to produce 350,000 barrels per day. Last year output averaged just 258,000. Daily average production came in at 250,400 barrels for the first two quarters of 2015, so it doesn’t look like output will match last year’s number.

Cash flow issues

Canadian Oil Sands is targeting cash flow of $474 million for all of 2015 and capital expenditures are expected to be $422 million.

Based on the results from the first half of this year and the drastic drop in oil prices since the end of June, the numbers might be a bit optimistic. Cash flow for the first two quarters was just $146 million and the company spent $228 million on capex during that time.


The dividend has already been cut once and while the remaining payout is minimal, investors shouldn’t count on it surviving the end of the year, especially if oil prices resume their downward trend.

Takeover premium

A number of pundits are suggesting the much larger Syncrude partners might buy out Canadian Oil Sands. That could certainly be the way the story ends, but I don’t think the other companies are going to play the role of white knights. On the contrary, I would expect them to wait until Canadian Oil Sands is unable to meet its financial obligations and then simply divide up the spoils for pennies on the dollar.

Could the stock double?

There is certainly a case to be made for buying Canadian Oil Sands based on the value of Sycrude’s reserves. Assuming oil prices are going to recover meaningfully, Canadian Oil Sands looks like a great buy. But the company has to survive long enough to enjoy the windfall from better days, and that is the big question mark.

If you believe oil prices have bottomed and are going to rise through next year, then Canadian Oil Sands could easily double over the next 12 months.

I’m not sure that will happen and I think there are better places to put your cash right now.

Canadian Oil Sands is too risky. Buy this other stock instead!

Our analysts have identified one TOP stock for the rest of 2015. Today, you can download the name, ticker symbol, and price guidance absolutely FREE.

Simply click here to receive your Special FREE Report, "1 Top Stock for the rest of 2015."

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

Fool contributor Andrew Walker has no position in any stocks mentioned.