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Two Things to Watch in Canadian Oil Sands’ Second-Quarter Earnings

By:  Dave Van Geem

Canadian Oil Sands (TSX:COS), the largest owner of the Syncrude Project in the Athabasca oil sands deposit in Alberta, reports second-quarter earnings Tuesday. Here’s a quick profile of two things to watch for:

Earnings

COS is currently yielding 6.7% on a dividend of $1.40. Last time around, it reported the following results, and said unexpected outages at its upgrader and in the mining area hurt production volumes:

Highlights First quarter   2013 First quarter   2012
Cash   flow from operations ($ millions) $275 $454
Cash   flow from ops per share $0.57 $0.94
Net   income ($ millions) $177 $318
Net   income per share $0.37 $0.66
Sales   volumes: Total (mmbbls) 8.6 9.8
Sales   volumes: Daily average (bbls) 95,683 108,108
Realized   SCO selling price ($/bbl) $96.11 $97.07
Operating   expenses ($/bbl) $41.20 $32.58
Capital   expenditures ($ millions) $268 $141
Dividends   ($ millions) $170 $145
Dividends   per share $0.35 $0.30

Source: Canadian Oil Sands first-quarter report.

Investors should start by looking closely at the sales volumes. With repairs completed last quarter, the daily average volumes should be approaching 110,000 bbls/day. Canadian Oil Sands should see improvements in operating expenses as well.

Capital expenditures

The company has undertaken a number of multi-year capital projects. At the end of the first quarter, management reported the following:

Project

Total Cost Estimate ($Billion)

Estimate Complete Q1 2013

In Service Target Date

Mildred Lake Mine Train Replacement

$1.6

45%

Q4 2014

Aurora North Mine Train Relocation

$0.4

60%

Q1 2014

Aurora North Tailings Management

$0.3

75%

Q4 2013

Centrifuge Tailings Management

$0.7

15%

H1 2015

Source: Canadian Oil Sands company statements.

On Tuesday I’d like to see continued progress on all four — without any surprises in cost projections. Notably, Aurora North should come in at 85% complete or higher to ensure commissioning on time. This project can be seen as a bellwether representing how well the company is managing projects.

The final word

Canadian Oil Sands is in the midst of four expensive capital refurbishment projects. In my view, executing on these expensive projects — on time, on budget — while maintaining current production will be key to ensuring the health of the company moving forward.

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Fool contributor Dave Van Geem owns shares of Canadian Oil Sands.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

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