Revised 2014 COS has indicated that they will provide revised guidance on Wednesday. Below is a preview of what might be coming. Appreciate that COS mgmt has four months of pricing data under their belts so the issue is what kind of tweaks are required to guidance make the outlook slightly better. Oldtimer has taken a crack at it in an earlier post and I think it’s about right.
Note one thing in the updated production guidance. Production has been revised from a range of (95 Mb to 110 Mb) to (95 Mb to 105Mb), with a single point of 100Mb. The lower production estimate has not been changed, only the upper one. This leads me to believe that they knew that Coker 8-1 was not performing to spec and that is why the lower estimate was set low and why it has not been changed. What is surprising is that Coker 8-1 has begun "unexpected maintenance" after being updated last year and it took an extra 20 days of work.
With the benefit of hindsight, only a few small tweaks are required to guidance to minimize the damage to the SP. Raise the average WTI price from $90/bbl to $93/bbl. Lower the FX rate from 97¢ to 95¢ and keep the SCO discount at $5/bbl. This results in a new SCO price of $92.89/bbl. With the new single point production level of 100,640 b/d for COS (Total 99.98 Mb Syncrude), the cash flow is $2.52/shr. This is 13¢ better than the earlier guidance with only minor and very creditable changes to the pricing assumptions.
The point here is to essentially show the merits of the conservative production and pricing projections, SCO price and discount and FX, COS made in the Q!-14 guidance document, knowing that Coker 8-1 was not performing.
Now don’t misinterpret the above to mean the nothing has changed. What has changed? Basically by dropping 5M barrels of production while Coker 8-1 is down, COS losses approximately $400M in revenue. While I was predicting that they could end the year with $100M in the bank, I now think they might have to draw down about $100M on their line of credit if they can continue to get $100/bbl for SCO. This also does not change their debt guidance of bewtween $1B and $2B. Bottom line is that the divvy increase will probably be delayed to Q1-15 when the plant is back up to speed.
It will be interesting to see the analyst comments following the Q1-14 results.
Namsoc