Financial Post ArticleI believe an article in this morning's FP further supports the idea of COS being a prime takeover target. If, as the article suggests, the long lead times to develop an oil sands project will limit new capex in exploration and development, companies with strong balance sheets will be looking for venues like COS that will bypass this lead time but give them access to more production. The question will be whether a consolidated Syncrude project would get operating costs down to turn some sort of a profit in a $55 WTI environment. I think it would, which makes a buyout even more likely. We all seem to agree that COS really just adds an extra layer of management cost without any real value added in terms of actually running any operations.
So...yesterday everyone thought oil was rebounding. Today's news suggests perhaps otherwise. It is like dealing with an ugly bipolar stepchild.
Does COS go up or down today? As I am holding long, I really don't care (other than curiosity at this point). If it goes up, then I will become increasingly convinced there are informal talks going on regarding a takeover. Here is a bit of that FP article I am referring to:
The Canadian oil industry will also be challenged by the rapidly changing landscape, with the IEA slashing the country’s oil production growth forecast by 430,000 barrels per day — 10% of current production — by 2020.
The Paris-based energy watchdog now expects Canadian oil production to grow by 810,000-bpd to reach just under five million barrels per day over the next five years.
While Canadian oilsands projects that have already seen capital commitments will proceed, new projects “are unlikely to be sanctioned and will likely be delayed,” the IEA said. “Companies will be much more restrained in committing cash to fund expensive projects in the current price environment.”
“Oil sands projects, with long pay-back time, are on the opposite end of the price-sensitivity spectrum compared to [U.S. light, tight oil] producers,” the IEA said.
“Most of Canada’s upstream projects have long lead times, and once cancelled or postponed, oil sands projects cannot be brought online quickly in response to increasing prices.”