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    Saturday, March 06, 2004

    Canadian Oil Sands Value
    I had assumed various values for oil on a going forward basis. None of these had been based on anything other than projecting today's price of $35+ forward or taking the COS planning price of $25 forward. Neither takes advantage of the data available in oil futures. I updated my model to include oil prices based on futures prices which go all the way to December 2010. The price of oil assumed in the futures prices are 34.54 in 04, 30.83 in 05, 28.99 in 06, 28.52 in 07, 27.94 in 08, 27.87 in 09, 28.05 in 10 and 28.2 after that. I'm going to stick with futures oil prices in my model going forward. After all if COS hedged their production for the next 10 years this is the price they could get. It's reasonable to assume that their lack of hedging is only because they see upside (that said mining/drilling operators have been notoriously bad hedgers historically, with their maximum hedges in place at low points and minimum hedges in place at highs!). This leaves an intrinsic value of around $125CAD assuming no dilution.

    In their conference call and announcement regarding the budget overrun, COS indicated some dilution may be necessary. I see a dilution of 3.2% if they fully hedged their next 2 years production at current futures prices. That is 3.2% if oil averages 34.54 this year and 30.83 next year. In fact if oil meets this years estimate and stays above 33.8 next year there will be no dilution. Even with 3.2% dilution the value is well above $100CAD per unit.

    Oil Price 04Oil Price 052004 Cash2005 CashBank FacilityNet DefecitDilution

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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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