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View of the Syncrude oil sands extraction facility near Fort McMurray, Alta.

MARK RALSTON/AFP/Getty Images

Is it time to revisit assumptions on oil sands stocks?

Headlines on Syncrude in recent months have focused on ducks that died last year in its tailings ponds. While our hearts go out to our feathered friends, it's possible that investors got a little too caught up in the headwinds facing the oil sands, and lost sight of the potential of this resource.

China's largest refiner sees a future for these massive energy reserves, as Sinopec dropped $4.65-billion (U.S.) on Monday for the 9 per cent stake in Syncrude owned by ConocoPhillips.

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Canadian Oil Sands Trust, a holding company whose only asset is a 36 per cent in Syncrude, is soaring Monday on news of the offer from state-owned Sinopec. Units in the trust were changing hands at $30.70 (Canadian) before the announcement.

Analysts have now crunched the numbers on the Sinopec offer and Randy Ollenberger at BMO Nesbitt Burns pumped out a note that says: "The implied equity value for Canadian Oil Sands would be roughly $37/share."

"Canadian Oil Sands shares have underperformed based on the presumption that the company would buy the Syncrude stake and issue equity to fund it," said Mr. Ollenberger. "The removal of this overhang is expected to result in a positive revaluation of Canadian Oil Sands shares."

This deal still requires government approval. But given the regulatory thumbs up given to recent Canadian energy acquisitions by state-owned Asian firms, that regulatory sign off should be easy to obtain. After all, Sinopec is bidding for a minority position in an asset that is already run by a foreign company. Exxon Mobil-controlled Imperial Oil is the operator at Syncrude.

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About the Author
Business Columnist

Andrew Willis is a business columnist for the Report on Business at The Globe and Mail, based in Toronto.He has been in business communications and journalism for three decades. More

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