Canadian Oil Sands shrs jump 20 pct, boosted by short-covering

Mon Feb 2, 2015 1:42pm EST
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By Nia Williams

CALGARY, Alberta Feb 2 (Reuters) - Canadian Oil Sands shares jumped 20 percent on Monday as rising oil prices prompted a bout of short-covering, in which investors who had previously sold the company's stocks rushed to close those positions.

COS, the largest-interest owner in the Syncrude oil sands mining and upgrading project, last week slashed its dividend to 5 Canadian cents a share as tumbling crude oil prices ate into company profits.

The share price slumped to a 14-year low of CS6.01 on Friday before Monday's rebound. It was last trading at C$9.44 on the Toronto Stock Exchange, where it was most active stock issued.

"There was a lot of shorting before the quarterly results because it was clear there was going to be a dividend cut," said Raymond James equity analyst Chris Cox.

"We are seeing the effect of that today, coupled with a bit of a rebound in the oil price. Some of the least-loved names in the downtrend are seeing a rebound, COS falls within that group."

The Syncrude project in northern Alberta is COS's only producing asset and accounts for about 12 percent of total crude production in Western Canada.

Analysts at TD Securities Inc said COS shares had fallen 68 percent since global oil prices, which have more than halved since June, started to slide, and there was significant potential for a rally should prices stabilize.

However, TD Securities maintained its "hold" rating on the stock given reliability issues at Syncrude, which often falls short of it nameplate capacity of 350,000 barrel per day.

FirstEnergy Capital analyst Mike Dunn also said on paper COS would look quite attractive if oil prices recover, but he had concerns about Syncrude production.

"While we view the stock as compelling value relative to our longer term outlook for oil prices, the uncertainty over oil prices and the discouraging trend in production in recent years act to dampen enthusiasm for the stock," Dunn said in a note to clients.