In a review of his energy stock recommendations, Gavin Graham looks to Canadian Oil Sands Trust (OTC: COSWF). Here's his update in Gordon Pape's Income Investor.

"As I have noted since my first recommendation of Canadian Oil Sands in March 2005, the success of an investment in energy companies depends on the price of oil and gas. 

"When oil recorded record highs in 2008, reaching approximately US$147 per barrel for West Texas Intermediate (WTI) crude, oil stocks did well and increased their payouts or expanded their operations. When oil plummeted 77% to about US$33 per barrel, oil stocks cut distributions.

"Canadian Oil Sands reduced its payout from $1.25 per quarter to 15c between August 2008 and February 2009.

"With oil having almost doubled from its lows to US$65 per barrel, it appears these reduced distribution levels are sustainable and there is some feeling that company management has been deliberately conservative to ensure that they do not need to cut them further. 

"They are also positioning themselves for the disappearance of tax exemptions for income trusts at the end of next year.

"Canadian Oil Sands reported first-quarter cash flow from operations (FFO) of $50 million (10c per unit), compared to $441 million (92c per unit) for the same period in 2008. Net income for the quarter was $43 million (9c a unit), well down from $298 million (62c a unit) last year.

"Based on an average WTI oil price of US$50 per barrel for the whole of 2009, Canadian Oil Sands anticipates FFO of $1.21 with output of 40 million barrels (109,500 bpd) at a cost per barrel of $33.50. The company has budgeted for $453 million in capital expenditure. 

"Canadian Oil Sands has risen 56% since March 2005. Together with its distributions, it has generated a total return of 93% compared to a 17% total return for the S&P/TSX Composite Index over the same period. 

"The shares remain a buy at present levels, especially as distributions may be raised if oil stays above US$50 per barrel."