Zeev's Ideas

[Koikaze]

ZEEV, OIL SANDS - up to ZEEV:348415, 01/23/05

01/20: (347604) (*COMMENT*)
* Oil Sands Post *
Zeev -- Last month you asked my opinion of the best way to play the oil sands. While I am not able to give you a simple answer, I have several ideas below that may be a good start.

A couple of key background facts first:

Current world oil consumtion is 83 million barrels per day, and increasing. Current Canadian tar sands production is 1.1 million barrels per day, 1.3% of total.

Unlike conventional oil production, tar sands must either be mined or produced in wells by steam and solvent injection. Lead times for this extra equipment is 2-5 years.

Once the "tar" is produced it requires substantial upgrading to have sufficient quality for processing in a conventional refinery into gasoline, diesel, etc.

Investment into oil sands infrastructure averaged less than $2 billion/year prior to 2001. In the last few years spending jumped to $6 billion/year and is projected to peak over $9 billion/year. This has more than over loaded the technical design and construction capacity resulting in overruns and other problems.

Even with this high activity level, oil sands production will not even double by 2010, current forecasts total around 2 million barrels per day. During this same period, using a 1%/year increase in demand (and many forecast 3%/year increase), world wide demand will be 87 million bpd, an increase of 4 million bpd. So, the era of Canadian Tar Sands lies further out than 2010. It cannot act as a cap on oil prices in this 5 year period.

The best we can hope for is that OPEC accelerates production of their reserves to help bridge this gap. I'm not too hopeful that we can find new conventional oil reserves to replace this production. Tar sands, natural gas, coal, nukes, and a little wind will be required in the long term for supply. Higher prices and resulting efficiency improvements should help moderate demand growth. I think room temperature superconductors (carbon nanotubes?) could really help with line losses in electrical transmission and improved vehicle efficiencies are two places where demand could readily be curtailed.

So you still want to play Canadian Oil sands? The deposits are huge and there are many companies with positions. Market cap in billions is shown in parenthesis.

Big chunks are held by the super-giants Shell (112), Conoco- Phillips (61), Total (130), Imperial (Exxon) -- oil sands are significant but still small parts of their business.

Big chunks are also held by the mega-independents Encana (26), Devon (19). Still a relatively small part of their business. Canadian producer CNQ (11) has a relatively large part of their business focused on tar sands, but it is still less than half the value of the company.

Canadian producer/refiners SU (15), PCZ (13), HSE.TO (14) have substantial leverage to tar sands on both the production and refining/upgrading side.

OPTI (symbol - OPC.TO) (1.4) is a pure tar sands play. They will both produce and upgrade in 2006. They have no current revenue and are in construction mode presently.

Deer Creek (symbol - DCE.TO) (0.4) is another pure tar sands play, they are focused on production side only. They currently have some minor production/revenue, but their value is clearly in the ramp up.

I would welcome anyone's comments on any of these companies or others that should be considered. I am still evaluating how I want to make the tar sands play.

Regards - Cy

Links to the top cantidates -
http://eneken.ieej.or.jp/en/seminar/alberta/041209p0062j04.pdf
http://www.cnrl.com/
http://www.opticanada.com/ http://www.huskyenergy.ca/
http://www.petro-canada.ca/ http://www.suncor.com/default.aspx?ID=1
http://www.deercreekenergy.com/about/index.html
(*END*)

Thanks for the informative post.