To: kingfisher who wrote (38506) 1/17/2005 4:23:20 AM From: Taikun Read Replies (3) of 38628
Exactly. Don Coxe said the same thing in his conference call this week.
The question everyone should be asking themselves is:
"Do I have enough exposure to the Canadian Oil Sands?"
As the average American where their oil comes from and most will say Saudi, when it is Canada.
The Canadian Oil Sands plays have been undervalued for ages. Traditional oil industry execs kind of cock their heads to one side and look at you funny when you mention oil mixed with sand. This has driven the oil industry to search for traditional oil in farther, more dangerous parts of the world at increasing cost. I don't know how much the US is paying for troops to guard overseas refineries, ports, pipelines and tankers, but the cost could be getting significant. I don't know if the current spike in oil prices has anything to do with this, but the US should be looking at the oil sands more closely, and perhaps 2005 will be the year that happens. China already is looking closely.
The oil sands represents a resource of 2 trillion barrels of oil in place and 300 billion recoverable oil. The oil sands are strategic in that they could be part of a fortress North America, they are in close proximity to markets and the Canadian government can be viewed as stable and friendly. The oil sands have been neglected due to cost, but that is changing. $64bn is estimated to be spent 2004-13.
Some oil sands are at the surface, and can be mined like an open pit mine, others are in-situ (deep deposits, mine 'in place), where a process is needed to extract the oil. The process requires heat to separate the oil from the sands (SAGD), and this process uses natural gas, which is a driver of profitability, but the relatively higher prices of oil recently has made these projects much more viable, and profitable. The area is attracting some of the largest CAPEX investment in N. America and we all know that on the back of CAPEX comes increased productivity. THAI, VAPEX, OrCrude and TSS-SAGD are newer technologies that use less natural gas and water. Nuclear power is being evaluated. With new technology comes more production and profitability. The ways to play the oil sands range from majors who have the oil sands as part of a larger portfolio, to junior companies that own reserves to energy companies to pipelines to oil service companies. There are even minerals companies that extract minerals for sale or for use in oil sands processes. The Canadian PM is in China this week and it is rumored a deal with the oil sands will be announced. Even if nothing is announced, there is massive investment going to the area and the production will double in a few years. These are massive reserves with no decline life! Output is light sweet crude.
Here is a short list (by no means definitive), many of these are undervalued, private companies not listed:
These are two of the original and are still the larger oil sands operations in the oil sands and are in major production: Suncor (SU) 10 bn bbl est recoverable, current production avg 228,000 bpd Syncrude: Consortium of COP/IMO/NXY/PCZ/Canadian Oil Sands Trust (COS.UN) and its leveraged closed end fund OST.UN 35 yr RLI, present value of USD72 as per www.mcdep.com, Syncrude avg 241,000 bld Athabasca Oil Sands Project: WTO.TO 20%/Shell 60%/Chevron 20% WTO.TO is the pure play in production, 22yr RLI, avg 142,000 bpd
COP-Surmont Project (200,000 bpd-under construction) IMO-Kearl, Cold Lake current production 119,000bpd DVN-Jackfish, Dover VAPEX (experimental technology) ECA-current production Christina Lake Thermal Project (SAGD) 5000bpd avg, Foster Creek (in-situ) 29,000bpd avg PCZ-Mackay River, 13,000bpd avg current prodn PBG.TO 1.3bn bbl bitumen, THAI experimental project
DCE.TO 84%/ERF.UN16%-DCE is a pure play, production in stages from 05 (600bpd), 2bn bbl est recoverable OPC.TO 50%/NXY 50%, OPC is a pure play, production in stages from 2007 (70000 bpd), 1.9 bn bbl est recoverable, recent NAV est C$29
HSE.TO: Husky oil is rumored to be talking to Sinopec, run by a rich Chinese magnate, the oil sands are part of their operations, but the est recoverable is 2.7bn bbl across Sunrise, Tucker and other leases, no oil sands production, Tucker will be 30,000 bpd in 07, Sunrise 50,000 bpd 2008 CNQ: 53000bpd from Primrose/Wolf in situ project (This company has a much larger oil sands project Horizon that does not seem to be factored into the share price, 6bn bbl recoverable, 110,000bpd from 2008, increasing to 232,000bpd by 2012)
UTS.TO: 100%WI, a speculative junior, 2.8bn bbl est recoverable, looking for a partner, talking to Sinopec CLL.TO: 100% WI, a smaller speculative junior, may be venturing it alone, 4 'pods', each yielding 65-80m bbl over 25 yrs CWPC.OB: speculative junior, trades in the US, reserve is shale oil but property, to the east of SU and other majors, has potentially massive reserves POU.TO: has spun out one trust (PMT.UN) and is in the process of spinning out another. Owns 64,000 acres of oil sands leases (in comparison, the DCE.TO land size is 50,000 acres) BVI.TO: heavy oil production on some properties funding oil sands projects, have built 50,000bpd pipeline, Seymour Schulich (NEM Chairperson, also own large COS.UN stake) is a major holder, est. recoverable 500m bbl NEM: they own some non-producing oil sands sections, 7650 acres
Pipelines: PIF.UN-Pembina trust TER.TO-Terasen ENF.UN Enbridge pipeline trust-Canadian assets (the new Gateway pipeline proposed to bring oil to the West Coast for delivery to Asia may not be part of the trust) IPL.UN Interpipeline Fund ENB
Mineral juniors: TIC.V-titanium & zircon from oil sands tailings, could contribute 10% titanium and 7% zircon global annual supply, the oil sands production process at Syncrude refines and concentrates metals BMD.V-limestone from tailings (used to scrub emissions for Kyoto, current supply trucked in)
Based on comments by analysts and the interest of China, I believe the Oil Sands will undergo a massive transformation over the next couple of years and I think the prices now may be last last we see where a company trades for less than book. These massive resource sizes are not to be ignored in a peak oil environment.
JMHO, and please do your own DD. FWIW, over 50% of my portfolio is in companies with oil sands reserves (ie not pipelines or service companies)
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