Playing with sandcastles?
Aug. 20th, 2007 by AlCanadian oil sands stock bargains?
The Canadian Athabasca Oil sands, home to more than 300 billion barrels of oil trapped in the unique sands of the region, are currently producing about 1 million barrels of oil daily, and that number is expected to climb up to 2 million by next year, and climb substantially from there, with 2015 estimates calling for a daily production of 15 million barrels of oil per day.
The problem with the oil trapped in the sands is that the man power and expense required for the extraction of a barrel of oil is hugely more costly than that commonly seen with underground oil reservoirs. To compare the two, a barrel of oil produced in Saudi Arabia costs roughly $2 to produce, and an oil sands produced barrel is $15 or higher. Until very recently, when oil prices started consistently topping $40 a barrel, the oil sands were simply not a profitable place to extract the oil needed…but that has since changed, and US politicians have recently been talking up the possibility of getting most of the oil they need from their political ally to the north.
So what does this mean for investors, and is it a good time to jump on oil sands stock bargains? Maybe, although there are still a number of problems with the technology required to increase the daily yield up to an acceptable level, and one of the biggest drawbacks of the proposed extraction plan is both the massive amounts of natural gas and water required to heat and clean the sands in the extraction of the oil embedded within. It has been estimated that it requires 70 barrels of energy equivalent natural gas, just to get 100 barrels of crude ready for market. This has some environmentalists fuming, and wondering why we are burning clean natural gas at an alarming rate to extract dirty crude oil!
The political and corporate will exists to transform these oil sands regions into the domestic oil solutions for the next century, and as such stocks on the periphery of the oil sands industry seem sure to be a strong long range performer. Transportation and industrial support corporations in the province are sure to benefit.
But the biggest long term earners are likely to be any companies with access to the sands, and these companies have already seen price explosions, with a lot of room left before they hit their ceiling. The average oil sands stock has more than doubled in value over the last couple of years, and as infrastructures and development money continues to pour in, yields seem sure to grow.
Look at natural gas, oils sands stocks, and anything else needed to support the huge workforce that going to be spending a lot of cold winter nights in northern Alberta.
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