Canada holds 175 billion barrels of oil in reserves, the third highest right after Saudi Arabia and Venezuela. The Canadian oil sands account for 170 billion barrels of recoverable oil in the oil sands deposits of Northern Alberta. The figure rises to 315 billion barrels of potentially recoverable oil from the oil sands as extraction technologies improve and economic conditions remain robust. According to the International Energy Agency, demand for crude is expected to rise through 2035 fuelled mainly by increasing demand from Asia. Oil will remain an important part of the world energy landscape for years to come which bodes well for Canada as a stable and reliable producer.
Production from the oil sands is expected to exceed 3.7 million barrels of oil per day (bopd) by 2025 up from 1.6 million bopd in 2010. The robust economics for oil are expected to trigger more than $2 trillion dollars in investments building and maintaining the oil sands over the next 25 years creating thousands of jobs and returning billions of dollars in tax revenue. An oil sand is a mixture of sand, clay, water and bitumen (heavy oil) which is naturally occurring. Of the total reserves, about 80% of oil sands are recoverable through in-situ production leaving only 20% recoverable by mining as it is within 75 meters of the surface.
For the best exposure to oil through the Canada’s oil sands, we have selected 3 companies with significant oil sands production and a long term growth strategy that has the oil sands as a key component.
Canadian Oil Sands COS.TO $20.25 [-0.17]
Annual Dividend: $1.20
Canadian Oil Sands is a 100% pure oil sands player in our picks that has the highest yield among its peers at 5%. The company has a strong balance sheet and a reliable cash flow through its 36.74% interest in the Syncrude oil sands project in Northern Alberta. The Syncrude project has a production capacity of 350,000 bbl/d or 128,000 bbl/d of high quality light sweet oil net to the company. Canadian Oil Sands has no hedges at this time providing investors with direct leverage to oil prices. In a rising oil price environment, shareholders will also benefit from the company’s informal policy of paying out all free cash flow resulting in a higher dividend. The Syncrude project holds about 5 billion barrels of oil in proved plus probable reserves and another 5 billion barrels in contingent resources which supports growing production for decades.
Suncor Energy SU.TO $32.32 [-0.18]
Annual Dividend: $0.44
Suncor Energy has the largest reserves in the oil sands with over 25 billion barrels of oil which should fuel significant production growth for years to come. The oil sands accounts for 63% of its oil production with the balance coming from international assets and offshore operations in eastern Canada. Furthermore, Suncor Energy comes with a downstream integrated business model which helps the company smooth the impact of volatile Canadian crude differentials. Suncor outlined an oil sands focused long term growth strategy with the aim to increase production to more than 1 million boe/d by 2020, almost a double from current levels. Armed with a strong balance sheet and a proven track record, Suncor offers 2 advantages through its international production priced off Brent and its integrated operations by owning refineries and distribution networks which makes it the “safest” pick.
MEG Energy MEG.TO $26.25 [-0.60]
Annual Dividend: N/A
MEG Energy is a 100% pure oil sands company with over 900 net sections of oil sands leases in the southern Athabasca region of Alberta. The company is an intermediate producer of more than 26,000 bopd in 2011 and holds 2.1 billion barrels of 2P reserves and 3.8 billion barrels in contingent resources. MEG is pursuing an aggressive growth strategy which aims to multiply its oil sands production by 10 in the next decade bringing its production capacity to 260,000 bbls/d by 2020. This oil sands company enjoys a strong financial position with no debt and a management team with a proven track record through its experience in building their current production base at their Christina Lake project.
The 3 oil sands companies we just covered offer different ways of getting exposure to the oil sands. Candian Oil Sands is essentially a pure oil sands dividend play, Suncor Energy ‘s oil sands are a key component of its long term growth strategy but you also get a natural hedge to oil price differentials through its integrated downstream operations and international operations. While MEG is the most aggressive oil sands pure player, you get to carry timing, cost overruns and regulatory risks. Finally, oil prices constitute the biggest risk factor to any oil producer as a substantial and sustained drop in prices will have a major impact on capital spending and thus on growth.
Along its massive bitumen reserves, Alberta is the center of major energy marketers and utilities which can be found at albertaenergyproviders.com.
Disclaimer: the information presented above is only for informative purposes; it’s meant to serve as a starting point to carry your own due diligence. It is in no way an encouragement to buy or sell the aforementioned securities. If you find any errors in the data please do not hesitate to contact us.