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Ride the Canadian Heavy Oil Train to Big Profits

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July 03, 2014 – Comments (3) | RELATED TICKERS: CXUSF

I have been conducting quite a bit of research about the Canadian oilsands lately.  While it's probably not the best thing for the environment, one way or another growth in production of the oil sands is going to happen.  The Canadian Association of Petroleum Producers forecasts that total Canadian oilsands production will more than double from its current 2.32 million barrels per day to 5.45 million barrels daily by 2030.

When this growth does happen, that oil is going to have to go someplace to get refined.  Significant political opposition to the construction of new pipelines to Western Canada and the Keystone XL leave only one way for producers to get their heavy oil product to market, rail.

This morning I came across another very thorough article on the business of transporting heavy crude by rail from Canada:

Heavyweight Contender

http://www.oilweek.com/index.php/oil-and-gas-news/business/517-heavyweight-contender

The stock that I mentioned being long to play this trend, Canesux Corp. (CXUSF), got dinnged today when it raised its total cost estimate for the terminal expansion that it is undergoing. They're really done a terrible job at managing investor expectations for the project. It seems as though with the tight labor market in Canada that they should have seen this coming. They should under-promise and over-deliver, whey they seem to always do the opposite. To me, all their poor management of expectations does is create interesting entry points for the stock from time to time. The project will eventually be completed and when it does Canexus will be in a very strong position to make a lot of money.

On a somewhat unrelated note, other than the fact that I am talking about a Canadian company, I suspect that we may be seeing the same thing happening with Extendicare (EXETF) right now. For some reason, Extendicare management pinned itself down to a June date to have firm news about the completion of the divestiture of its U.S. operations. They didn't have to do that. Givernment investigations and negotiations often take much longer than one would think. As someone who already has a decent sized position in Extendicare I hope that I am wrong, but I suspect that we are being set up for a drop in the stock when the company announces Q2 earnings and there isn't some sort of firm resolution to the situation. If that were to happen, I probably would add to my position again on a significant drop in the stock and become overweight. Like the Canexus terminal situation I believe that the Extendicare U.S. operations will eventually be divested one way or another and that patient investors will be rewarded.

Anyhow, here's the Canexus press release:

Canexus Corporation Appoints Douglas Wonnacott as President and CEO and Provides NATO Unit Train Construction Update

http://www.marketwatch.com/story/canexus-corporation-appoints-douglas-wonnacott-as-president-and-ceo-and-provides-nato-unit-train-construction-update-2014-07-02-19173641

As I mentioned previously, oilsands are not exactly all that environmentally friendly.  While I am not advocating investing directly in oilsand producers, investing in the transporation of the product could bother some people ethically.  I'm torn on the issue.  It's not like I'm investing in disgusting tobacco that has a direct link to killing people.  Oilsands provides a fairly local source for oil in a country that we are friendly with.  Increasing oil exports from Canada might actually enable the U.S. to stop meddling so much in other countries that we get oil from now, which would save lives.  I think that I can ease my conscience some by simlutaneously investing in companies that are involved in renewable energy, particularly solar as I have with SUNE, NEE and ABGB.

Thanks for reading everyone.  Have a happy and safe 4th of July weekend!

Jason

3 Comments – Post Your Own

#1) On July 03, 2014 at 12:06 PM, StoneyTerp12 (48.83) wrote:

Jason,

I love your posts and I'm happy you're active again on Caps.  Your posts provide some great food for thought and I enjoy reading them.  Thanks!

 Kevin

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#2) On July 03, 2014 at 3:08 PM, TMFDeej (99.27) wrote:

Thanks so much for the kind words Kevin.  I really appreciate it.  It's nice to know that people are reading.

Have a great 4th of July weekend!

Jason

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#3) On July 11, 2014 at 4:23 PM, TMFDeej (99.27) wrote:

It's about time an analyst woke up and upgraded Canexus. It's up over 6% today. The selling was completely overdone. I actually am glad that the selloff happened though because I used it to double my position. It would have been even more, but alas my order yesterday never filled. The U.S. OTC listing, CXUSF, is one illiquid stock.

Yes the project keeps going way over budget, but they're so close to the finish line and some of that is on previous project managers and it shows just how valuable the rail terminal will be because of the labor shortage in Canada. This thing yields a sustainable 9% for Pete's sake :).

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