Sand Innapropriate For The Beach But Not Your Portfolio
Anyone interested in the Oil complex realized all oil companies aren't created equal. For example Exploration and Deep Water Driiling tend to be the most lucrative but come with their share of risks. Refiners, quite frankly are a joke (at least the ones who's primary source of revenue is derived via this method) solely due to the fact, the volatility and bi-polar behavoir make the crack spread (cost of refining less what they sell the end product) determines their operating income. But I have recently been accumulating 4 various canadian oil trusts that have 1 thiing in common, They have exposure of varying degrees to the oil sands.
For those unfamiliar with this, Canada has an enormous reserve of oil but there isone problem, the oil is mixed iwth sand thus increasingthe cost of producing or in their case extracting. They sport lower operating margins which is definelty reflected in the market price as on average, they tend to be profitable only as long as oil > $45 a barrel. If your in the camp I'm in, the inflationary one that is, oil is going much much higher. But some of this tends to be priced in our everyday run of the mill oil stocks, which has caused me to focus on this niche market.
Canadian oil sands trusts- At $75 a barrel, their NAV is in the neighborhood of $45-50 , a ratherlarge discount to the current $22 it is currently trading at. They have a very high reserve base, and has a 37% interest in SYNACRUDE, which will be the largest oil sands project taken on. COS, along with 6 other oil comanies have made tremendous progress, with expextations for this to be online in 2010.
What does this mean- Well for starters this project along will have a 45-50 year life with production by COS alone of 20-23B barrels of oil. This will increase their reserve base substancially, along with others in the project.
This is the pure play on the sands but a host of other candian oil companies have some exposure to the sands. Pennwest, Imperial, Suncor, Canadian Natural Resources and others. I preferred to keep this brief as I think it is important for individuals to believe a guy posting a random financial blog. It is worth checking out, as this niche in the oil patch is dropped by the waistside until oil goes through $100.