Just a few years ago, companies from far and wide were pouring into the Canadian province of Alberta, looking to extract bitumen out of mixtures of black sand, clay, and water in what is known as the “Great White North”.
People betting on this industry’s growth rode the gravy train all the way to the bank as industry invested hundreds of billions of dollars into exploration, infrastructure, and production in the province.
Now fast forward to the present.
Believe it or not, we’re seeing an unexpected resurgence in the oil sands once again.
How is this happening, you ask?
Well for starters, oil prices have remained above the breakeven level of $80 a barrel level since October 2010. Oil sands operators can comfortably turn a profit in these current market conditions.
Also, oil sands investment is roaring back.
Just in 2012 alone, the Canadian Association of Petroleum Producers (CAPP) predicts that $20 billion will be spent on oil sands development.
Supermajors like Imperial Oil, Royal Dutch Shell, ExxonMobil and China’s PetroChina and CNOOC have gone full speed ahead on their expansion projects. Upon completion, their investments will top $50 billion dollars.
Production is on the rise as well.
The Canadian oil sands currently generates about 1.7 million barrels per day, but the CAPP estimates that number will rise to 2.2 million barrels by 2015 and 3.1 million by 2020.
One analyst from CIBC (Canadian Imperial Bank of Commerce) even thinks it can flow over 4.0 million barrels by 2020.
But what’s even more exciting is that a few new junior explorers have staked claims in the oil sands – creating ample opportunities for investors like you to enter the market without a huge investment.
Companies like BlackPearl Resources Inc. (TSX:PXX), Southern Pacific Resource Corp. (TSX:STP), and Perpetual Energy Inc. (TSX:PMT) are smaller companies with major upside – and definitely worth keeping your eye on.
BlackPearl Resources Inc. (TSX:PXX)
BlackPearl is focused on the development and production of heavy oil and oil sands assets in western Canada. The company currently has no debt, with $22 million in cash and a $115 million bank facility that’s undrawn. Management also owns 7% of the shares outstanding (12% fully diluted).
BlackPearl hit its 52-week low at the beginning of the summer, and is currently just above $3 per share.
Two of its properties are already producing approximately 10,000 bbl/day.
Its third property, Blackrod, is a steam-assisted gravity drainage project (SAGD) and has been submitted for commercial development approval. Once approved, the oil sands project will be constructed in three phases. Upon completion, Blackrod will have the capacity to produce up to 80,000 bbl/day.
Southern Pacific Resource Corp. (TSX:STP)
Southern Pacific is a low-cost developer and producer of bitumen and heavy oil using horizontal wells and SAGD. Its assets include over 240,000 net acres across Alberta and Saskatchewan. Management owns about 5% of the Company.
The Company recently entered an agreement with midstreamer Genesis Energy to handle and transport dilbit (a combination of diluents and bitumen) to refineries on the Gulf Coast via Genesis’ soon-to-be expanded terminal in Natchez, Mississippi.
First shipments are expected to roll out by the end of 2012 and could result in 20,000 additional rail car shipments in and out of Port of Natchez each year.
With production in the oil sands expanding and the uncertainty of pipeline access to the US in the coming years, STP’s partnership with Genesis will secure access and deliverability of its oil products to the markets down south.
Perpetual Energy Inc. (TSX:PMT)
Perpetual Energy’s business had been primarily concentrated in natural gas development and production. Due to the gas price volatility in recent years, PMT is now transitioning to a more diversified resource company that includes the oil sands.
Its Mannville oil sands project in Eastern Alberta is comprised of 123,000 net acres and over 200 potential drill locations. To date, 10 medium to heavy pools are in production and the region has expanded from 200 bbl/d in Q1 2011 to nearly 3,000 bbl/d in Q2 2012.
PMT also holds additional leases in the Eastern District. A recent resource assessment of the property recognized a best estimate of 1,157 MMbbl of discovered bitumen initially in place and a best estimate of 2,079 MMbbl of undiscovered bitumen initially in place, primarily at sites Panny and Liege. The best estimate contingent resource and additional prospective resource is 212 MMbbl and 417 MMbbl respectively.
With natural gas prices impacting the Perpetual’s bottom line and stock price, it’s currently trading at a discount.
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