Canadian Oil Sands Revisited

Greetings Rogue Investors,

About six months ago, I predicted that oil companies might be some of the big financial winners for the next 10 to 15 years. My favorite area for investment was oil sand deposits, once a long neglected source of crude oil in Canada that appeared ripe for opportunity. My specific recommendation on December 21, 2004 was Suncor (SU), one of the top Canadian oil sand companies. Since my recommendation in SU, this stock has risen 60 percent in just over six months, crushing the Dow, S&P 500 and the Nasdaq.

I hope you acted on this recommendation.

Should you sell now?

Hardly.

Over the next 10 years, I think this stock will rise another 5 or 10 fold from here. Suncor is sitting on over 12 billion barrels of oil and they are the number one player in the oil sands market. I predict this company's total market value will exceed 150 billion dollars before this energy boom is over.

In fact, my prediction is just the beginning. As a geologist, I am very familiar with oil boom and bust cycles (see past newsletter). If I am correct, we are at the beginning of a 15-year cycle of high oil prices. World demand has finally caught up with supply and China, India and many other emerging markets are now starting to put pressure on already depleted existing reserves. It also doesn't help that few new refineries or pipelines have been built over the last 20 years.

Where do we go from here?

I think $100 per barrel of oil is likely before the cycle ends; and when it ends, oil prices will never return to anything less than $40 to $50 per barrel. At prices above $30 per barrel, the oil sand deposits of Canada are a gold mine. As technology has advanced, the cost of producing crude oil from these oil sand deposits has fallen to $10 to $15 per barrel, with many oil sand companies sitting on billions of barrels of crude oil. In fact, in my 15 years of investing, I have never seen companies with so much potential value selling for so little.

That is why in this newsletter I want to talk about some even more undiscovered oil sand companies that could deliver incredible returns over the next 5 to 10 years.

Here are some examples broken down into large cap and small cap, based on their market value (the total value of the company as derived by multiplying the share price by the total number of shares outstanding).

Imperial Oil Company (IMO): large cap company. IMO has a current market cap of about 30 billion dollars, and behind Suncor they are the second largest producer of oil sand deposits in the world. They also own oil deposits in many other parts of the world. IMO's oil sand reserves could top Suncor's because they have over 450,000 acres of oil sand deposits that have not been developed yet. Subtract a conservative $15 per barrel production cost from the current cost of oil at $60 per barrel, and you have a company that could have a market cap of 200 billion dollars in 10 years, without oil prices rising any more. Here is their website: http://www.imperialoil.ca/Canada-English/HomePage.asp

Canadian West Petroleum Corporation (CWPC): small cap company. There is more risk in this investment, but it could be a much undervalued oil sand stock. Currently only a very small company with a total market cap of about 26 million dollars (yes, only 26 million), CWPC owns 50% of the rights to 850,000 acres of oil sands in western Saskatchewan. CWPC is currently drilling test holes in this acreage to confirm oil sand characteristics, so the risk is greater than the other oil sand companies. The upside could be huge. CWPC is also working on a project to develop oil-based products from oil shales at another oil property they own. Until these reserves are proven, I do not recommend investing money in this company that you cannot afford to lose. Here is their website: http://www.canwestpetroleum.com/s/Home.asp

As always, I only provide recommendations for companies that I am investing in myself. In addition to Suncor, I am personally invested in the two companies noted above.

I am also still researching this area because information is hard to find and many oil sand companies are only traded on the Toronto Stock Exchange. So I recommend you stay tuned in over the coming months as I update you on this emerging market that could become the Saudi Arabia of the future.

Happy investing,

Bryan Rundell