A Big Deal -The Loonie……and Horizontal Drilling

Posted by Michael Berry Ph.D

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Today’s Notes:

1. The Loonie
2. Colombia’s Llanos Basin


It is not only the Canadian currency we focus on this AM; not at all. In addition there is another big Chinese investment in Canada. Yesterday Sinopec and Conoco announced a big deal. COP is the third-largest integrated energy company in the United States, based on market capitalization, oil and natural gas reserves; the Texas based company has 2009 assets of $153 billion and revenues of $149 billion. The US oil company is trying to delver – reduce its debt load by $10 billion. So it sold its 9.03% stake in the Syncrude’s oil sands projects in Alberta’s Fort McMurray area for $4.65 billion.  Conoco, not unlike the United States government, has been on a buying spree that had added so much debt to the balance sheet the company could no longer manage.  So they are in the process of selling assets.  The good news for Conoco is that the Chinese company stepped in a actually paid up for the 9% stake in Syncrude.

The Syncrude joint venture has, over the past 30 years, generated two billion barrels of oil. The Canadian Oil Sands Trust is the largest equity holder of Syncrude, with a 36.74% stake. Other stakeholders include Imperial Oil Resources (25%), Mocal Energy (5%), Murphy Oil (5%), Nexen Oil Sands Partnership (7.23%) and Suncor (12%). By the end of the decade, Syncrude expects to generate more than 425,000 barrels per day. The reserves are 4.9 billion barrels.  The Sinopec transaction will require regulatory approval from the Canadian governmental authorities. This should not be a problem as the company is purchasing a minority position.  The trends are clear. China is becoming a much larger player in the Canadian natural resource scene. There is growing global demand for Canada’s oil sands just as there is global demand for Canada’s nickel and uranium resources.   

So this AM the Loonie has moved above par once again – as I write. This must irritate the solons in Ontario very much but it is the inevitable legacy of commodity countries such as Canada, Australia and Brazil.  We have been long time proponents of the Canadian currency even in its fiat emanation.  This is not the first crossing of the Rubicon for the Loonie. As you can see the Loonie soared to a premium in October 2007 and remained at or above par till Secretary Paulson caused the US short dollar covering.  It is the legacy of de facto commodity backing that we are witnessing in a developed country with a high standard of life and a relatively small population. 

The implications of this particular move by China are quite clear.  The oil sands will be developed, if not with American capital then with American capital recycled by the Chinese and other emerging markets. Company’s like Oil Sands Quest   (BQI AMEX) that I have followed for a long time will find interest in their Saskatchewan oil sands resources.  American companies seem to be shying away at a time when global resource nationalism is picking up steam and Canada is one of the few really friendly and capable jurisdictions to the US.

….read pages 2 thru 5 HERE