And It’s Just Getting Started
Few investors realize that one sector of the heavy oil market is the most profitable oil in all of North America – it’s called cold flow heavy oil. Think of it as light heavy oil, thick and gooey enough that it needs a pump to get out of the ground, but no so thick that it needs expensive heating to make it flow – hence the name cold flow.
And the recent BP disaster in the Gulf of Mexico will only help Canadian heavy oil prices. If production from the Gulf is slowly curtailed, US refineries will look to Canada even more for supply.
When I say cold flow heavy oil is the most profitable, I mean that producers get more dollars of profit out for every dollar they put in to get the oil, than from other types of oil. For every dollar producers put in the ground to get the oil, they get anywhere from $3-$7 back (or more) – compared to $2-$4 for most light oil, generally speaking.
(This is called the Recycle Ratio – the netback over the finding and development costs. Investors should always ask the management teams what their recycle ratio is on their production!)
This profitability is due to two factors:
- The heavy oil in Canada is shallow so it doesn’t cost much to get out
- US refineries love Canadian crude as Mexico and Venezuela heavy oil production declines, and that strong demand – even before BP’s disaster – is keeping heavy oil prices in Canada strong
And Canada has more of this oil than anyone else in the world. There is thought to be enough heavy oil and bitumen in North America to rival Saudi Arabia – estimated at more than three Trillion barrels1. Now, cold flow oil is only a small part of this number, but the graphic below gives investors a sense of the immense value in the ground…
Yet only a few junior and intermediate producers focus on cold flow heavy oil. I think that will change.
Like liquid rich or wet gas stocks I wrote about earlier this month, this sector of the energy market is not well understood or recognized by retail investors. But unlike those stocks, heavy oil stocks are not unloved. The analysts and funds have discovered their high profitability, and these stocks are rarely cheap on a valuation basis. But they do get rewarded quickly for their growth.
As well, new technology is continually lowering costs and increasing profit margins; even a small per barrel savings will leverage into huge profits because of the colossal size of these deposits.
Investors will see many new opportunities for profit for many years as this massive Canadian resource gets developed.
My subscribers just received a 12 page report detailing the opportunity, along with three junior producers who are growing their profitable heavy oil production quickly. You can subscribe HERE
About the Author
Hello, this is Keith Schaefer, editor and publisher of The Oil & Gas Investments Bulletin. I started my subscription service in mid-2009 because I could see there was no place where retail investors could go to easily find which oil and gas companies were creating huge shareholder wealth by using exciting new technologies, such as horizontal drilling, fracing and 3D seismic.
These companies are increasing cash flows – and stock prices – by finding ways to get more oil and gas out of the ground. And junior and intermediate producers – $2-$20 stocks – are leading the way.
I find the leaders in the new plays that are using these technologies. My research is finding higher and higher flow rates from new wells in old formations as management teams fine tune their use of these new technologies.
It’s amazing how technology is lowering operating costs – and increasing profits – for many publicly traded energy companies.
I find the ones who have the capital and the knowledge to be the fastest growing in their area – this usually means they have a large undeveloped land position in an area where either production costs are very low or production rates can be very high. They are covered by several research analysts, so there is research support and institutional money flow behind them.
And my subscribers and myself are making money from my research. I eat my own cooking and buy all the stocks I research for subscribers.