Bakken Oilfields to Out Perform Canadian Oil Sands

Bakken Oilfield Producers likely to be much more profitable than Oil Sands

The Bakken Oilfields make up a gigantic oil formation with over 4.3 billion barrels of recoverable oil. This oil fields stretch across southeaster Saskatchewan, North Dakota, and Montana and was not technically or economically accessible in the past; however, new technologies have made this massive oil field accessible in a much more environmentally friendly way than the oil sands of Alberta.

The Oil Sands in Alberta require energy intensive extraction methods, but not the Bakken Oil fields. The Oil in the Bakken’s can be extracted without this energy intensive process making it much more economical and ethical compared to oil sands extraction and refinement.

The new technology is called ‘horizontal multistage drilling’ and it does exactly what it sounds like: breaks rock along the length of a well to enable the oil to flow. This technology is expected to produce some of the highest returns in the oil and gas sector throughout not only Canada, but the world.

Does anyone remember President Obama’s statements about the negative side of the Canadian Oil Sands? He was very quick to highlight the negative environmental consequences to this type of oil extraction. Did you also know that President Obama believes the Bakken Oil Fields are a much better alternative?

On Wednesday, August 25, 2009 President Obama stated he“believes that drilling in the Bakken Shale is an important development...” because of the substantial amount of oil that is estimated to be recoverable.

This may be hearsay at this point, but rumblings can be heard that President Obama plans to pass legislation that would put a premium on Bakken Oil versus oil sands oil. The implications of such hearsay could result in explosive stock performance in any of the Bakken Oil Field producers. Just remember; where there’s smoke, there is normally fire.

Here's a look at where the Bakken Oil Fields are:

So who are the big Bakken Oil Producers in Canada?

Number one is Crescent Point (TSE:CPG), which first acquired Bakken lands in 2006.

Number two is Petrobakken, a newly formed company through the merger of Petrobank (TSE:PBG) and Tristar (TSE:TOG). Petrobakken has become one of the largest pure-play unconventional oil producers in Canada.

So what do these stocks look like?

Crescent Point (TSE:CPG) is currently trading just off its 52 week high around $37. The 52 week high was $38.23 and the 52 week low was $18.13. The current dividend yield is a healthy 7.2% and the average analyst rating is a buy.

Petrobank (TSE:PBG) is currently trading at $42.51. The 52 week high was $47.20 and the 52 week low was $16.26. There is no current dividend, but the average analyst rating is a strong buy. The merger with Tristar is coming soon.

Tristar (TSE:TOG) is currently trading just at $14.47. The 52 week high was $17.76 and the 52 week low was $6.90. The average analyst rating was a buy and the merger is coming down the pipe.

Look for these stocks to outperform their counter parts in the oil sands, especially if the rumours turn out true.

Top Canadian Oil Investments for the Long Term

Top 6 Oil and Gas Investments in Canada

   The best way to invest in the oil sands of Alberta is to buy one of the many Canadian Oil Sands companies. There are so many oil and gas companies to choose from, so an investor needs to find a way to distinguish the stars from the dogs.

   Unless you have exceptionally deep pockets like PetroChina you are not going to be able to limit your risk in the oil sands by simply throwing money at it. For example, on August 31, 2009 PetroChina spent $1.9 billion to acquire a working interest in two of Athabasca Oil Sands Corp’s projects.

   The Oilsands are extremely capital intensive long term projects and are difficult to finance, especially with the restrictive amount of capital currently available in the stock market and bonds market. So, given that I currently have a portfolio size somewhere within the range of Joe Bum and Warren Buffet I will be focused on safety first and Black Gold Home Runs second.

   Before provide the top 6 oil and gas investments that I would consider personally, here is a list of 49 oil and gas related investments traded in Canada:

Addax Petroleum - [AXC.TO]
Alter NRG - [NRG.TO]
ARC Energy Trust - [AET-UN.TO]
Bankers Petroleum Ltd. - [BNK.TO]
Baytex Energy Trust - [BTE.TO-UN]
Birchcliff Energy Ltd - [BIR.TO]
Black Diamond Income Fund - [BDI-UN.TO]
Bonavista Energy Trust - [BNP-UN.TO]
Breaker Energy - [WAV.V]
Calfrac Well Services - [CFW.TO]
Canadian Natural Resources Ltd - [CNQ]
Canadian Oil Sands Trust - [COS-UN.TO]
Cinch Energy Corp - [CNH.V]
Cirrus Energy - [CYR.V]
Compton Petroleum - [CMT.TO]
Connacher Oil and Gas - [CLL.TO]
Cresent Point Energy - [CPG.TO]
Crew Energy Inc. - [CR.TO]
Crocotta Energy Inc. - [CTA.TO]
Daylight Resources Trust - [DAY-UN.TO]
Ember Resources Inc - [EBR.TO]
EnCana Corporation - [ECA.TO]
Enerplus Resources Fund - [ERF.TO]
Ensign Energy Services - [ESI.TO]
Essential Energy Services Trust - [ESN-UN.TO]
Fairborne Energy Inc. - [FEL.TO]
Harvest Energy Trust - [HTE.TO-UN]
Ivanhoe Energy Inc - [IE.TO]
Mullen Group Ltd. - [MTL.TO]
NAL Oil & Gas Trust - [NAE-UN.TO]
Nexen Energy - [NXY.TO]
Niko Resources Ltd. - [NKO.TO]
North Peace Energy Inc - [NPE.V]
Open Range Energy - [ONR.TO]
OPTI Canada - [OPC.TO]
Orleans Energy - [OEX.TO]
Pacific Rubiales Energy Corp. - [PRE.TO]
Paramount Energy Trust - [PMT-UN.TO]
Penn West Energy Trust - [PWT.TO-UN]
Petro Andina Resources - [PAR.TO]
Petro Bank Energy and Resources [PBG]
Petrobank Energy and Resources Ltd. - [PBG.TO]
Petrolifera Petroleum Ltd. - [PDP.TO]
Petrominerales Ltd. - [PMG.TO]
Progress Energy Resources Corp. - [PRQ.TO]
Savanna Energy Services - [SVY.TO]
Stoneham Drilling Trust - [SDG-UN.TO]
Suncor Energy Inc. - [SU.TO]
Talisman Energy Inc. - [TLM.TO]

   From this list my top 6 Oil and Gas Investments in Canada are the following:

1. Black Diamond Income Fund – [BDI-UN.TO]

2. Connacher Oil and Gas – [CLL.TO]

3. EnCana Corporation – [ECA.TO]

4. Paramount Energy Trust – [PMT-UN.TO]

5. Petro Andina Resources – [PAR.TO]

6. Talisman Energy Inc. – [TLM.TO]

   While the recession may be coming to an end according to the Bank of Canada, there is still likely to be a lot of volatility in the stock market. If you do consider investing in one of these companies do not do so blindly. Do some research! I usually at least take a look at news updates in Google finance, skim through a few analysts updates, and plot the long term, medium term and short term trend lines to get an idea of where I may want to enter and exit in the future.

How to Profit: Oil and Gas Crack Spread

Oil and Gas Crack Spread: How to Profit from an unrealistic Spread.

Spread out of whack: Natural Gas Crack Spread

When you hear oil and gas futures traders talking about the crack spread what they really mean is the difference between the price of crude oil and petroleum products extracted from it. The ‘Crack’ can be though of as cracking raw oil into the various components that it will become when processed: gasoline, kerosene, diesel, heating oil, jet fuel, asphalt, etc.

Normally, futures traders will focus on the crack spread for gasoline and heating oil. During the winter the focus tends to be on the heating oil crack spread while the remainder of the years the focus tends to be on the gasoline crack spread.

Large Oil refiners and oil and gas companies may trade crack spreads to hedge price risks for the products that they offer while speculators will try and predict where the market is heading and profit from the change in oil vs gas/heating old differentials.

Speculating on the various crack spreads is for more sophisticated investors; however, it does not need to be a difficult thing. Many of the large commodities exchanges have simplified the trades needed to perform such strategies. The NYMEX for example offers virtual crack spread futures by combining a basket of underlying futures contracts that correspond to the various oil production outputs. With the basket futures you only need a single transaction to organize a trade as opposed to buying and selling a full basket of futures yourself to participate.

So what should I be looking for to make money?

When crude oil rises:

If other products appear to be flat or more up in price to a lessor degree then the crack spread will be diverging. These spreads tend to remain within a range that could be correspondent to actual costs associated with their production. A large jump in oil prices without a corresponding large jump in gasoline prices for example, throws the spread outside the comfort zone. As a speculator you are look to spot that divergence and profit from it.

How to profit: When there is a divergence as above, to profit you would shot sell the crude futures contract and buy the gasoline or heating oil futures contract with the same expiry to keep things simple.

When the price of oil falls and the crack spread narrows:

Under this scenario you would just do the opposite: sell the crude oil futures contract and buy the gasoline or heating oil futures contract. Again, keep things simply and just use the same expiry dates.

The Basic Rule of Thumb: Sell the overpriced product and Buy the under priced product.

If you do not understand futures they you can also perform these trades using options

Google Earth Investment Application:

Investment Opportunities in Canada

Canadian Oil

According to the Emergy Information Administration, Canada is one of the worlds largest produces and exporters of energy and has considerable natural resources; the country is a net exporter of oil, natural gas, coal, electricity, etc. Since 1980, Canada's total energy production has increased by 81%, while total energy consumption only increased by 40%. The majority of this excess capacity makes its way to the U.S. as Canada's largest trading partner. Consistently, Canada is the largest source for U.S. oil, natural gas, and electricity imports. This trend of energy export will only continue to rise as world energy demand increase.

Canadian Oil

As of January 2007, according to Oil and Gas Journal (OGJ), Canada reported 179.2 billion barrels of proven oil reserves; Saudi Arabia is the only country reporting more. The bulk of these reserves are oil sands deposits in Alberta where there are outstanding investment opportunities.

The oil sector is privatized in Canada and has undergone consolidation in recent years. There are a number of Key companies invested in this area: Imperial Oil (majority owned by Exxon Mobil), EnCana (Canada’s largest independent upstream operator), Talisman Energy, Suncor, EOG Resources, Husky Energy, and Apache Canada.

Oil Sands producers have also attracted increasing attention from Asian oil companies looking to satisfy growing demand in their countries. This has included major investments from Korean National Oil Corporation, China’s Sinopec and China National Offshore Oil Corporation.

With higher oil prices, it has become increasingly profitable to invest in oil sands projects and as a result these vast reserves are now being developed.


When I first started researching oil companies in Canada I contacted my investment advisor and he helped me focus my search to find companies that would fit my portfolio best. He also helped direct my search to other areas within the oil and gas industry in Canada including Offshore projects, Pipelines, Oil Services, and Refining.

Offshore Oil Projects

These are located off the Atlantic coastline and the major players are Petro-Canada, and Husky Energy. Industry experts also believe there could be sizable oil and natural gas deposits on the Pacific coast; however, there is currently a federal ban on offshore oil activities in the Pacific Ocean region.

Pipelines

There is an extensive pipeline system to transport western Canadian oil to domestic and U.S. markets. Canada has two major pipeline operators: Enbridge, and Kinder Morgan. Enbridge operates a 9000 mile network of pipelines and terminals delivering oil from Alberta to Eastern Canada and the U.S. Great Lakes region, while Kinder Morgan operates the Trans Mountain Pipe Line delivering oil from Alberta to refineries and terminals in Vancouver, British Columbia. These companies also operate extensive pipelines for export to the U.S. and there is demand for growth of these lines.

Anyone interested in investing in this industry should consult an investment professional. Here are some useful links to research on the companies discusses in this posting:



Apache Corporation
Enbridge
Encana Energy
EOG Resources
Husky Energy
Imperial Oil
Kinder Morgan
Petro-Canada
Suncor
Talisman Energy