Five energy stocks and Saskatchewan’s big secret
These are turbulent times in the world of oil, and one Canadian analyst points to the prairies, where five energy stocks are drilling for profits.
It hasn’t been a good week for oil.
There’s certainly no point in trying to figure out when — if ever – the oil spill in the Gulf of Mexico will be tamed.
And there’s even less point in trying to figure out where the price of crude oil will head in the next few months.
Yet there is a point in talking about oil. Canadian oil.
In this case, the oil in question is not the bitumen coming from Alberta’s oil sands. It’s prairie oil, from Saskatchewan.
Mr. David Chapman calls it “Canada’s oil secret,” but the secret won’t be under wraps for very long. You can bet that it’s been a hot topic of conversation in the boardrooms and clubs of Calgary for a long time.
Writing in Investor's Digest of Canada, this investment adviser and technical strategist assesses the state of oil in the wake of recent events.
Then he turns to Saskatchewan to see where its oil and gas reserves fit into the big picture.
Not least, he profiles the five stocks that have the most to gain from the energy boom on the prairies.
The big picture
The vast and apparently intractable oil spill in the Gulf of Mexico continues to dominate the headlines. We have already dealt with its effects on the U.S. companies involved (see Daily Buy-Sell Adviser, May 28).
Events are moving fast, even as the oil slick approaches Alabama and Mississippi. The moratorium on new drilling in the Gulf has been extended to six months.
Meanwhile, in this capricious market, some energy shares that plunged in the last few days have moved back up today, as has the price of crude.
But that’s just the immediate fallout. What is the big picture in energy?
“While many of the world’s major fields now have falling production, the world is not running out of oil,” states Mr. Chapman. It’s just that so much of the retrievable oil in the world now lies in environmentally sensitive areas like the Gulf of Mexico and off the Arctic coast.
The same can be said for another resource even closer to home. There is potential for “huge environmental damage” in the oil sands. The disaster in the Gulf can only bring heavier scrutiny to the companies doing business in the region.
Many of the world’s remaining reserves lie in the Middle East (which is going through yet another bout of unrest) or around the Caspian Sea. Almost all routes leading from the Caspian oilfields run through politically sensitive ground, too.
And then there’s Saskatchewan.
Canada’s second largest
Oil and gas reserves in Saskatchewan may not be enough to replace potential offshore reserves, says Mr. Chapman, but they are “substantial and growing.”
The latest official figures are six billion barrels of oil and 891 million cubic feet of gas. But these totals are old, from 2008 and 2006, respectively. Some estimates now put the oil at over 20 billion barrels.
Saskatchewan is now Canada’s second largest producer of oil behind Alberta. Saskatchewan has heavy, light and medium oil, the analyst explains, and new technologies are cranking up the recovery of heavy oil.
In contrast to the oil sands, firms in Saskatchewan are using both vertical and horizontal drilling. “The horizontal drilling helps in bringing more productive wells to the surface.”
There is also a new “Thai” process, adds Mr. Chapman, “a heel-to-toe injection that uses underground injection to achieve a higher heavy oil recovery rate. The process is environmentally friendly.”
Five firms for four areas
There are four main areas for oil and gas in Saskatchewan — Lloydminster for oil and gas and especially heavy oil; Kindersley for heavy oil and gas; Swift Current for gas; and Estevan, mostly for oil.
And there are five firms covering these four areas, this analyst reports in Investor's Digest of Canada.
Petrobank Energy and Reserves (TSX-PBG) is an oil and natural gas exploration and production firm that focuses on the increasingly famous Bakken fields in southeast Saskatchewan (Esteven) and northwestern Alberta. Down from its May high (as most energy stocks have been in recent weeks), it trades at $42.74 and pays no dividend.
Crescent Point Energy (TSX-CPG) converted back from income trust to corporation almost a year ago and has maintained its yearly dividend at $2.76, for a yield of 7.2 per cent. It works largely in Estevan as well, and trades at $37.82.
Husky Energy (TSX-HSE) has a heavy oil plant in the Lloydminster, just one of many projects it has in Canada and internationally. It is trading at $26.14 and yields 4.6 per cent on its $1.20 dividend.
Penn West Energy Trust (TSX-PWT.UN), handles both oil and natural gas around Kindersley. That’s just a part of its portfolio — it’s North America’s largest oil and gas royalty trust. It recently hooked up with China Investment Corporation to develop bitumen assets near Peace River. It trades at $20.32 and yields 9 per cent on its $1.80 distribution.
PetroBakken Energy (TSX-PBN) is concentrating on light oil production in the Bakken fields near Estevan. It is trading at $23.00 and yielding 4.2 per cent on its dividend of $0.96.
In the Gulf of Mexico, there’s a bad story that never seems to end. But in Saskatchewan, says this analyst, there’s a good story that’s really just beginning.
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