It's getting rough out there for oil companies.

Take the ongoing spat between Exxon Mobil and Venezuela, for example. After nationalizing Venezuela's oil resources in 2007, Chavez effectively gave foreign oil companies the boot. Once the privately run oil fields were nationalized, the government was able to take over several large oil projects. Some of the big oil companies (Exxon included) decided to put up a fight.

I'll confess, I've had a difficult time picking which side to cheer for.

Last month Exxon was awarded a court order that froze about $12 billion worth of Venezuelan assets. The decision must have made steam shoot out of Chavez's ears. Angered by the order, Chavez quickly vowed to cut off oil supplies to the U.S. Even if it was an empty threat, the U.S. decided to stay out of the matter. Rather than completely stopping oil sales to the U.S., Venezuela ended up only cutting sales to Exxon.

Not to be outdone, Chavez landed a knock-out punch yesterday when the British court lifted the court order. Even though Exxon can still appeal the decision, they shouldn't get their hopes up.

That's just one instance of how protective countries are getting over their national resources. In fact, all you need to do is just ask Royal Dutch Shell. Last April Shell was forced give up its controlling stake in Russia's Sakhalin-2 venture. If you're counting, that amounts to approximately 400 million barrels of proven oil reserves.

That's not the only bad news for oil producers. . .

• Field discoveries over the last five decades are much smaller.

• Nearly all of those massive older fields have entered into depletion.

• Almost half of our larger oil fields are in decline.

• Many experts believe global production will never reach over 93 million barrels per day.

Now take into account the rising consumption levels around the world. I'm not just talking about China and India, either. As domestic consumption in the largest oil producing countries (Saudi Arabia and Iran, for example) increases, less and less of their oil will be available for export.

Earlier this week I mentioned that the U.S. is already trying to wean itself off of Middle Eastern oil.

A Flood of Canadian Oil in Production

With the threat of countries nationalizing their resources, big oil companies are having a harder time replacing their reserves. Many of them, however, are looking north to the vast Canadian resources. And the last time I checked, Canada's agenda wasn't to pull a Chavez and snatch its oil resources from under producers' feet.

When we're talking about Canadian crude flowing to the U.S., there are two specific places investors should focus on. Over the next few years, nearly three million barrels of oil per day from the Alberta oil sands will be flowing into the U.S. (Canada estimates production will reach 2.7 million barrels per day by 2015). Granted, extracting and upgrading the heavy bitumen is an energy-intensive process. But as technology improves, that process will become more efficient. Believe me, if companies were able to stay around throughout $20/bbl oil, they'll thrive when oil hits $120 a barrel.

Remember Shell's trouble with Russia? Not surprisingly, the only way Shell was able offset the loss of its Sakhalin-2 reserves was by gaining assets in the Canadian oil sands.

But Alberta's oil sands are only part of the production picture.

Over the last couple of months, I've been talking a lot about how the Bakken formation is the fastest growing oil play in the U.S. and Canada. According to the USGS, there could be up to 400 billion barrels of high-quality oil in the formation.

Okay, so the Bakken formation may not be new to my Energy and Capital readers. But it's not just an interest from producers that makes us want to jump into the Bakken play. The U.S. is preparing for this flood of Canadian oil.

In 2007, Hyperion Resources announced they were building an oil refinery in Union County, South Dakota. According to the company, the refinery would be able to handle roughly 400,000 barrels per day. It is expected to be completed by 2014.

Naturally, that's if everything goes according to plan.

Investing in Canadian Oil

Last week I briefly went over a couple of ways to approach your oil investments. The great part about these Canadian plays is that you don't just have to look for oil producers.

If someone is putting billions of dollars into the first new oil refinery in three decades, you can be certain there's going to be some pipeline deals in the process. Companies like Enbridge (NYSE: ENB) will be able to expand their pipeline projects in order to pump more oil into the refinery.

Until next time,

Keith Kohl

www.energyandcapital.com

 

P.S. If you're interested in finding out more about our newest Canadian oil play, feel free to check out the The $20 Trillion Report

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Are you unaware of the flight of oil companies out of Alberta since the Province raised the oil royalty? These Blue-Eyed Arabs messed themselves up "royally".
Second, Exxon will end up with the Venezuelan refineries and gasoline stations outside of Venezuela. Third, Venezuela doesn't have a CLUE how to refine Venezuelan crude.