A new low was reached today.
No, I'm not referring to oil prices (which, by the way, nearly broke past $106 a barrel in trading this morning). Rather, I'm talking about the ridiculous predictions that have made their way across my desk. In a conversation earlier today, I had a gentlemen telling me that oil prices will plummet. How far did he suggest prices will drop?
I'll confess that I didn't understand him at first when he said, "$20 a barrel."
But he wasn't talking about a $20 drop in price to about $80 a barrel. This guy was saying oil will cost under $20 a barrel soon.
At this point in the conversation, it was hard to suppress my laughter.
The interesting part, however, was his opinion that there weren't any decent oil investing opportunities. Not only did he feel prices were going that low, but also that he's been pulling out of all his oil investments.
I just couldn't accept that way of thinking, so I'm going to show you three areas where oil investments are booming.
Perhaps this will change his mind...
Canadian Oil Sands
It's nearly impossible for oil companies to not take advantage of the 174 billion barrels of oil in the Alberta oil sands.
My Energy and capital readers should have seen this pick coming, but the fact remains that the Canadian oil sands are going to play a major role in future U.S. demand. Since the U.S. makes up roughly one-quarter of global oil consumption, I'd consider that a pretty big deal.
Even though Canada is already the largest supplier of oil for the U.S. (Saudi Arabia is second), you can expect a huge chunk of investment dollars to continue flowing through Alberta. Since OPEC is clearly refusing to raise production levels, the U.S. is going to quench its oil demand from somewhere. Within the next decade, production from the Canadian oil sands is projected to reach almost 4 million barrels a day.
Well, that's certainly one way for the U.S. to break its addiction for Middle East oil.
Personally, I can't wait for OPEC's shady reserves to come to light, which will push more interest into the massive oil sands deposits.
Looking at the extraction process, there's two very specific ways that investors can get into the Canadian oil sands:
Surface Mining
In-Situ Techniques
Only 20% of the total amount of recoverable bitumen (the thick, tar-like form of petroleum) can be done through surface mining, leaving an overwhelming amount that will be extracted from In-Situ methods.
One of the problems is that the current extraction methods are energy intensive. In other words, it takes a lot of water and natural gas to produce the oil. I'd keep an eye out for companies looking to solve some of the extraction techniques.
Emerging Oil Plays
Right next to the massive bitumen deposits in Alberta, the Saskatchewan oil industry is just heating up now.
But we're not talking about the heavy oil sands in Alberta...
If you haven't heard of Canada's second largest oil producing providence, you will soon. Unlike Alberta, Saskatchewan is proving to be more open to oil investments. While Alberta is raising its royalties for oil producers (as much as 20%), Saskatchewan has repeatedly said it has no plans to do so.
The province is encouraging companies to move in and develop their resources. Companies have been picking up land, particularly in the southeastern section of the south eastern section of the province. This area plays off the Bakken oil formation, and it's no surprise that land sales and drilling activity has gone through the roof.
Last month's auction of oil and natural gas rights in Saskatchewan drew a record amount of sales. The auction raised about $197 million. That's more than double the amount of the previous record of $85 million.
Let's take a closer look at that auction for a second....
Out of that record $197 million spent, over two-thirds was spent on bids for the Southern part of the province. Oil companies are going to develop the Bakken formation in the Williston Basin. And according to the United States Geological Survey (USGS), the entire Bakken play could hold a potential 400 billion barrels of oil.
Not too shabby.
The best part is that this area is just starting to heat up. Compare last month's $197 million to the $250 million made from auctions during 2007. 2008 is shaping up to be another record year.
Even if you toss out the fact that oil prices nearly broke past $106 per barrel this morning, interest the Bakken play is going to keep growing in 2008.
Conventional oil plays, however, aren't the only options open for investors...
Investing in Oil Technology: Enhanced Oil Recovery
Just because U.S. oil production peaked back in the 1970's doesn't mean we should throw in the towel. Instead, I'd look at the companies out there using the latest enhanced oil recovery EOR methods in mature oil fields.
Now, EOR involves recovering the oil reserves left in the ground. We're talking about a field where primary and secondary oil production is completed. Think of primary production is that easy-to-get oil. After that, secondary recovery methods are employed. This usually means injecting huge amounts of water in order to flush out the oil. Once the oil and water are separated, the water is re-injected.
Eventually, secondary recovery methods are abandoned for enhanced recovery methods. There are several methods a company can utilize, depending on the oil field. Some these methods include thermal recovery, as well as chemical or gas injection.
There are several advantages these oil companies have compared to the rest of the field. For example, there's no exploration risks. They know the oil reserves are there, cutting down the speculation on new discoveries. Focusing on U.S. companies also means you can avoid some of the geopolitical problems. In other words, companies don't have to worry about its reserves suddenly being nationalized.
For investors looking to get into some of these EOR plays, I'd take a look at Cano Petroleum (AMEX: CFW). Cano concentrates on secondary and enhanced oil recovery methods at mature onshore oil fields in the U.S.
Until next time,
Keith Kohl
P.S. It wouldn't be fair to my if I didn't offer you the same opportunities as my other readers, so if you're interested in taking your oil investments to the next level, please feel free to check out the $20 Trillion Report.
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