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3 Stocks to Power Your Portfolio With Canadian Oil Sands

Despite the nation’s long-term promise and sheer economic muscle, many American investors have almost zero exposure to our neighbors to the North. Popular international indices like the iShares MSCI EAFE Index ( EFA) simply don’t include Canada in their mix. That’s a shame, because Canada continues to feature a host of strong multinational firms across a variety of sectors.

imo cnq su oil sandsThe fact that portfolios are woefully underweight to Canada is even more of a shame if you’re an energy investor.

That’s because Canada features some of the world’s largest reserves of both natural gas and crude oil. And perhaps more importantly — aside from its political stability — the land of the maple leaf is set to become one of the fastest growing oil players over the next decade or so. For those serious about adding energy exposure to their portfolios, Canada and its riches must be on your “go-to” list.

A Possible 2.5 Trillion Barrels

The shale revolution isn’t just sparking an energy renaissance here in the United States — it’s getting equally as big across the border. Featuring some of the world’s largest energy reserves, Canada continues to move forward as a global energy super power.

At the beginning of 2012, Canada contained roughly 174 billion barrels worth of proven crude oil reserves. Likewise, Canada’s proved conventional natural gas reserves amounted to nearly 61 trillion cubic feet (Tcf). Those proven reserves help rank the nation third in the world behind Saudi Arabia and Venezuela in terms of total energy availability. In fact, Canada contains more than 90% of all proven energy reserves outside of OPEC.

However, it’s on the unconventional front that Canada really begins to shine.

Like the U.S., Canada is well-endowed with an abundance of shale rock. And like the U.S., that shale features plenty of tight oil and unconventional natural gas resources — to the tune of 388 Tcf worth of technically recoverable unconventional natural gas. However, unlike the U.S., Canada features something more — namely its vast Alberta oil sands. Unique to the Canucks, the mixture of clay, oil and sand contains an estimated 2.5 trillion — yes, trillion — barrels of crude oil.

Tapping the full potential of that abundance is expensive and hinges on various logistic projects — like approving TransCanada’s (TRP) Keystone XL pipeline. But analysts at the International Energy Agency (IEA) estimate that the opportunity is just too big for Canada to ignore, and that oil sands production will surge to a staggering 5.7 million barrels per day by 2030. This jump in production will make Canada the fourth-fastest growing oil player on the planet.

Meanwhile, export plans for this oil sands crude as well as liquefied natural gas (LNG) are beginning to move beyond the planning stages and into construction. With pipelines and ports pointed toward oil thirsty Asia, Canada is preparing to be the world’s newest energy supermarket.

The opportunity just too big for investors to ignore. Here are three ways to play it:

Suncor Energy

Back in 1967, Suncor Energy (SU) first pioneered the commercial development of Canada’s oil sands. Today, SU is one of the largest land-holders in the Athabasca oil sands, and the integrated oil stock continues to have record energy production in the region. That leadership position continues today with its advanced techniques for tapping its bounty.

Aside from specializing in “in situ” and steam-assisted gravity drainage production, SU has unveiled that it plans to use Komatsu’s Autonomous Haulage System. That essentially involves using self-driving dump trucks to reduce downtime and costs. And in terms of production in the oil sands, reducing costs is the key to profitability.

Not that Suncor needs help reducing costs. SU features plenty of traditional oil and unconventional gas wells across North America, plus exploration properties in Norway and the U.K.’s North Sea. Not to mention its four refineries and vast network of retail gas outlets. All those assets have driven huge share buybacks and a whopping 30% compound annual dividend growth over the last five years. SU stock currently yields a healthy 2.1%.

Canadian Natural Resources

Equally as diverse as SU — with projects spanning conventional and unconventional crude oil and natural gas production — Canadian Natural Resources (CNQ) is also betting on the oil sands for its future. When many of Canada’s other energy giants moved towards natural gas production — just when prices were at their highs — CNQ did the opposite and plowed head first into Alberta. That move is beginning to pay some serious dividends for investors.

CNQ’s Horizon Oil Sands project is a monster and is currently pumping out around 112,000 barrels per day of crude oil. However, Canadian Natural estimates that once the project is fully completed, it will be able to churn out roughly 500,000 barrels per day — for the next 40 years.

This expansion of the Horizon’s project will drive free cash flows at CNQ to record levels. Management at CNQ estimate that free cash flows should hit $1 billion next year. As the project grows, so will those amounts: They’re expected to hit $2 billion by 2016 and leap to $5.5 billion in 2017.

That should help CNQ’s 2.3% dividend yield continue to increase as well.

Imperial Oil

For Imperial Oil (IMO), it’s good to have friends in high places. In this case, we’re talking about Exxon’s (XOM) 70% stake in the Canadian integrated oil firm. That relationship has provided plenty of capital and technological know-how to produce plenty of crude oil and natural gas via conventional and unconventional means.

That partnership also spreads towards the abundant oil sands as well. The pair has recently begun buying up acreage in Alberta in order to help “fuel” their Kearl oil sands project.

Production at Kearl just started, but it’s already becoming a premier producer. The project is currently pumping out 110,000 barrels per day. However, as it grows, IMO and XOM estimate that it should be able to produce roughly 345,000 barrels per day by 2020. Meanwhile, the duo isn’t waiting for the U.S. to approve the Keystone XL. IMO has begun work on a new crude-by-rail terminal in the region to get its product to market faster.

Given its lucrative partnership with XOM, Imperial could be one of the best ways to play Canada’s energy growth.

The bottom line: Canada’s isn’t going to let its vast energy holdings go to waste. Investors shouldn’t either.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2013/12/oil-sands-imo-su-cnq/.

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