Canada’s oil sands span about fifty five,000 sq. miles within the northern a part of the province of Alberta and account for the overwhelming majority of the country’s roughly 175 billion barrels of total oil reserves.

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In 2013, Canada produced about 1.9 million barrels per day (bpd) from the oil sands. In accordance with a brand new report from the Canadian Association of Petroleum Producers, that may rise to four.Eight million bpd by 2030.

Beneath, we’ll look at two corporations at the middle of the area’s continued growth. But first, here’s a short rundown on how oil sands tasks work, as well as a couple of ways they differ from conventional crude manufacturing.

New Strategies Give Reserves a lift

The oil sands are a mixture of sand, water, clay and bitumen—or oil that is simply too thick to circulation or be pumped out of a properly with out being diluted or heated.

The Sun Oil Company started the primary oil sands project in 1967. In 1979, Solar Oil merged with Great Canadian Oil Sands to become Suncor Energy, which is presently the most important player within the oil sands. (More on Suncor under.)

There are two foremost restoration methods: surface mining, which is possible when oil sands are relatively near the floor, and in situ manufacturing. Mining involves scooping oil sands from an open pit into large dump trucks. It’s then dropped right into a crusher, blended with hot water, piped to a plant and separated. Only about 20% of the oil sands are recoverable by means of this method.

The remaining eighty% should be accessed by in situ production, which includes injecting steam into the bottom to let the oil flow extra freely. A comparatively new form of in situ manufacturing is steam-assisted gravity drainage (SAGD), which was first used commercially at Cenovus Energy’s Foster Creek undertaking in 2001.

SAGD involves drilling a pair of horizontal wells, one above the opposite, and injecting steam into one nicely to heat up the bitumen, which is then pumped to the floor utilizing the second properly.

“The method has had a dramatic affect on Canada’s oil reserves by enabling the production of oil sands that had been previously too costly to produce, wrote Robert Rapier, chief investment strategist of our Energy Strategist newsletter, after visiting the oil sands in November. “One might say that Canada is experiencing a ‘SAGD revolution analogous to the fracking revolution within the U.S. /p>

Two Oil Sands Stalwarts

At Investing Daily, we primarily cowl oil sands producers in our Power Strategist and Canadian Edge advisories.

Here’s a look at two such firms. We keep both under shut watch in Canadian Edge’s How They Fee universe, which keeps over one hundred fifty Canadian stocks underneath steady evaluate, while one—Suncor Energy—is a advice of the Vitality Strategist:

Suncor Power (NYSE: SU, TSX: SU) attracted consideration final summer when Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) revealed a 17.Eight-million-share stake in the corporate. Buffett has since pared back his curiosity considerably, though he still owns nearly 1% of Suncor.

Oil sands tasks are notoriously expensive and susceptible to delays and price overruns. To try to mitigate some of that threat, the company enters into joint ventures with other producers. For example, it owns a 12% stake within the Syncrude oil sands operation, as well as forty.Eight% of the development-stage Fort Hills venture.

As well as, it operates the MacKay River and Firebag SAGD tasks, as well as conventional production within the North Sea, 4 refineries and 1,500 gasoline stations.

In the primary quarter, Suncor’s oil sands output rose eight.8% from a 12 months earlier, to 389,300 bpd, on increased manufacturing from Firebag and Syncrude.

The corporate posted record working earnings of C$1.22 a share, up from C$zero.Ninety and well ahead of the C$0.Ninety three analysts were expecting. Money stream from operations additionally set a report at C$2.88 billion, or C$1.96 a share, up from C$2.28 billion, or C$1.50 ($1 Canadian = $0.92 U.S.).

Cenovus Energy (NYSE: CVE, TSX: CVE) was formed on December 1, 2009, when EnCana Corp. break up into two corporations: oil producer Cenovus and natural gas agency Encana Corp. (NYSE: ECA, TSX: ECA).

Cenovus operates two SAGD tasks: Foster Creek and Christina Lake, each of that are 50% owned by ConocoPhilips (NYSE: COP). Cenovus also holds 50% of two refineries within the U.S. as a part of a joint enterprise with Phillips 66 (NYSE: PSX), in addition to other oil sands, conventional oil and gas projects in Western Canada.

In the primary quarter, Cenovus’s oil sands manufacturing rose 20% from a year earlier, to a hundred and twenty,444 bpd, on a forty eight% enhance at Christina Lake. Output at Foster Creek, the place the corporate continues to bring in new strategies to optimize its steam use, declined 2%.

Cenovus posted operating earnings of C$0.50 a share, down slightly from C$zero.Fifty two a year in the past however still forward of the consensus forecast of $zero.48. Operating cash movement slipped 4%, to C$1.19 billion, due to decrease refining margins.

Higher Days Ahead?

Oil sands firms have faced challenges previously few years, partly because Canadian crude has been crowded out of pipelines to key American refineries by competitors from booming U.S. shale areas.

The outcome has been a supply glut that has contributed to a discount on heavy oil sands crude (as measured by the Western Canada Select value) to West Texas Intermediate (WTI) light crude. In late 2012, that differential widened to over $forty.

Nonetheless, it has since narrowed to around $20. An increase in crude-by-rail shipments has helped. As nicely, BP plc’s (NYSE: BP) Whiting refinery in Indiana, which has been upgraded to process heavy crude, has reopened after numerous delays and continues to ramp as much as full capability.

A lower Canadian greenback has also helped the sector. “So you might have an industry the place you’re getting revenues in U.S. dollars and paying bills within the lower Canadian forex, so you’re making a unfold there,”said John Stephenson, portfolio manager at First Asset Funds, in an April 29 Canadian Press article.

Pipeline Issues Overwrought: Rapier

Issues about whether TransCanada Corp.’s (NYSE: TRP, TSX: TRP) controversial Keystone XL pipeline, which might carry 830,000 bpd of oil sands crude from Alberta to the Gulf Coast, can be authorized have long hung over the sector. The Obama administration recently announced that it could delay a remaining choice till late this year or early 2015.

Nevertheless, Rapier feels the oil sands progress will continue both means, on account of a number of other initiatives on the drawing board. These embrace a proposed growth of Kinder Morgan Power Partners (NYSE: KMP) present Trans Mountain pipeline, which connects Alberta to the British Columbia coast. The challenge would almost triple the line’s capacity to 890,000 bpd from 300,000 now.

Meanwhile, another proposed TransCanada pipeline, known as Vitality East, would carry 1.1 million bpd to refineries in Jap Canada. Like Trans Mountain, a lot of Energy East would contain present pipelines—changing them over from carrying pure fuel, in this case.

There is also Enbridge Inc.’s (NYSE ENB) proposed 525,000-barrel-a-day Northern Gateway pipeline, which just obtained conditional approval from the Canadian authorities, although it nonetheless faces additional legal and regulatory hurdles, as well as political opposition in British Columbia.

“The rail initiatives on the drawing board would push the rail capability as much as over 900,000 bpd, Rapier wrote in a November Investing Day by day article. “Along with the introduced pipeline projects, the full capability would cover expected oil sands production increases for a number of more years—even with out Keystone XL. /p>

Get instant entry to all of Robert Rapier’s insights on the oil sands—as properly as his essential purchase-under target on Suncor—when you’re taking a no-risk trial subscription to the Vitality Strategist at this time. Click on here to start out yours now.

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