Canada’s Oil Sands–Rare and Pricey, But Worth Every Dime

Yesterday I wrote about takeover frenzy in the mining sector. But, after Shell Canada announced its acquisition of Blackrock Ventures Inc., the same brush fire is obviously going through the oil and gas sector as well.

Unlike the mining sector, however, the frenzy is not only sparked by oil’s extremely bullish trend, although, surely, that is a huge contributing factor. Yet, there is something else that is both literally and metaphorically adding fuel to the fire.

Prior to discovering vast heavy oil resource in Alberta’s oil sands, there was not a significant new discovery of oil for a good three decades. Also, the world has changed so much in the past thirty years: wars are still sprouting everywhere, economies have grown terribly dependant on finite sources of energy, the planet has become overpopulated, the developed world is slowly drowning in debt and fiscal deficits, etc. To make matters fundamentally worse, the world’s richest sources of fossil fuel are still located in geopolitically unstable areas.

Thankfully, there are the oil sands; the new, rich-beyond- anyone’s-wildest-dreams, source of fossil fuel, and in Canada, of all places; a nice, stable, developed, G8 country. Naturally, moments after extraction technologies had improved, the area was swarmed by oil exploration companies, searching for the Holy Grail of the 21st century.

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Not surprisingly, dance cards in the oil sands are filling up rather quickly. Just in the past year or so, five oil and gas companies found new dance partners for this shindig. More importantly, each time a new acquisition target was named, its stock skyrocketed almost instantly.

Now, predicting who may be next is not such a difficult task. The number of potential takeover targets is getting smaller and smaller. It is almost as if oil sands have become like a beachfront property–rare and pricey, but worth every dime.

Everyone’s dance cards are so full that the only way to get in on the deal is to quibble for crumbs of 10%, 15% stakes, or to wait for a company that got into the game early to want to cash in on the high property valuations.

It may be too late to profit from Shell Canada-Blackrock deal, but it is certainly worth identifying who may have an oil sands stake for sale and who does not have a dance partner yet. As you can imagine, the list is relatively short.

For starters, there is EnCana, Husky Energy, and Canadian Natural Resources, all three still all alone on the dance podium and still the oil sands “takeover virgins.” Then there are veteran players that have been known to sell bits and pieces for handsome chunks of money, such as Suncor, Canadian Oil Sands Trust, UTS Energy or Western Oil Sands. Basically, anyone having a stake in the oil sands may soon be courted by Johnny(s) come lately(s). Because, who knew high oil prices would eventually justify high exploration costs in the oil sands!