As many investors know Canadian Oil Sands plays, the best known being Suncor and Encana, have received a beating as of late. Long-term we believe that China and India will need more oil. They want motorcycles and cars like the West. Easily accessible supply in stable and friendly countries is increasingly difficult. Yes, crude has lost 50% from its speculative peak, but the Oil Sands stocks are factoring in worse than that. Why?
1) Oil Sands are not the preferred light sweet crude. It is more expensive and harder to refine. Really it is the "junk" of oil.
2) The Globe and Mail estimates that the $170 billion of planned investments in the Oil Sands looks to a WTI price of about $85 a barrel to break even. Well there it is, Suncor can print money at $150 a barrel, but at $85, new projects look less and less sustainable. The forward EPS contracts as estimates are proven too high.
Read the entire article here:
http://www.reportonbusiness.com/servlet/story/RTGAM.20081017.wagendafournier1020/BNStory/robAgenda/home
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