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Canada's Secret Oil War

Keith Kohl

Written By Keith Kohl

Posted February 22, 2010

I may have called a premature victory in Canada’s energy war.

As you know, I’ve been talking about the Bakken formation for a while — long before the USGS report was released. Ever since that report came out, the Bakken has been thrust into the media limelight… and for good reason.

Considering more than one-quarter of the Bakken stretches into Saskatchewan, my readers and I knew right away the exodus that would take place from Alberta. Add Alberta’s royalty debacle to the mix, and it’s easy to see why companies in the province have been packing up for greener pastures…

If you remember, Alberta’s oil and gas royalty changes have been a roadblock for the province. And for the last few months, I’ve been covering the move those companies were making, both to Saskatchewan and British Columbia.

I’ll confess that part of me had given up on Alberta coming out ahead. Let’s face it: trying to outdo the Bakken is nearly impossible right now. And most of you know exactly how profitable the Bakken has become. Playing both sides of the Bakken produced winner after winner; my readers’ latest Bakken stock is already up 60%.

Feel free to check out this free report showing you how our one small mistake could make you and your fellow readers a fortune.

Now, there’s a very specific reason why I’ve been following Canada’s energy war.

A Growing Dependence…

The simple fact is that we’re relying more on Canadian oil imports with each passing year. Believe me, that’s not a coincidence.

Canada has been our largest source for oil imports for years. No matter how much people rant about our addiction to Saudi oil, the truth is that Canada has been on the top of the import list for nearly 15 years. According to data from the EIA, oil imports from Saudi have been almost flat, fluctuating between 1.36 and 1.77 million barrels per day since 1996.

Imports from Canada, however, have been increasing every year for two decades. Take a look for yourself:

Canadian Imports

If nothing else, you can at least see how important Canadian oil is for the U.S.

How many times have you heard some rant or another about decreasing our Saudi oil dependence?

I’ll admit I’ve gone off on a similar tirade in the past. Yet until the Saudis (among others) start releasing some hard data on their oil fields, pardon me if I don’t take their word for things.

We all know how shady OPEC can get, just look at the suspicious reserve increases that occurred in the past. It isn’t comforting to know they’re cooking the books as the world faces a peak oil crisis.

Can you blame the U.S. for cutting Saudi imports by more than 40% over the last year?

For the first time since 1988, oil imports from Saudi Arabia are below one million barrels per day.

Before you start blaming the massive economic woes over the last year, remember that Canadian imports have been increasing.

Canadian oil is about to get even more valuable, too. On top of our waning Saudi imports, you can’t ignore the crisis brewing in Mexico. My colleague, Chris Nelder, hit the nail on the head when he said that Mexico’s troubles are our troubles. The decline of Cantarell isn’t news to us, however, and I wouldn’t be surprised if imports from Mexico dry up completely over the next five to ten years.

At the risk of going off on too far of a tangent, I won’t touch on Venezuela’s problems, both geological and political. I’ll just say that Chavez will have a hell of a time producing his heavy oil fields.

Cardium Oil Stocks and the $400 Million Reason to Invest in Alberta

Not to take away from the upcoming role that B.C. and Saskatchewan will play in Canada’s overall energy picture, but it appears that Alberta has gotten its step back.

Alberta’s latest auction for oil and gas drilling rights drew in a hefty $106 million in sales. That’s about twelve times more than the previous February sale.

As expected, a lot of attention has been focused on the new Cardium play recently. (To call it "new" is a bit of a stretch though, since the Cardium formation was discovered approximately 57 years ago… )

Much like the Bakken formation, advancements made in horizontal drilling and hydraulic fracturing techniques generated a huge buzz that has companies flocking to exploit its light oil assets.

If you recall, the Cardium formation is breathing life back into Alberta’s oil industry. It’s certainly drawing the attention of a few of Saskatchewan’s Bakken drillers.

The question now is whether the renewed interest in the Cardium play can overtake the oil sands. (Some of you may be quick to dismiss the oil sands, but don’t be so hasty… Revenues from the oil sands are expected to bring in $7.3 billion during the 2010-2011 fiscal year.)

That would put the oil sands over Alberta’s natural gas for the very first time.

Things are still heating up in Alberta, too. February’s land sale is just the beginning.

Don’t believe me? Next month’s land sale is slated to be nearly four times larger than the one in February.

Predicting Alberta’s Next Energy Boom

There are two reasons to stay bullish on Alberta. For starters, we know there’s going to be some changes made to their royalty structure. Without going too far into provincial politics, it doesn’t take an expert to see that changes need to be made.

I cringe whenever I think about how many of my Canadian readers voiced their opinions on matter. In fact, I can’t remember one person that was for the current royalty structure.

Aside from the royalty cutbacks, we can’t ignore oil prices. With prices above $70/bbl, drilling activity is picking up once again. We can expect Alberta’s next land sale to get heated as more companies try to grab as much land as possible.

Either way you look at it, Alberta’s back in action.

And it’s about time.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

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