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How to Invest in Canada's New Oil Wealth

Companies / Oil Companies Jun 02, 2015 - 12:24 PM GMT

By: ...

Companies

MoneyMorning.com Peter Krauth writes: Canada's energy industry may be most famous for its world-class oil sands resources. But a new shale oil field could surpass the oil sands as Canada's largest untapped oil reserve.

In fact, it could even rival the massive Bakken shale of North Dakota in terms of recoverable oil.


This area lies north of British Columbia and east of the Yukon. It's the Northwest Territories.

Recent data from the National Energy Board (NEB) and the Northwest Territories Geological Survey shows that this area holds as much as 200 billion barrels of shale oil reserves. That compares to U.S. Geological Survey estimates that the Bakken shale formation will yield up to 7.4 billion barrels.

Not all of this Canadian oil is necessarily recoverable. But the Canol and Bluefish shales contain a total approaching 7 billion barrels of economically viable resources.

Here's a look at the vast potential of Canada's Northwest Territories…

A New Shale Oil Field with "Significant Potential"

Major oil companies have been exploring this area just 145 kilometers south of the Arctic Circle, known as the Mackenzie Plain, for some time.

Oil producers such as Husky Energy Inc. (TSE: HSE), Imperial Oil Ltd. (TSE: IMO), Royal Dutch Shell Plc. (NYSE ADR: RDS.A), and ConocoPhillips (NYSE: COP) have performed exploratory drilling in the Canol field.

A total of 14 exploration licenses have been granted with $628 million in work commitments dating back to 2010.

The Canol Field could hold as much as 145 billion barrels of oil. That's comparable to Texas' Permian basin, where about 3% of oil in place is currently being recovered by operators.

The Bluefish shale has yet to even be explored. It could hold up to 46 billion barrels.

David Ramsay, Minister of Industry, Tourism and Investment for the Government of the Northwest Territories, commented on the NEB data, saying, "This study confirms what we have known all along – that there is significant petroleum potential in the Sahtu."

Developing these fields could be a ways off, however. Some living in the territory as well as Greenpeace oppose fracking, claiming it could contaminate groundwater.

Perhaps an even larger obstacle to development is infrastructure. The area's remote location currently lacks such basic services as an all-weather road. A pipeline system to carry the recovered oil and gas to market will also need to be built eventually.

So now the big question: Can investors profit from this new Canadian shale oil field? 

A Winning Play on Shale Oil

Because pipelines are crucial to the whole shale oil industry, they offer one of the most attractive ways to play this opportunity.

Although I'd love to suggest a pipeline play that will leverage the vast new potential of Canada's north, right now it's not the way to go. It's too early to play this discovery.

But, this does draw attention to a strong profit play in the shale oil industry, so you can make money while we evaluate the future winners of Canada's shale oil boom…

The better strategy today is to focus on an existing, attractive, and very profitable pipeline right in the United States.

Williams Companies Inc. (NYSE: WMB) is one of the largest energy infrastructure companies in the United States. Its history dates back to 1908, and its head office is located in Tulsa, Okla.

WMB moves as much as 30% of America's natural gas through its vast network of pipelines every day.

Williams is a $39 billion company currently trading at a reasonable P/E of just 19. Shares yield a hefty 4.7%. The WMB share price did take a hit along with the crash in oil prices, but not by nearly as much. The stock price fell 32%, but bottomed in mid-January and has already recovered more than half that drop.

With $7.6 billion in revenue, Williams Companies earns a rich 27% profit margin and 16.5% operating margin and produces a 15.2% return on equity.

The company management also expects earnings to grow substantially in the future. And with 88% of the oil and gas moved under long-term fixed-fee contracts, oil and gas prices don't matter all that much to company profits.

WMB stock is currently trading at $51.47 (Monday) and is up about 14% year to date.

Stay up-to-date on all the shale oil investing news you need ;@moneymorning on Twitter.

Profit Alert: As the largest precious metals streaming company in the world, Silver Wheaton (NYSE: SLW) has many advantages over silver miners. Its greatest advantage spells big profits ahead for Silver Wheaton – and investors…

Source :http://moneymorning.com/2015/05/29/canadas-new-shale-oil-field-could-rival-the-bakken/

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