Looking for Money in Tar Sands

Canadian oil sands stocks promise to go a long way towards alleviating, but not eliminating, the US’s demand for oil.  As oil from the Middle East becomes more expensive many investors and traders suspect that extracting oil from oil sands in Canada’s north will become a viable source of energy.  Whether the environmentalists will stand for it is debatable, but, in the absence of a “green” technology that can currently meet our energy needs or a huge increase in nuclear capacity, oil extracted from Canada’s vast oil sands will be a part of our energy source for the foreseeable future.  Accordingly, here is a quick review of four prominent oil sands companies:

  • Canadian Natural Resources (NYSE:CNQ):  This company’s forward price-to-earnings ratio is a reasonable 12.85; however, on a price-to-book basis the stock looks rather expensive, at 2.25 times book value. Book value per share is about $20.  The company has $22 million in cash and $8 billion in debt. Its debt-to-equity ratio of 40.5 (i.e., for every $40 of debt it has, it has one dollar of equity).  In short this is a highly indebted company.  Its ability to finance that debt is contingent, in part, on the continued global demand for oil. About the company: Canadian Natural Resources Ltd. acquires, explores for, develops, and produces natural gas, crude oil, and related products.  The Company operates in the Canadian provinces of Alberta, northeastern British Columbia, and Saskatchewan.  Canadian Natural also operates in areas which have access for exploration activities and where pipeline systems already exist.
  • Cenovus Energy, Inc. (NYSE:CVE): This company’s forward price-to-earnings ratio is 16.67 and its price-to-book ratio is $2.63.  This suggests a company whose stock has gotten ahead of itself.  It also has a huge amount of debt relative to its equity: debt-to-equity is 62.11.  The company is laboring under the weight of over $6 billion in debt.  As with Canadian Natural Resources, its ability to finance this debt in the future depends, in part, on continued global demand for oil.  Cenovus Energy Inc. is an integrated oil company.  The Company comprises natural gas, crude oil, and natural gas liquids reserves.  Cenovus Energy has established natural gas and crude oil production in Alberta and Saskatchewan as well as refineries in Illinois and Texas.
  • Imperial Oil (AMEX:IMO): This company’s forward price-to-earnings ratio is 17.19 and its price-to-book ratio is 3.68.  Its debt is a manageable $788.03 million and its debt-to-equity ratio is 6.76. This seems relatively manageable given the world’s insatiable appetite for oil. Imperial Oil Ltd. engages in the exploration, production, and sale of crude oil and natural gas in Canada.  The company operates through three segments: Upstream, Downstream, and Chemical.  The Upstream segment engages in the exploration and production of conventional crude oil, natural gas, synthetic oil, and bitumen primarily in the Western Provinces, the Canada Lands, and the Atlantic Offshore.
  • Suncor Energy (NYSE:SU):  This company’s forward price-to-earnings ratio is 13.2 and its price-to-book ratio is 1.77.  Its book value per share is $24.45 and its price-to-earnings growth ratio is 0.55.  It currently has $12,64 billion in debt against a $67 billion market capitalization.  Its debt-to-equity ratio is 33.19.  Suncore Energy, Inc. is an integrated energy company focused on developing the Athabasca oil sands basin.  The Company extracts and upgrades oil sands into refinery feedstock and diesel fuel, explores for, develops and produces natural gas, refines crude oil and markets a range of petroleum and petrochemical products, and operates crude oil pipelines and retail petroleum stations.

Competitors to these companies include: ConocoPhillips (NYSE:COP), Chevron Corporation (NYSE:CVX), BP Plc (NYSE:BP), Exxon Mobil Corporation (NYSE:XOM), Total S.A. (NYSE:TOT), Marathon Oil Corporation (NYSE:MRO), Royal Dutch Shell (NYSE:RDSA), and Petroleo Brasileiro SA (NYSE:PBR).