The Shifting of the Oil Sands

 |  Includes: ECA, IVAN, PBEGF, PTR, SU
by: Streetwise Blog

By Andrew Willis

It's time to update your oil sands vocabulary.

As deal-making heats up in the Alberta hinterland, analysts are starting to pay attention to a whole new crop of energy companies.

To date, established domestic companies such as Suncor (NYSE:SU) and EnCana (NYSE:ECA) have dominated development of the oil sands in the Fort McMurray region, while merger and acquisition activity has swirled around publicly-traded junior players on projects in that neck of the woods, such as OPTI Canada and UTS Energy.

Now, new players are entering the discussion, as the pace quickens on development of these enormous properties, new technology is rolled out, and new players enter the field.

To capture what's happening in Alberta, Macquarie Capital is out this week with the first edition of a dedicated oil sands research report, a 61-page publication branded as the "In Situ-ation Report."

The investment dealer opens with a view that there will be all kinds of corporate activity this year, as "the Athabasca Oil Sands/PetroChina (NYSE:PTR) joint venture is a clear signal to us that the oil sands are still viewed by foreign companies as a politically stable, attractive option to secure oil resources. This deal could well prove to be the first of several similar partnerships.

"With oil sands leases essentially all locked up, new entrants in the play will have to pay for access to the resource. Those with the largest defined resource should stand to benefit most," said Macquarie analysts Chris Feltin and Ray Kwan.

Where should investors look for action? When it comes to who to watch on the technology front, Macquarie pointed out that there are promising ways to exploit these reserves at lower costs being developed at two public companies - Petrobank (OTCPK:PBEGF) and Ivanhoe Energy (NASDAQ:IVAN) - along with a private company called E-T Energy, which is rolling out what's known as "electro-thermal reservoir heating."

Macquarie said that outside the Fort McMurray area, the region to watch is known as Grosmont, where reserves run to an estimated 318 billion barrels of oil. The two analysts pointed out that a pair of private oil sands companies - Laricina Energy and Osum Oil Sands - plan to build pilot projects in this area in 2010.

Executives at both these companies have a track record for building - then selling - energy companies. Laricina was founded by the previous management team of Deer Creek Energy, which France's Total acquired in 2005. The founder and chief executive officer at Osum is an executive named Richard Todd, who has co-founded and run no less than five oil and gas companies.