We have plenty of oil up here in Canada, as I’m sure you are aware. Of course, much of it is in the vast oil sands which make Canada a true giant on the global oil reserve scene.
The countries with the largest oil reserves are as follows:
1) Saudi Arabia – 262 billion barrels
2) Canada – 179 billion barrels
3) Iran – 133 billion barrels
4) Iraq – 112 billion barrels
5) United Arab Emirates – 98 billion barrels
6) Kuwait – 97 billion barrels
7) Venezuela – 75 billion barrels
8) Russia – 69 billion barrels
9) Libya – 40 billion barrels
10) Nigeria – 36 billion barrels
But it isn’t the oil sands that have my eye these days. It is four tight oil plays where we have long known vast amounts of oil lay trapped, but were unable to recover with conventional drilling. Horizontal drilling and multi-stage fracturing are rapidly making much, much more of the oil in place in these reservoirs economically recoverable. I believe the stock market is well behind in recognizing the value of the properties (and future production) that some companies in these plays have amassed.
The four tight oil plays with large amounts of oil in place that are being opened up through technology are:
- The Bakken – 4.6 billion barrels of oil in place
- The Cardium – 10 billion barrels of oil in place
- The Viking – 6 billion barrels of oil in place
- Swan Hills – 7 billion barrels of oil in place
The oil game in North America has changed. It isn’t about trying to find the next big oil reservoir by drilling wildcat wells. It is about learning how to extract incremental barrels from the big oil pools that we have long known about. So the issue for the oil companies becomes-- do you have the acreage that allows you to tap into these plays with new technologies or don’t you ?
Because if you don’t have the acreage, you will probably be left sitting on the sidelines, as the companies who were either savvy or lucky have pretty much locked the plays down.
The good thing for investors is that the stock market doesn’t seem to give much value to the acreage that these companies own until it actually sees the production coming out of the ground. That creates our opportunity, because in my opinion these plays are going to provide predictable production growth for the holders of the acreage in the years ahead. In the current stock prices you pay for current production and reserves, but pay little for the long runway of growth that these companies have.
That is why you often see large premiums being paid in acquisitions of smaller companies in these plays. The stock market mainly values the current production, but an acquirer is also willing to pay a pretty penny for land that is within the play but not yet drilled. The key then is finding those companies with title to the land, but most of their production ahead of them.
I have a few stocks that have locked up some unappreciated acreage for your consideration for each of these tight oil plays:
Crescent Point Energy (CSCTF.PK)
Skywest Energy (SKWEF.PK)
Bellatrix Exploration (BLLXF.PK)
WestFire Energy (OTCPK:WFREF)
Novus Energy (OTC:NOVUF)
Second Wave Petroleum (OTC:SCSZF)
Arcan Resources (OTCPK:ARNBF)
I’m sitting on my hands right now waiting for both a stock market and oil price pullback. When and if that comes, I’m going to be loading up on many-- if not all-- of the companies above.