Profiting From Environmentalist Folly

Sep. 5.11 | About: Petrobank Energy (PBEGF)
I’m not a big fan of anything that damages the climate or the environment. And my political leanings would certainly be considered liberal by anyone. But sometimes you have to let common sense guide you rather than your preference of political party.
I watched with interest the action of this group as they attempted to raise awareness and support for stopping the Keystone XL pipeline which will transport oil from the Canadian oil sands to refineries in the Gulf of Mexico.
I’m sure these folks all have their hearts in the right place and are trying to help the world by stopping the evil oil companies. But I have to wonder how many of them have stopped to really ponder the importance of oil to mankind and the United States. Do they realize that if we don’t use the oil from the tar sands that we need to have a replacement for it?
I have a couple of questions that I would like to ask these protestors who would ideally like to have no additional oil produced from the Canadian Oil Sands:
1) Where in the future is the United States going to get the fuel for its economy, its military and its transportation if not from the Canadian oil sands ?
The EIA details the top sources of American oil imports for June 2011. Here are the top five:
Canada – 2,085,000 barrels per day
Saudi Arabia – 1,164,000 barrels per day
Mexico – 1,108,000 barrels per day
Venezuela – 1,012,000 barrels per day
Nigeria – 813,000 barrels per day
Canada currently produces about 1.5 million barrels per day from the oil sands, so the oil sands are already a key part of fueling the American economy. But consider how important that additional oil sands production is going to be to the United States.
Asian oil demand is growing by about 1 million barrels per year. In another year or two Asia will be taking all of Saudi Arabia’s production so that source will be gone. Mexico’s oil production is declining, not increasing. Venezuela has signed oil supply contracts with China who will eventually take all exports from Venezuela leaving none for the United States. Nigeria is a basket case where oil pipelines are targets for rebels.
The United States needs to import nine to ten million barrels of oil per day to feed its economy. The only secure source that is available is Canada and that means oil sands. The option for the future consists of not having enough oil and an economic disaster or oil from the Canadian oil sands. Sometimes the best option isn’t a perfect one.
2) What is a better alternative, hundreds of millions or even billions of people starving or producing oil from the oil sands ?
The population of the world has grown from 1.6 billion in 1900 to almost 7 billion today. More people have been added in the past 50 years than since the dawn of man. This rapid increase is the result of the incredible increases in farm productivity created through the use of hydrocarbons. Take oil out of the mix and try and power your farm equipment and fertilize your crops. We have a population sustained by hydrocarbons.
We already have problems being caused by high oil prices driving up the cost of food. We don’t feel it much in North America because we are rich and our food costs are a small percentage of our lifestyle. In poor countries where a large percentage of income goes to food cost, the impact is already painful.
Removing oil sands production from the mix is going to drive up food costs even further and likely even create food shortages. The poorest people in the world are going to be priced out of the food market. Environmental damage is no joke. Starving hundreds of millions of people is unconscionable. Again, sometimes the best option isn’t the perfect one.
I have a suggestion for the protestors chaining themselves outside of the White House trying to get the Keystone Pipeline stopped. Wake up. We need this oil for the foreseeable future.
If you want to do something useful start trying to educate people about energy conservation and push politicians to start a Manhattan type project aimed at finding an alternative to oil.
Stopping this pipeline is only going to do serious damage to the United States. Stopping oil sands production entirely would be a disaster for the entire world. We need to find a replacement for oil, but until we do humanity is married to it.
Investing to Profit from Our Oil Supply/Demand Challenges
The recent stock market turmoil has resulted in punishment for energy stocks and presented us with a great buying opportunity at just the right time.
I’ve written how I think that by the end of 2012 the oil market is going to be in an extremely tight supply and demand situation. So loading up on cheap oil companies now is ideal.
I would avoid the major oil companies with the exception of BP which is extremely cheap. The majors are not growing production and have little upside in their reserves. Instead I’d focus right here at home on independent producers that have years of growth ahead of them in production, cash flow and reserves. These companies have locked up large positions in the emerging unconventional resource plays.
One specific recommendation that I have is Petrobank (OTCPK:PBEGF). Petrobank is a Canadian company that has exposure to two known resource plays in the Bakken and Cardium and position in four more emerging plays that they will be talking about this year. These emerging plays are the Duvernay, the Montney Oil plan, the Nordegg and Swan Hills and Petrobank will be drilling test wells in the 120,000 acres they have put together before year end.
At the current stock price, just over $11, I don’t think investors pay for anything more than the Bakken acreage and production that Petrobank has. Meaning that the Cardium, Duvernay, Montney, Nordegg and Swan Hills are all yours for free. And on top of that, Petrobank has 700 million barrels of contingent oil sands resource that is ignored by Mr. Market.
Lots of investors profited from the fallout of the housing collapse and financial panic of 2008. I’m determined not to be a victim from a coming oil spike by having a large amount of exposure to undervalued oil assets.
Disclosure: I am long PBEGF.PK.