Canadian Oil Sands: Gates and Buffett Visit

Warren Buffett and Bill Gates toured this week the Canadian Natural Resource Ltd’s  (CNQ) Horizon oil sands project. The $8.7 billion development involves the extraction of oil sands reserves 70 km north of Fort McMurray, Province of Alberta.

The men, according to Reuters, were given details on the Canadian oil industry by the Canadian Association of Petroleum Producers (CAPP). Greg Stringham, vice president of markets and fiscal policy at the association, said “they were asked to come up and do a short presentation”.

The Horizon Oil Sands Project indicates an estimated 16 billion barrels of bitumen in place, with approximately 6 - 8 billion recoverable barrels under existing mining technologies.

Canada has more than 170 billion barrels of proved oil sands reserves, ranking only second behind Saudi Arabia in oil reserves. Not only has this particular industry a unique position in today’s global energy market, but in terms of future reliable oil supplies, Canada’s oil sands are important since they will likely account for a greater share of U.S. oil imports. Which is why major U.S. oil companies like Sunoco (SUN), Exxon/Mobil (XOM), Conoco Phillips (COP), and Chevron (CVX) continue to make significant financial commitments (in the billions) to develop Canada’s oil sand resources.

Alberta’s oil sands deposits were described by Time Magazine as “Canada’s greatest buried energy treasure,” which “could satisfy the world’s demand for petroleum for the next century”. Oil sands production in Canada is predicted to increase to 2.8 million barrels per day by 2015.

With current oil prices above $110 per barrel and the possibility of sustained high prices in the future - it will be interesting to see if more details will emerge as to the exact purpose of this visit made by two of the world’s richest men. A strong possibility of course, is they may be looking for a way to invest some big bucks. If that’s the case, then this is surely it.

Warren Buffett is chairman of Berkshire Hathaway Inc (BRK.A). Neither he nor Microsoft Corp (MSFT) co-founder Bill Gates, notes Reuters, could be immediately reached for comment.

Comments

[Nik in NC:]

Why did you not mention MRO? Their position I believe is much bigger than SUN.

2008 Aug 22 03:44 PM

[Football Geek:]

Buffet was in China this year, and even said today he is
looking to invest there. So he likes to see first hand some
of the companies, and sectors that will grow in the
future. He also said he bid 500 million for a company
in China that was turned down. Everyone can
understand oil, and how much it runs our lives. Buffet
knows that the United States wants oil from friendly
countrys, and Canada is just north.

2008 Aug 22 11:47 PM

[john s. gordon:]

we are talking massive environmental devastation here. wonder how the local athabascan tribes feel about this.
> jack

2008 Aug 23 09:01 AM

[erniem:]

John Gordon's point is correct. I wonder why these article never mention the startling and immense environmental degradation that comes with oilsands crude production. Currently Ghawar in SA is pumped with about 6 million barrels of water to produce 4-5 million barrels of oil. That is NOTHING next to Oilsand production, which needs 2-5 barrels of water to produce one barrel of oil, and ALSO needs one barrel of energy to produce 2-4 barrels of oil. The waste water is worthless, unreclaimable, and is left in huge ponds, one of which is behind the largest earth dam in the world, thirteen miles long.

2008 Aug 23 11:36 AM

[dkdas:]

The most important factor is the vicinity of such a large deposit vis-a-vis the United States and the stable political climate in Canada. Ofcourse one has to keep in mind that operating costs in Alberta Oil Sands is of the order of $70/barrell which can only be sustained as long as crude oil prices remain at a certain point.

2008 Aug 23 11:43 AM

[Steven Ward:]

You get three things from oil sands development: 1. environmental problems that are significant, 2. Jobs, alot of jobs, 3. You also get oil.

I wonder what Buffet and Gates were looking at: environment or jobs or oil?
I think they were looking at the color of money.

2008 Aug 23 11:59 AM

[john s. gordon:]

i have some friends in ALTA whose business is drilling for nat gas, the gas goes over to fort mcmurray to feed the ravenous appetite of the tar sands processing. the gas from the wells is sour, i have not been given the details of gas purification (if any) prior to combustion. maybe someone can fill me in on this,
> jack

2008 Aug 23 12:30 PM

[mkreisel:]

Open pit mining uses up lots of water, but not much NG;

In-situ SAGD process uses up lots of NG, but very little water.

Locals certainly don't like deteriorating environments, but energy, jobs, and money are more important for most people.

2008 Aug 23 07:23 PM

[User 218984:]

Sour gas has hydrogen sulphide in it - the sulphur has to be removed before the gas can be burned. Hydrogen sulphide will kill you or livestock. The biggest problem with the Alberta tar sands is the limited regional and overall Canadian labour force. There is plenty of capital but labour of all kinds, especially skilled trades, is in relatively short supply. The mines are remote and housing is hard to find and expensive.

2008 Aug 24 12:21 AM

[mkreisel:]

It's not to late to get a degree in petroleum engineering.

2008 Aug 24 02:39 AM

[Globel E:]

Hey! What are all you "environmentally aware" folks doing here (esp. S.W.)? Permit me to add another piece or two. Like it, or not, we will continue to use fossil fuels for some time (God help us if the associated warming stops the Gulf Stream/Artic currents interactions). Any source that moves us from accommodating the ugly habits of several oil rich regimes is preferable. Anyone old enough to remember South Africa's bad habits?

Work on perspective - if the entire global system is taken into account, making a mess of a piece of n. Canada pales compared to scrambling the atmosphere/ocean circulation patterns. That would eliminate anything resembling a natural system in all of Canada. Of course, there would be lots of additional water available.

Alternatives to fossil fuels are inevitable, sooner or later we will run out. Sooner seems preferable. If there is a profit, then maybe someone will work on the problem for a profit. T.B. Pickens probably has a few motives that involve increasing his billions. (Maybe not, at his age he may be looking forward.) Who cares! He and A.Gore probably have different motives for their efforts re energy. Again, who cares. I hope both gain riches, or power, proportional to their success in triggering development of alternative energy sources.

I just met my grand kids. They're cute. Maybe we could avoid extinction so they can be around for a while.

BTW-mkreisel, I sincerely hope you are wrong.

2008 Aug 24 04:39 PM

[Mad Hedge F...:]

MgDu )Anyone who has any illusions about the Canadian tar sands business should take a look at the March issue of National Geographic, not normally a prime source of financial and economic news for me. I’m not normally a big time environmentalist, but just looking at the glossy, eye opening pictures tells you that this is this an ecodisaster of Biblical proportions. A $50 billion investment by several firms over the last decade is now producing 750,000 barrels/day, and another $100 billion was headed north before prices crashed last year. You have to cut down a whole forest, remove two tons of peat, then another two tons of sand, and burn 100 barrels of oil equivalent to heat rivers of water to steam, just to produce a single barrel of oil. This gives you the world’s highest production cost, thought to be $80-$100/barrel. There are now 50 square miles of sludge ponds in Northern Alberta leaching a witch’s brew of poisons into the water supply, which has caused the local cancer rate to explode tenfold. We’re not just talking about a few sick ducks and fish here. Canada is the largest foreign supplier of oil to the US, accounting for 19% of the total, and half of that is coming from tar sands.

Feb 27 02:43 PM