Junior Oil Sands Sub-Sector Update
posted Mar 18, 2006 at 03:43PM
I am still of the mind that the junior oil sands sub-sector is the place to be. I know some people would argue differently, saying silver is the cutting edge. But you know, to me, there is no comparison. I cannot get excited about $20 plus silver companies who still need higher prices just to hit break-even. In comparison these oil sands stocks, once they get into production, are going to be magical cash generating machines. Can you really see a silver company being turned into a trust? With these babies you can. We are talking cashflow!
The sub-sector as a whole has seen some of the laggards and new-comers play "catch up" to the more established higher quality names. These latter have been churning in bullish consolidation patterns for the past two month.
That may be coming to an end.
Connacher Oil, who, in my mind, is "best of breed", now looks primed to lead the sector upwards, even as the oil sector as a whole remains in a large degree consolidation of its own. I expect that sector consolidation to end by mid-summer, and so no surprise that this sub-sector would lead the advance and be first out of the gate.
Connacher is expecting approval very shortly to start the construction of their 10,000 barrel/day production facility. The CEO has set an ambitious time-table of 300 days to get first steam into the ground, with production rates ramping up quickly to maximum after that.
More importantly, he has stated that they fully expect to put in another applicaton for yet another 10,000 barrel/ day production facility. They wouldn't be saying that unless they also fully expected that the drilling results/upgraded reserve report fully substantiates that application. In this envrionment where CEO are being sued left and right for making misleading statements, he has made it clear as it can be that the results to date have been "very encourageing"
So the next two to three years should see significant internal growth, timed almost perfectly to coincide with a potential "Wave III" type affair in the oil sector as a whole. There is potential for two or three more PODs above and beyond the two mentioned above
Their acquisitions of their refinery, Luke Energy, thier financings are all under thier belts now. The arbitrage trading which has been acting as a head wind should start abating. They are flush with cash and thier stake in PDP gives their balance sheet extreme robustness. They have 100% ownership of everything they need to get the goods out of the ground and to the market.
Looks ready to follow if CLL breaks out.
Still has some digestion of gains I think.
Think triangle here I believe.
Again as stated in the past I am overweight in this sector with long standing positions.