Digging Into the Oil Sands

You got oil in my sand! You got sand in my oil!

Either way, it brings us quite nicely to the topic of "oil sands," a perplexing term for a valuable resource that might be better described as oily sand. There's profit to be made for companies willing to roll up their sleeves and dig into the mix of sand, water, clay, and the bitumen that can be separated from the rest and upgraded into synthetic crude.

There's nothing light or sweet about this petroleum or the methods used to get it from the ground and into a barrel. Oil sands are sometimes called tar sands because of the tarry consistency of bitumen after it's been warmed up or diluted. While still in the ground, the stubbornly thick, significantly adulterated material clings to individual grains of sand.

Canada, in whose oily sands Suncor Energy  (NYSE: SU  ) , Canadian Natural Resources (NYSE: CNQ  ) , and Marathon Oil (NYSE: MRO  ) play, has an estimated 174 billion barrels in proven oil sands reserves, most of which are in Alberta. Its oil sands reserves alone place Canada second to only Saudi Arabia in terms of total oil reserves. And that's just the amount believed to be recoverable under current economic conditions, using current technology.

Fortunately, our neighbor to the north doesn't hoard its crude. Canada is the world's eighth-largest producer of crude oil and the No. 1 supplier of petroleum to the United States.

So, there's oil in them thar sands. The world wants it, and it's not doing the growing international economy much good trapped in sand. Enter the big machinery, the water, and the natural gas.

It starts with digging. Lots and lots of digging goes into harvesting the reserves nearer the surface. For perspective, it takes two metric tons of the mixture called oil sands to produce a single barrel of synthetic crude.

Getting at bitumen reserves deeper in the ground can involve injecting steam (cue the natural gas that heats the water to produce the steam) into the ground to warm the bitumen so it moves more easily and can be brought to the surface using wells. 

Now, that crude has been sitting in the ground for a mighty long time. Why are oil companies jumping full-force into the sandbox now?  

As you might expect, the resource-intensive extraction process is also rather costly. Only somewhat recently has the price of oil -- which recently closed above $100 a barrel -- reached a sticky enough price level to make heavily investing in oil sands a relatively sweet proposition.

The Energy Information Administration estimates that alternative fuel sources, including oil sands, become economically viable when the price of oil hits $30 to $60 per barrel. A January report from the Canadian Association of Petroleum Producers shows the estimated bitumen netback at roughly $30 a barrel when oil was just above $90 in December.

It's not easy or pretty, but for companies playing in the oil sands, sustained high oil prices would mean high sweet profits for years to come.

Related Foolishness:

Read/Post Comments (0) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 583214, ~/Articles/ArticleHandler.aspx, 10/21/2016 11:23:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,080.22 -82.13 -0.45%
S&P 500 2,137.14 -4.20 -0.20%
NASD 5,248.81 6.98 0.13%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 11:08 AM
CNQ $33.11 Down -0.01 -0.03%
Canadian Natural R… CAPS Rating: ***
MRO $14.74 Up +0.04 +0.27%
Marathon Oil CAPS Rating: *****
SU $29.40 Up +0.05 +0.17%
Suncor Energy CAPS Rating: ***