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The recent differential between the price Canadian oil sand producers fetch compared to the West Texas Intermediate (WTI) benchmark of the U.S. has been close to record levels. That differential, which recently has hit more than $40 per barrel, is causing some Canadian producers to cut back on investments. There simply isn't enough pipeline or refining capacity right now to close the spread.
That being said, there are opportunities for investors with longer-term horizons. Take Devon Energy (NYSE: DVN ) , which is getting hit by a combination of low natural gas prices and its exposure to the Canadian oil sands. The company has a very strong balance sheet with $7.5 billion in cash and short-term investments and a net debt-to-cap ratio of just 15%. Its Jackfish 1 oil sands project is seeing twice the production per well of the industry's average. With incremental new refining and pipeline takeaway capacity coming online over the next few years, Devon offers investors an interesting way to play the Canadian oil boom.
Sticking with the American theme, oil giant ConocoPhillips' (NYSE: COP ) Christina Lake thermal oil sands project is expected to come online in the second quarter of this year. The project, a joint venture with Canadian producer Cenovus Energy (NYSE: CVE ) , is expected to produce 40,000 barrels per day. In total, ConocoPhillips has spent $2.3
billion in the last year to continue developing its position in Canada while expecting to spend billions more in 2013. Among the company's plans is the continued development of its joint ventures with Cenovus Energy at Foster Creek and Christina Lake, as well as its joint venture with Total on its Surmont project.
. It is a 50% owner in both joint ventures. With a sector-leading dividend, an "A"-rated balance sheet, and projected annual production growth of 3%-5%, ConocoPhillips is one to watch.
Moving on to Canada, Suncor Energy (NYSE: SU ) has a global operation which fetches WTI-based prices for 72% of its production, while 28% of production gets even higher Brent-based pricing. Suncor's integrated assets are key to its success; its refining and marketing operations, along with the midstream logistics business, help boost the company further and enable it to get global prices for 98% of production. That's good news for a company that has the largest reserves in the Canadian oil sands. Like its American peers, Suncor has a strong balance sheet and is disciplined in allocating its capital. The shareholder-friendly management team has boosted its dividend by 21% annually over the past five years while buying back stock.
There will be both winners and losers from Canada's oil boom. The winners will be those with the balance sheet and diversity to withstand the pressures on Canadian crude prices until more capacity comes online. Devon, ConocoPhillips, and Suncor all offer great options for investors looking to profit from the boom, but with less risk.
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