3 Buried Gems in the Canadian Oil Sands

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In my last article, I discussed three underrated small-cap producers involved in the Peace River area of the famous Canadian oil sands. In this article, I will take a look at three buried gems, all engaged in the Cold Lake region of the oil sands.

The great Canadian oil sands
The Canadian oil sands represent the second largest reserve of oil in the world. They are also the largest supplier of crude for the U.S. At year-end 2004, the region contained an ultimately recoverable crude bitumen resource of 315 billion barrels, with remaining reserves of almost 174 billion barrels. 

The Canadian oil sands can be divided into three specific regions: Peace River, Cold Lake, and Athabasca. Notably, Cold Lake's reserves have been assessed to hold about 201 billion barrels of oil originally in-place. From this total, approximately 8% would be technically recoverable given the current technologies. This would account for more than 16 billion barrels of oil buried underneath, in two different formations, Wabiskaw-McMurray and Clearwater, thereby representing a substantial catalyst for the producers involved in the area.

Recovering bitumen in Cold Lake
Headquartered in Calgary since 1988, this Canadian producer of oil and natural gas owns approximately two million net acres of land in Alberta and British Columbia, from which about 700,000 net acres are still undeveloped. Pengrowth Energy (NYSE: PGH  ) produced 85,749 Mboe in 2012, 54% weighting toward liquids. Furthermore, it reported an average of 87,909 Bbls/d for the second quarter of 2013, an increase of 2.5% in only six months. 

Pengrowth is currently developing its Lindbergh Thermal project, the catalyst of its sustainability as an energy producer. Lindbergh offers the opportunity for the company to become a leader in thermal oil. In February of 2012, Pengrowth began steam injection, consisting of two well pairs that produced more than 640,000 Bbls of bitumen from June 2012 to June 2013.

By the end of Q4 of 2014, phase one is expected to reach 12,500 Bbls/d and by 2018, the total production should reach 50,000 Bbls/d. Pengrowth's 2P (proved and probable) reserves were estimated at 512 Mboe at year-end 2012, 63% weighting toward liquids, which include natural gas liquids (NGLs), light and heavy oil, as well as bitumen.

My second buried gem doesn't have the recognition it deserves. This crude oil and natural gas producer has a diversified combination of assets in North America, the North Sea, and offshore Africa, enabling the company to generate value globally. Canadian Natural Resource (NYSE: CNQ  ) is the largest heavy oil producer and second largest independent natural gas producer in Canada.

Canadian Natural also has an extensive and diverse portfolio of light, primary heavy, in-situ oil sands, oil sands mining, Pelican Lake oil and NGLs. As of June 2013, it produced 241,402 Bbls/d of crude oil and NGLs for its Canadian assets in Alberta and Saskatchewan, out of its total production of 623,315 Boe/d.

In Cold Lake, the company owns two properties, Primrose and Wolf Lake. From 1985 to 2008, Primrose has seen its initial production of 45,000 Bbls/d, increased with two expansions to 107,000 Bbls/d. For its Wolf Lake property, it has produced 13,000 Bbls/d since its commissioning back in 1985.

Finally, Canadian Natural owns two other great assets in development in Alberta: the Horizon property, which offers an opportunity to produce between 232,000-250,000 Bbls/d and approximately six billion barrels of resource potential, and Pelican Lake, from which production is expected to peak at approximately 80,000 Bbls/d in 2015 once the reaction to the polymer flood is optimal. Pelican Lake has been estimated to hold 4.1 billion barrels of oil originally in-place.

Bonavista Energy (TSX: BNP  ) produces an average of 73,500 Boe/d from its three million acre assets stretching from northwest to southeast Alberta, with some assets in British Columbia and Saskatchewan. Bonavista's production weighs 63% toward natural gas with quality assets from the Deep Basin and West Central core areas.

However, Bonavista owns 300 sections of land in the light oil's Cardium play as well as two important opportunities in Cold Lake, Michichi Banff, and Provost Viking. Michichi Banff is in its early development stage while Provost Viking, accounting for 110 sections of land, is developing quite well, with four wells remaining out of 16 scheduled to be drilled during the remainder of 2013.

My Foolish take
As we have seen, Cold Lake offers great opportunities for oil and natural gas producers. With about 201 billion barrels of oil originally in-place, these companies will see its growth develop rapidly, to the pace of its capital capacity. Pengrowth's Lindbergh Thermal project and Bonavista's Provost Viking project are clear statements of the great possibilities that the Cold Lake region has to offer. Furthermore, looking at Canadian Natural's success in the area is proof that great things can happen with vision and tenacity.

(TSX: BNP  )

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9/30/2016 3:59 PM
BNP $4.22 Up +0.01 +0.24%
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