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> Cover Story
April 6, 2006

by lyle e davis

The next big oil boom appears to have already begun; and it's early enough in the boom that you and I may still be able to get in on the ground floor and become multimillionaires.

Well, at least we may be able to make some money.

We don't have to head over to Saudi Arabia or Kuwait to find this oil either. Try heading north. Just 600 miles north of Montana you just might hit pay-dirt. Several companies have.
Twenty-four hours a day, 365 days a year, vehicles that look like prehistoric beasts move across an arctic wasteland, extracting the oil sands. There is so much to scoop, so much money to be made.

Keep an eye on those corporate jets that, daily, are ferrying personnel in from Calgary, Alberta, Canada, to a place called Fort McMurray. It’s a fairly small town of 50,000 in Alberta, Canada. It gets cold there come wintertime, the temperature can dip to 40 degrees Fahrenheit below zero, or minus 40 degrees Celsius. But that doesn't slow down the almost manic quest for oil, not when 22 year old roustabouts can earn $150,000 a year . . . and not when there are jobs, lots of them, waiting to be filled. . . and not when there's lots of money to be made . . . lots of it . . . for workers, for management, for investors.

Is this comparable to a gold rush? It appears to be bigger than a gold rush. Experts are expecting $100 billion over the next 10 years to be invested in this area - $100 billion in a population that, currently, is 70,000 people," says Brian Jean, who represents the region in Canada's parliament.

The Athabasca Oil Sands deposit primarily is located in and around the settlement of Fort McMurray, a community that until a few decades ago was a wilderness outpost whose main industry was trapping fur-bearing animals. In recent years Fort McMurray has changed from a fur trading post into a boomtown of 80,000 people where single-family houses are the most expensive in Alberta at over $400,000 and the apartment vacancy rate is less than 1%.

You won't see many of the traditional oil wells, those rocking arms that go night and day . . .the type you see in Texas, Oklahoma, some parts of California . . . no, what you'll see here are giant earth moving machines. These giant creatures carve up dirt . . . dirt that is loaded with oil. Technically, they're called oil sands. Oil sands are found primarily in three places in Alberta - the Athabasca, Peace River, and Cold Lake regions - and cover a total of nearly 140,800 square kilometers. The most prominent of these deposits is the Athabasca deposits, named after the Athabasca River, which cuts through the heart of the oil sands, leaving them exposed on the river banks.

The oil sands have been there for years. Three hundred years ago when the American trader, Peter Pond, came through here, he sat on the banks of the Athabasca and the Clearwater rivers and saw the local people (the Cree Indians) taking the bituminous sands and put them in a pot of hot water and then they'd skim off the pitch and use it to waterproof their canoes. Now, 300 years later, they're still using the hot water extraction method - and they're still using it for transportation.

So much has changed in the Alberta wilderness, so much remains the same.

North America's crude oil resources have been so thoroughly explored and developed that experts believe that there is hardly any left to find, except perhaps in the deep waters of the Gulf of Mexico. In the rest of the world, most of the best places to drill for new oil are off limits to the Western energy industry for political reasons, and existing fields are already pumping every barrel they can. So, enter Oil Sands.

With soaring global demand driving energy prices up to record levels and fresh supplies of crude oil hard to find, the geologists, roughnecks and recently minted MBAs are being either ferried north from Calgary each morning by a corporate jet, or are living in Fort McMurray, but all are focused on one objective: an unconventional approach to producing oil by sucking the viscous tar out of the sandy soil in this area.

It is not easy and it is not cheap, and through most of the 1980s and 1990s it was not attractive to pursue, because there was plenty of crude oil available from more convenient sources and the market price was too low to reward large-scale tar sands development.

The flow of oil extracted from Alberta's tar sands, also called oil sands, surpassed one million barrels a day at the end of 2003, and it is expected to double to two million barrels by 2010, matching the output of significant members of the Organization of Petroleum Exporting Countries like Libya and Indonesia.

Oil sands currently represent 54 per cent of Alberta's total oil production, and about one-third of all the oil produced in Canada. By 2005, oil sands production represented about 50 per cent of Canada's total crude oil output, and 10 per cent of North American production.

The frenzy of tar-sands development in Alberta highlights an uncomfortable fact about the search for unconventional sources of oil to replace dwindling conventional supplies. It depends on petroleum prices staying high for decades to come.

Many energy companies ignored the sands when light crude was fetching just $10 a barrel in the late 1990s, but no longer. According to the Athabasca Regional Issues Working Group, an organization representing energy companies, some 28 billion Canadian dollars, or $21 billion, in oil-sands investments are planned over the next decade.

Energy economists in Calgary, the freewheeling commercial capital of this sparsely populated but energy-rich province of three million, say that most tar sands projects are viable only when oil is selling for more than $30 a barrel.

It often costs as much as $15 a barrel to get bitumen, a thick, sticky form of crude oil, out of the sands, compared with recovery costs as low as $2 a barrel for crude oil in parts of the Middle East. Refining the bitumen also costs much more than refining light crude.

The oil sands (or "Tar Sands") are a large deposit of bitumen. Unlike the smooth crude oil that spurts from wells in Kuwait and Texas, oil sands are essentially black mud. "It's like you took a bucket of sand and dumped your old motor oil in it," says Peter Duggan, a manager at the Aurora mine, which is operated by Syncrude, a partnership of Exxon, ConocoPhillips, and several other companies. Through a complicated series of steps the mud is transformed into gas you can put in your car.

At room temperature, it is much like cold molasses.

Mineable bitumen deposits are located near the surface and can be recovered by open-pit mining techniques. For example, the Syncrude and Suncor oil sands operations near Fort McMurray, Alberta, use the world's largest trucks and shovels to recover bitumen. They weigh about 400-tons. Each of its six tires cost $43,427.50. Plus tax.

About two tons of oil sands must be dug up, moved and processed to produce one barrel of oil. Roughly 75 per cent of the bitumen can be recovered from sand; processed sand has to be returned to the pit and the site reclaimed. Once obtained, the bitumen must be rigorously treated to convert it into an upgraded crude oil which can then be transferred via pipeline to refineries, where it can be refined into gasoline and diesel fuels.

Yet another technique, in situ mining, is used to recover deposits of bitumen that are buried too deeply to make surface mining impractical. These techniques will employ drilling both vertical as well as horizontal wells and then injecting steam to bring bitumen to the surface, then diluted with condensate so it can be shipped via pipelines. Other methods include the use of solvent injection and CO2 methodology. The world of technology has come to the world of mining, big time.

The two largest oil sands mining operations are run by Syncrude Canada Limited and Suncor Energy. Albian_Sands is another smaller project owned by Shell Canada. A new large project being built by Canadian Natural Resources Limited (CNRL) should be coming on line in mid 2008.
What makes this information so important?

Well, consider this: Remember the 1970's? When oil sold for around $2 barrel? Then came the OPEC oil crisis and oil prices climbed rapidly. At $2 a barrel, oil sands was not a profitable mining venture. Too much equipment, too much capital, too much of most everything . . . for little or no profit.

Things have changed.

When $40 a barrel became a reality, the harvesting of oil sands not only made sense, they made billions for the people digging them. But it wasn't just the price of oil that changed the landscape, it was the toys. That's what they call the giant trucks and shovels that roam the mines.

Then, at $65 per barrel, it now became even more profitable to look at the vast oil sand deposits in Canada. Second only to the Saudi Arabia reserves, Alberta's oil sands deposits were described by Time Magazine as "Canada's greatest buried energy treasure," and "could satisfy the world's demand for petroleum for the next century."

Everything about the oil industry has always been big. It's characterized by bigness, from the pumps to the personalities. But in Alberta, it's frankly ridiculous. The mines operate the world's biggest trucks. They are three stories high and costs $5 million. It carries a load of 400 tons of oil sands, which means, at today's oil prices, each load is worth $10,000 dollars.

The estimate of how many more barrels of oil are buried deeper underground is staggering.

The petroleum industry estimates that the Athabasca Oil Sands deposit contains between 1700 billion barrels and 2500 billion barrels of crude bitumen (an amount approximately equal to world reserves of conventional oil), of which 174 billion barrels has been deemed by the Alberta Government to be recoverable with current technology at current prices.

The Canadian oil industry has been rapidly adopting the latest technology, and in 2005 production of crude bitumen reached about 1 million barrels per day, accounting for 50% of Canadian oil production. Canadian conventional oil reserves have mostly been exhausted, but the production of oil sands has barely scratched the surface. By 2010 oil sands production should reach 2 million barrels per day or 67% of Canadian production, by 2015 it may reach 4 million barrels per day. A few years later Canadian oil production may well exceed United States production, since U.S. oil production peaked in 1971 and is approaching the steep part of the production decline curve.

The prestigious American Oil and Gas Journal believes Canada’s projects are accurate, giving Canada the second largest oil reserves in the world after Saudi Arabia. According to the Alberta Energy and Utilities Board the Athabasca site is the largest oil deposit in the world. Syncrude, one of the oil companies involved in mining the oil sands, states that the entire deposit is twice the size of Lake Ontario. Syncrude Canada Ltd. is the world's largest producer of crude oil from oil sands and the largest single source producer in Canada. They currently supply 13 percent of Canada’s petroleum requirements.

A recent recalculation has revealed that the amount of oil buried underneath the ground in Northern Alberta was not millions of barrels - but trillions. Alberta's internationally recognised reserves are now put at 175 billion barrels of crude. Only Saudi Arabia has bigger reserves.
And these deposits are guaranteed to last for decades, if not centuries.

This oil belongs to the Province of Alberta. It is making it rich: a big place with a small population of three million people. Alberta has paid off its debts and has such a budget surplus already that it has just given every provincial taxpayer a rebate cheque for 400 Canadian dollars as a sort of New Year present.

So now mighty corporations are pouring billions of dollars into the area around Fort McMurray.
In a chilly wilderness where the mercury sometimes freezes, under the brilliant illuminations of the Aurora Borealis, the northern lights, huge excavators are scraping off the topsoil and dumping the sticky sands underneath into the biggest dumper trucks in the world.

Because it takes roughly a ton of tar sand to yield one barrel of oil, the amount of material moved is enormous, as is the equipment used to do the job. Historically (since the 1960's), the oil sands have been mined in huge open pit mines and extracted from the sand by variations of the Clark water-based extraction process, which separates aerated bitumen from the other oil sand components in gravity settling vessels. More recently, new in-situ methods have been developed to extract bitumen from deep deposits by injecting steam to heat the sands and reduce the bitumen viscosity so that it can be pumped out like conventional crude oil.

After the crude bitumen has been extracted from the sand, synthetic oil plants or upgraders convert the molasses-like hydrocarbon into conventional light sweet crude oil which sells at a premium on world markets.

Excerpts from: Tony Clarke, Bruce Campbell and Gordon Laxer, "U.S. oil addiction could make us sick" (March 10, 2006, The Parkland Institute):
Unbeknown to most Canadians, Canada is now the Number 1 foreign supplier of oil to the United States. Given the uncertainties of Mideast and Venezuelan supplies, the U.S. has rapidly increased oil imports from Canada, facilitated by the proportional sharing clause on energy in the North American Free Trade Agreement.
Since the signing of NAFTA in 1994, oil exports to the United States have skyrocketed from 44 per cent to 63 per cent of total Canadian production while natural gas exports have shot up from 41 per cent to 56 per cent .
Canada has become the leading energy satellite of the U.S. at a time when America has reasserted itself globally, as witnessed by the ongoing war in Iraq.

Furthermore, the fact that securing energy supplies has risen to the top of the U.S. national security agenda during George W. Bush's presidency has put Canada in a strategic but also delicate and vulnerable position.

As a result, the Athabasca tar sands has become the centrepiece of a continental energy plan to send massive new oil and gas supplies to the U.S. Three major crude-oil producing projects are in operation with another six planned over the next 20 years. As the largest single emitter of greenhouse gases, the tar sands also puts Canada in a bind over our Kyoto commitments.

Former Canadian Prime Minister Paul Martin sped up talks with the Chinese on exporting up to 400,000 barrels per day of oil to China by 2010. Output at the oil sands is expected to quadruple between 2005 and 2015, reaching 4 million bbl/day, increasing their political and economic importance.

However, there are competing interests elsewhere in the world. Enbridge is planning to build a 400,000 barrel-per-day pipeline from Edmonton, Alberta, to the west-coast port of Kitimat, British Columbia, to export petroleum to China and elsewhere in the Pacific, plus a 150,000 bpd pipeline to import condensate (used to dilute bitumen so it will flow in pipelines) in the other direction, while Sinopec, China's largest refining and chemical company, is a partner in a major oil sands mining development.

And the millions of Chinese who have moved from their bicycles to traffic jams are driving up the demand for oil. It's virtually insatiable and the Canadians want to step up production quickly. What's holding them back is labor - the shortage of it. At least another 100,000 people are needed in Fort McMurray.

That's why one oil company has built a runway to fly workers daily from civilization to Fort McMurray. But why would anyone want to come work in a place where temperatures plummet to 40 below and the sun sets shortly after it rises in the long winter? Well, perhaps because the oil companies pay some of the highest salaries in North America. Employees who have not yet reached the age of 22 are earning $120,000 per year. You’ll find them in Ft. McMurray. Sure, they have to put up with arctic cold . . . but for that kind of money, you can buy a lot of long johns.
But unless the Chinese go back to bicycles and Americans trash their SUVs, there will be buyers - for oil anywhere, no matter how it's found or mined. Right now, Canada has become the land of opportunity for oilmen. They will tell you there is little else on the horizon.

Syncrude, one of the larger companies exploiting the oil sands of Alberta has become a major factor in Canada’s economy. In 2005, they produced 78.1 million barrels of Syncrude Sweet Blend. Their operations provided jobs for 14,000 people directly and indirectly across Canada. The are the largest industrial employer of Aboriginal people in Canada. Aboriginals make up 9.2% of their employee workforce. In 2005, a record $134 million in business was conducted with Aboriginal businesses in their region. Syncrude has become one of the largest private sector employers in Alberta, employing more than 4,300 people directly and an average of 1,000-1,500 maintenance contractor employees.

So you’ve heard the background, explored the facts, you’ve decided you want to get rich. How?

Well, if you want to endure the bitterly cold arctic winters, and if you have a marketable skill, you could go to work there. But, if you want to lean back in your chaise lounge by the pool, and let your capital work for you, you may wish to consider investing in the Alberta Oil Boom.

While we are not touting any stock we show the following graph just to show how far stock has gone. How far will it continue to go? That’s for you to speculate upon and decide whether you want to invest your capital or not.

Stock Overview for ‘COS_u.TO’

CANADIAN OIL SANDS TRUST (Toronto Stock Exchange:COS_u.TO)
Sector: Energy | Industry: Oil & Gas Operations
Price: $167.60
As of 04/03/2006
Risk Alert: NONE

Last Trade: $167.60
Trade Time: 04/03/2006
Change: +0.06%
Prev Close: $167.60
Day's High: $168.60
Day's Low: $166.55
52-wk High: $169.00
52-wk Low: $72.01
Beta: 1.24
Volume: 209,368
Avg. Vol: 243,950

As you can see, the 52 week low was $72.01. It is now selling at or about $167.60. Somebody made some nice money.

Another, smaller company, Suncor shows the following:
Data as of 03-31-2006 04:55 PM CT

Last Price Day Change Volume

Open Price Day Range 52-Wk Range
$77.25 77.62 - 75.77 82.15 - 35.38

34.90 3.85 17.62

Yet another player is about to take the stage.

Canadian Natural Resources Limited (CNRL) expects to be on line, extracting oil in 2008.

As the chart above show, they have grown consistently and they have yet to begin harvesting their oil sands.

Last Trade: $64.90
Trade Time: 04/03/2006
Change: -1.83%
Prev Close: $64.90

Day's High: $65.50
Day's Low: $63.80
52-wk High: $73.91
52-wk Low: $30.54
Beta: 2.15
Volume: 2,482,080
Avg. Vol: 1,843,915

So, you roll your dice and you take your chances. Some investors have already made small fortunes. It would appear from the data, suggesting that the surface has only been scratched in the mining of the oil sands that this might be an area where the small investor may have an interest as well as the giant corporate investment dollars. Most analysts we’ve talked to, however, recommend if you buy oil sand stocks that you buy and hold as a long term investment.

Find yourself an investment counselor you have confidence in and make a judgment as to whether this is something you want to explore.

If we’ve been able to help you understand this world of oil and sand and money . . . then it appears we may have done our job.

Sources: BBC News, Peter Day, columnist: