Which is the best buy?

[Delawaredave]

I'd DCA gradually into Energy.

REITS and emerging markets seem too lofty - I'm rebalancing downward in both these classes.

 

[Ed_The_Gypsy]

...A lot of things like the oil tar sands in Canada become economically viable somewhere between $40-$50 a barrel,

Actually, several players are making money above $20/bbl. Some technololgies are more expensive than others, and some companies are really stupid, but I am personally betting on growth here. (Today I work in the oil sands business in Calgary.)

I hold a bit of VGENX and VGSIX and will continue to do so. As the Chinese demand for oil grows, energy is bound to continue to pay off well over time. VGSIX pays off well off and on so I keep it.

I used to have VEIEX separately, but Vanguard's Total International includes it in about the proportion I like, so I simplified.

I do not try to time these markets. I picked funds that I liked and bought them in certain proportions that I am maintaining. I expect that they all will go up and down but over time will give good results. So far, so good.

 

[brewer12345]

Actually, several players are making money above $20/bbl. Some technololgies are more expensive than others, and some companies are really stupid, but I am personally betting on growth here. (Today I work in the oil sands business in Calgary.)

Ed, can you say which oilsands guys have the lowest threshhold price to make money?

 

[Ed_The_Gypsy]

Brewer,

I think that the surface mine/solvent plants have the lowest production costs these days. Syncrude and Albian Sands have such plants. Unfortunately, these are joint ventures, so not good pure plays. I gather that SAGD (steam-assisted gravity drainage) plants are cheaper to build, but cost more to operate, requiring natural gas to make steam. However, most of the bitumen in the oil sands is too deep to dig, so injection processes are the future.

The cost of building a plant is probably more important. A mine/solvent plant seems to realistically cost about $40,000 CND/barrel of average daily production (~$34,000 US/bbl). I estimate that this gives about an 8-year payback (heavy crude is discounted). If a reasonably sized mine/solvent plant (say, 100,000 bbl/day) could be built for half that, the payback would be really exciting. I think a smart company could build a good plant for less than $40,000/bbl.

CNRL is building a mine/solvent plant and Imperial Oil (=Exxon/Mobil) is going to. Imperial is a partner in Syncrude and should be able to take advantage of a lot of experience in their design. I am watching Imperial and their cost estimate.

I think it is better to look at how well the parent oil company does. Do they replace every barrel produced with a new barrel? What is their return on investment? etc. These oil sands operations are typically only a small part of the assets of large companies.

Gypsy

 

[laurence]

Thanks Ed! I learn something new every day on this board.

 

[Alex]

none of the above.

 

[Ed_The_Gypsy]

Update on oilsands prices...

An article in the National Post Tuesday noted that oilsands projects need $40 to $50 US per barrel to make money. I think that this means new projects. I am sure the lower numbers earlier quoted apply to existing plants.

It makes sense to me because the new projects have experienced huge cost overruns. According to the newpaper, the cost of a recent new megaproject increased by a factor of 4 in just two years. We are talking about billions of dollars here. It seems to me as if someone was either grossly incompetent or intentionally deceived the board of directors.

Once again, check the track record of the parent companies, although FUBARs like this should alert us to potential poor judgement at the corporate level.

 

[Ed_The_Gypsy]

Another update on oilsands prices.

Canadian Oil Sands, a major shareholder in Syncrude, just announced that "...for 2007, our cost [to produce a single barrel] is $25.83 [presumably Canadian, but not specified], about $1 lower than the previous year...." "After taking into consideration all major aspects, our margin of cash from our operations in 2007 is expected to be $21.2 per barrel, based on a crude price of $55." [$55 - $21.2 = $33.8/bbl--prodcution costs?. I don't know why the numbers are different. And I am in the business. ]

Gypsy