China is Investing in Oil Sands, Will Retail Investors Follow?

Weak crude prices have put a damper on the expensive oilsands extraction business, but amid stabilizing prices and economic optimism, production could double in coming years.

The Conference Board of Canada expects output from the country’s oilsands to double by 2013, according to a report in Thursday’s Financial Post. After tumbling oil prices stalled major extraction projects during the recession, a rebound could mean profits tripling from current levels.

Meanwhile, PetroChina’s (PTR) nearly $2 billion purchase of a majority stake in Athabasca Oil Sands has some analysts prepared for a wave of Chinese investment in the sector. Among them is Kenny Zhang, a senior research analyst with Vancouver-based Asia Pacific Foundation of Canada. In an interview with the Calgary Herald, Zhang said the PetroChina deal, “has positive implications for Canada-China relations. Alberta’s Premier, Ed Stelmach told reporters the deal, “shows that we are going to be game-changers in oil resources around the world.”

Components of the Oil Sands Stocks Index are negative across the board this week, though today’s rally is helping to pare losses. As a whole, the Index trails the S&P 500 by -4.5% over the last month. If the Conference Board of Canada’s tripled profit forecast is right, these stocks may not stay cheap for long.

Upon the completion of its merger with Petro-Canada, Suncor (SU) became Canada’s largest oil company. Garey Aitken, chief investment officer at Bissett Investment Management, told Reuters, “By default it is going to be a go-to name for many Canadian investors.” Suncor announced yesterday evening that it will be slashing costs at the expense of 1,000 jobs after the merger.

Canadian Natural Resources (CNQ) is currently the largest U.S.-listed oilsands company, weighing in at $30.5 billion. Shares are trading higher by 3.5% into the holiday weekend.

Small-cap players Oilsands Quest (BQI) and North American Energy Partners (NOA) are also trading higher to end the week. The companies are both valued at less than $300 million, and would be easily swallowed by any of the big oil and gas companies, though to date there is nothing to suggest that the companies are possible targets.

As of this writing, the Oil Sands Stocks Index is just shy of the 50 worst-performing tickerspy Indexes over the last month, down by 3.6%.

Tags: BQI, CNQ, NOA, PTR, SU