canada’s oil sands: peak oil insurance policy derek gates, cfa founder swm oil sands sector index...
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Canada’s Oil Sands:Peak Oil Insurance Policy
Derek Gates, CFAFounder
SWM Oil Sands Sector Index TM
SWM Canadian Energy Income Index TM
Cautionary Statement & DisclaimerThis presentation includes forward looking statements. Actual results may vary
significantly due to numerous factors both known and unknown to the author. The information contained in this presentation is not intended to constitute investment
advice and investors contemplating investing in the sector should seek professional advice before doing so and must not rely on the assertions, facts, opinions and projections provided in this presentation. Past performance does not guarantee
future performance. Market information used on this website is obtained from non-proprietary market sources. While we believe this information to be accurate,
Sustainable Wealth Management, Ltd. and its affiliates cannot attest to the validity of information culled from other sources The information provided does not constitute a solicitation of an offer to buy, or an offer to sell securities in any
jurisdiction to any person to whom it is not lawful to make such an offer. All rights reserved. The contents of the SWM website are protected by applicable copyright laws. No permission is granted to copy, distribute, modify, post or frame any text,
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and are the sole property of Sustainable Wealth Management, Ltd.
Recent Trends in Crude Oil Prices
• Crude prices have been trading above $40 US/barrel since mid 2004 and a new uptrend has developed
• 3 year average price is now over $60 US
• Many Wall Street analysts continue to believe that the current high prices will moderate in the medium to long term
Oil Sands Sector Index was created when crude oil prices broke through 16 year trading range
Source: Sustainable Wealth Management Ltd., Bloomberg
Historical Oil Prices (Nymex Nov 1986 to June 2007)
$0
$10
$20
$30
$40
$50
$60
$70
$80
No
v-86
No
v-87
No
v-88
No
v-89
No
v-90
No
v-91
No
v-92
No
v-93
No
v-94
No
v-95
No
v-96
No
v-97
No
v-98
No
v-99
No
v-00
No
v-01
No
v-02
No
v-03
No
v-04
No
v-05
No
v-06
Source: Sustainable Wealth Management Ltd., Bloomberg
Historical Average Annual Crude Oil Prices
$0
$10
$20
$30
$40
$50
$60
$70
$80
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
IEO2006 vs. IEO2005: World Oil Prices
0
10
20
30
40
50
60
70
80
1980 1990 2000 2010 2020 2030
2004
Dol
lars
per
Bar
rel
IEO2006
History Projections
IEO2005
Source: EIA, IEO2006
Recent Upward Shift in Future Expected Crude Oil Prices
Global Energy Demand Trends
• Crude Oil, Natural Gas and Coal represent the bulk of global energy demand now and well into the future
• Crude oil demand only slightly moderated after the 25 time run up in the 1970s (from $1.35 to $35+)
• Alternative sources are not expected to reduce our dependency on the primary fossil fuels over the next 25 years
Source: Sustainable Wealth Management Ltd., IEA reports
0
50
100
150
200
250
300
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Qua
drill
ion
Btu
World Marketed Energy Use by Fuel Type, 1980-2030
Oil
Natural Gas
Coal
33%
27%
9%Renewables
Nuclear
26%
5%
Share of WorldTotal
History Projections
38%
24%
24%
8%
6%
Source: EIA, IEO2006
Source: IEA 2006, Oil Market Report
Global Oil Supply Outlook• Global demand for crude oil was 84.2 Million
barrels/day in 2006 and will grow to 85.7 Million by 2007, a 1.8% rise(IEA)
• Global supply for crude oil was 85.1 Million in 2006 and little growth expected in 2007 (latest IEA Oil Market Report)
• Producing oil wells are depleting by at least 4 to 8% per year (ExxonMobil estimates)
• Exploration and Development costs for crude oil are over $30,000 US per boe/day, oil sands and offshore projects are in the $65,000 to $100,000+ range
Source: Sustainable Wealth Management Ltd., IEA
Source: IEA 2006, Oil Market Report
Projected Global Oil Supply and Demand 2007 to 2017
Source: SWM Estimates, ExxonMobil estimates, IEA
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MM boe/d
World Demand (boe/day) World Supply (boe/d)
New Global Oil Requirements 2007 - 2017
Source: Sustainable Wealth Management Ltd. projections
0
5
10
15
20
25
30
35
40
45
50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MM boe/d
Needed for Demand Growth Needed for Depletion
Lack of Investment Opportunities• Current energy investment is insufficient to replace
depleting reserves & match growth in demand • At least 80% of proven global oil reserves are
controlled by National Oil Companies (NOCs) • Canada represents 60% of global reserves that can
be invested in privately• NOCs are interested in maximizing their profit not
maximizing production• NOCs have a history of changing tax regimes and
appropriating property from multinational oil companies
0
50
100
150
200
250
300
Bil
lio
ns
of
Ba
rre
ls
Bitumen
Oil
Source: IEA, EIA, Sustainable Wealth Management Ltd. estimates
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Source: IEA 2006, EIA
Global Oil Reserves• Global oil reserves are concentrated in just a
few countries
• There are 192 countries that consume oil, 54 produce some oil but only 17 can export more than 500,000 barrels/day
• Of the 10 largest oil reserves in the world, 9 are controlled by national oil companies or protectionist governments
Source: IEA 2006, EIA
Investing in Canada• Canada has the world’s second largest oil
reserves, 175 Billion barrels of proven and over 315 Billion barrels of proven and probable reserves
• Geopolitically stable and the largest crude exporter to the US (16% of all US imports)
• Oil companies are all independently owned • Established industry which is open to foreign
investment
Canada’s Oil Sands
Overview of Canada’s Oil Sands
• Estimated 1.7 – 2.5 Trillion barrels of bitumen in Alberta, represents about 15 years on Total World needs, currently only 10 to 15% is economically recoverable
• Represents over half of Canada’s oil production, only 5 Billion barrels recovered so far
• The industry is established and profitable in Canada for over 40 years and benefits from ultra low royalty tax rates until capital costs are fully recovered
Source: Oil Sands Discovery Centre
Best Place in North America to Invest in Energy
Alberta vs. Rest of Canada & US
Provincial Sales Tax 0% - Lowest in Canada & US
Oil Sands Royalty Rate1% until project recovers all costs,
25% thereafter
Provincial Personal &Corporate Tax
Lowest in Canada
Provincial Debt None
Provincial Budget Several Years of Surplus
Government Stability Same political party for decades
Employment Opportunities
Lowest Unemployment Rate in Canada
Source: Sustainable Wealth Management Ltd.
Canada vs. other Major Oil Suppliers
Country/Region
Current Oil
Production
US OilImports
Threats
Algeria1,900,000
bbl/d414,000
bbl/dArmed militants have confronted
government forces
Iraq2,025,000
bbl/d516,000
bbl/d
236 attacks on Iraqi oil infrastructure, April 03 to May
05
Nigeria2,500,000
bbl/d1,071,000
bbl/d
Income disparity, violent crime, ethnic conflict, suspended oil exports from strikes/protests
Russia9,300,000
bbl/d419,000
bbl/dUncertain investment climate
Saudi Arabia10,400,000
bbl/d1,614,000
Terrorist attacks on oil workers, stability of al-Saud ruling
family
Venezuela2,900,000
bbl/d1,579,000
bbl/dPolitical animosity, potential
nationalization of oil industry
Canada3,047,000
bbl/d1,742,000
bbl/d
Largest source of US oil imports, ahead of Saudi
Arabia and Mexico
Source: Sustainable Wealth Management Ltd.
ReservesProduction
Rate (boe/d)
Years of Production at Current
Rates
Current Reserves
under developmen
t
83.9 Billion boe
1,075,000 boe/day 217
Total Proven Reserves
174 Billion boe
1,075,000 boe/day 452
Total Proven & Probable Reserves
305 Billion boe
1,075,000 boe/day 788
Production to continue for 100+ years
Source: Sustainable Wealth Management Ltd.
Cumulative Discoveries from Giant Oil Fields (>500 Mmbbls)1870 - 2005
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Source: AAPG Memoirs, EUB, Oil & Gas Journal, RJ Research estimates & analysis
Cu
mu
lati
ve
Dis
co
ve
rie
s (
Mm
bb
ls)
Thunder Horse,Kashagan &
Sihil
Burgan (Kuwait)
Ghawar(Saudi Arabia)
Bolivar Coastal(Venezuela)
Oil Sands(Alberta)
315 billion Proven + Potential175 billion Proven
Kirkuk (Iraq)
Cantarell(Mexico)
Canada’s Oil Sands
• Oil Sands production is expected to grow from the current 1 MM boe/day to over 4 MM boe/day by 2020
• Canada is projected to be the 3rd largest oil exporter by 2020 behind Russia and Saudi Arabia
• US will continue to rely heavily on Canadian oil exports
Source: Sustainable Wealth Management Ltd., company reports
Planned Oil Sands Production Growth to 2020
Bitumen Production from Planned Projects
Synthetic Production from Planned Projects
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1990 1994 1998 2002 2006 2010 2014 2018
mb
/d
Total Oil Sands Production from Planned Projects
Source: Company reports, SWM estimates
0
4,000
8,000
12,000
16,000
20,000
24,000
28,000
1949 1959 1969 1979 1989 1999 2009 2019
mb
/d
Demand
Supply
ForecastActual
2025 Gap 21.4
mmb/d
2005 Gap 15.1
mmb/d
Forecast assumes a 1% annual growth rate in demand and a 2% decrease in annual domestic production.
US Peak Production 1970
US Crude Oil Supply and Demand Forecast
Cdn based producersCdn based producers
2015 production 25,000 boe/day2015 production 25,000 boe/day
% % focus on Oil sands must exceedfocus on Oil sands must exceed 35% based on expected production35% based on expected production
10 years from now10 years from now
Market cap toMarket cap toexceed 500 millionexceed 500 million
Market liquidity $2MM sharesMarket liquidity $2MM shares
The FiveFive Key Factors SWM Oil Sands Index
Source: Sustainable Wealth Management Ltd.
100
140
180
220
260
300
340
380
420
460
30-J
un-0
4
31-A
ug-0
4
31-O
ct-0
4
31-D
ec-0
4
28-F
eb-0
5
30-A
pr-0
5
30-J
un-0
5
31-A
ug-0
5
31-O
ct-0
5
30-D
ec-0
5
28-F
eb-0
6
30-A
pr-0
6
30-J
un-0
6
31-A
ug-0
6
31-O
ct-0
6
31-D
ec-0
6
28-F
eb-0
7
30-A
pr-0
7
30-J
un-0
7
SOSSI (USD) US Energy Sector (USD)
Source: Sustainable Wealth Management Ltd., Bloomberg
SWM Oil Sands Index vs. S&P US Energy Select Sector Index
Over 213% higher returns 36 months
Comparison to Existing Energy Indices
Source: Sustainable Wealth Management Ltd., Bloomberg
As of June 30, 2007 SWM Oil Sands Sector Index
S&P US Energy Index
S&P TSX Capped Energy Index
Return since June 2004 (USD)
335.5% 127.9% 176.8%
# of Companies 16 32 65
Top Ten Holdings
(% of Total Value)
76.9% 68.1% 70.5%
Largest Position 10.6% 21.0% 14.2%
Smallest Position 3.1% 0.6% 0.1%
% of Index in Oil Sands Producers
100% 50.9% 70.9%
100
140
180
220
260
300
340
380
420
460
30-J
un-0
4
30-S
ep-0
4
31-D
ec-0
4
31-M
ar-0
5
30-J
un-0
5
30-S
ep-0
5
30-D
ec-0
5
31-M
ar-0
6
30-J
un-0
6
30-S
ep-0
6
31-D
ec-0
6
31-M
ar-0
7
30-J
un-0
7
SOSSI (USD) ExxonMobil NYMEX Crude
SWM Oil Sands Index vs. Crude Oil vs. ExxonMobil (XOM)
Source: Sustainable Wealth Management Ltd., Bloomberg
Over 246% higher returns 36 months
Comparison to ExxonMobil
Source: Sustainable Wealth Management Ltd., Bloomberg, Company annual reports
(June 30, 2007) Oil Sands Sector Index
Compared to ExxonMobil
Return Since Inception (06/04) in US$
335.5% 88.9%
Current P/E 16.6 13.4
Total Market Cap (US$) $294 Billion $511 Billion
Current Production
(million boe/d)
3.6 4.1
Expected Production Growth
12.4%/yr 4%/yr
Reserve Life Index 65+ minimum 15.4
Proven Reserves(billions of boe)
85 23
Investment Timing is Attractive
Source: Bloomberg, Sustainable Wealth Management, Ltd.
Recently took out 2006 double top at 340, supportcurrently at 320 to 340 range.
Contact Information
Derek Gates, CFA, CIM, CFP, FCSI
President & CIO
Sustainable Wealth Management Ltd.
Suite 224, 222 – 16th Ave NECalgary Alberta T2E 1J8
Phone 403 454-0881
Fax 403 454-0884