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A high-income bet on rising energy prices

Matt Badiali, Stansberry Research
0 Comments| July 28, 2010

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Last week, I attended one of the best collections of junior resource companies and investment experts you can find anywhere... the Agora Financial Investment Symposium, held in Vancouver, British Columbia.

One of the highlights of the conference was hearing master resource investor Rick Rule speak five different times. Every talk held nuggets of information that can make you money, including the one I'm passing along today...

Right now, Rick's favorite resource sector is energy. In the past, Western countries competed with one another for energy, especially oil. Those days are over. It's now the age of China, whose consumption will dwarf historical volumes.

At the same time, the owners of giant "legacy" oil fields are killing them. National oil companies in Nigeria, Mexico, Venezuela, Indonesia, and Iran exported oil and used the revenues to line the pockets of officials and voters. They failed to properly reinvest in the oil fields. Now, their oil production is plummeting.

That is a problem for those countries... but it's also a problem for everyone else who's competing for oil resources.

Roughly 25% of the world's export oil comes from countries that have mismanaged their oil fields. It's pretty easy to guess what happens next... Rising demand and falling supply will lead to higher prices. As Rick pointed out, that's not an "if" proposition... it's a "when" proposition.

Britain's Energy Secretary Chris Huhne told the Financial Times that oil shocks reminiscent of the 1970s are very likely. He's worried that, as North Sea oil fields decline, England will face supply problems.

Great Britain is in trouble. But here in the U.S., we have a solution.

The safest, smartest alternative to tanking in oil from the Middle East and South America lies about 850 miles north of Helena, Montana. Canada's tar sands are enormous. And the oil is easy to recover.

As the world's excess export capacity thins out, and China gobbles up what's left, the U.S. will depend even more on Canada for its oil supply.

Rick recommended Canadian Oil Sands Trust (
TSX: T.COS.UN, Stock Forum) on the Toronto Stock Exchange). The trust is a pure play on the Canadian oil sands. It doesn't own gas stations or refineries... It just owns 36% of giant oil sands mine Syncrude.

Its partners in the project are a wide range of oil companies like ConocoPhillips (NYSE: COP, Stock Forum), Suncor Energy Inc. (TSX: T.SU, Stock Forum), Imperial Oil Ltd. (TSX: T.IMO, Stock Forum) and (AMEX: IMO, Stock Forum), Nexen Inc. (TSX: T.NXY, Stock Forum), and Murphy Oil Corp. (NYSE: MUR, Stock Forum). Syncrude produces about 375,000 barrels per day. Its resource is around 5 billion barrels.

Rick says he's not expecting capital gains with Canadian Oil Sands Trust. He says it's like insurance against rising oil prices down the road. And it pays a nice 6.9% dividend while we wait.

Disclosure: The author does not hold positions in any of the stocks mentioned

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