Weekend Edition: Foreigners Appreciate Canada’s Resources More than Canadians

Oil Sands MineAthabasca Oil Sands ATH.TO 7.19 [+0.04] recently confirmed it had signed a letter of intent with the National Oil Company of Kuwait. The JV agreement may be concluded in Q3 according to Athabasca chief executive Sveinung Svarte.

The agreement may be worth up to $3.1B according to a report by CIBC. The deal involves two of ATH’s properties in northern Alberta — Hangingstone and Birch.

So now that we had Chinese, Japanese and Malaysians taking over our companies, let’s welcome the Kuwaitis. The surprising part is that Kuwait is an oil rich country.

Why is Kuwait diversifying its sources? Is the peak of cheap conventional oil production in sight for this country?

One man’s trash is another man’s treasure.

Obviously our oil gas resources aren’t trash but we almost treat them that way. Just look at the valuation gap; the value assigned by foreign buyers to our domestic assets versus what we Canadian investors are willing to apply.

Take the junior oil and gas sector; it has been obliterated rendering raising money almost impossible. How are we supposed to develop our resources and grow our juniors into intermediates? If we do not support this sector through investment, how can an intermediate grow into a Nexen or a Talisman?

There’s no doubt about it, foreigners appreciate our resources more than we Canadians do.

Another way to look at it would be: They are either idiots for overpaying or we are the idiots for being so short sighted. It has to be one of the 2 as it can’t be both!

Finally, foreign interest is predominantly focused on large entities. There’s practically no hope of a takeover or a JV agreement with a foreign entity for Junior and intermediate companies.

And since valuations are ridiculously low particularly for juniors, M&A transactions simply don’t make any sense. Unless the ship is sinking, why sell at all to another domestic company ?

To add insult to injury, I am writing this piece in an environment where our October light oil is currently fetches a $1.00/bbl premium to WTI.

What do you think?

News Roundup

Closer economic ties with China could bring ‘long-term pain’ for Canada: study

Kuwait Petroleum reportedly plans to invest up to $4B in oilsands partnership

Shale Boom Cuts Gulf Oil Premium to 24-Year Low

US can maintain oil growth – Credit Suisse

Saudi Arabia may become oil importer by 2030: Citigroup

Carnival Mentions

Carnival of Wealth, Management Day Edition | Control Your Cash

Yakezie Carnival -The Fincon12 Edition 

Weekend Ramblings and PF Blog Love: Back in the Swing of Things Edition – Young And Thrifty

Have a great Weekend!

6 comments to Weekend Edition: Foreigners Appreciate Canada’s Resources More than Canadians

  • Lee Roth

    Very good article Mich. Your sayings is common sense for you and me but unfortunately other close minded folks behave like herd and they keep buying the hype and the pumped KOG, OAS and NOG instead of the grossly undervalued Canadian Companies.

    I m long: TID (Tuscany Intl Drilling), CZE (C&C Energia) and did some bottom fishing on TT (Terra) a couple of days ago.

    Have a nice weekend.

    • Mich

      You’re right Lee, I think at one point the herd will come back into our sector. I already noticed some money leaving REITs for example, time to chase commodities?

      I like CZE, It’ll do fine in my opinion as the environment in Colombia improves.

      Cheers,

  • Charles Hugh Smith has explained why foreigners are buying up US assets: http://www.oftwominds.com/blogjune12/overseas-RE-investing6-12.html After 30 years of trade deficits, the US dollars overseas must inevitably return to their point of origin.

    This also applies to Canada since the economy of Canada has so tight a relationship with the US. Canada can thus absorb many billions of the excess US currency that is out there.

    Carney has urged Canadian oil investors to not waste the opportunity to invest in the what Asia needs: http://business.financialpost.com/2012/09/07/invest-or-risk-missing-massive-opportunities-carney-tells-cash-rich-energy-firms/

    I do think Canadians do well to invest in Canada. This helps grow our economy and I’d rather do that than invest in the United States. The United States has persecuted me and all other US citizens living outside the US, by threatening us with huge fines (up to 383%) for not telling them what we have in our “foreign” bank accounts. So I am very happy leaving the US alone in my entire portfolio. If they want everything I have, they get nothing.

    • Mich

      I as well would rather invest in Canada and Canadian companies first. In fact, I only hold Canadian equities across my accounts.

      Wish that money Charles was talking end up buying juniors :)

      Carney is right and this is what I’ve been saying all along if you go 2 years back.

      Carney’s statement is bullish for services companies!

  • There’s the benefit of playing chess against checkers. Foreign sovereign wealth funds can afford to sit on an investment for a few years, especially an O&G asset.

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