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The Secret of Pitch Lake

By Matt Badiali, editor, S&A Resource Report
Wednesday, December 20, 2006

In 1595, the English adventurer Sir Walter Raleigh sailed into Port of Spain, Trinidad, wiped out the harbor, and burned down the town of Saint Joseph, capturing the Spanish governor.

Raleigh came to Trinidad looking for El Dorado, the legendary kingdom of gold. While docked there, he caulked his ship with an oily muck he found in Pitch Lake... a 95-acre pool of tar sand formed by oil seeping out of the ground and combining with sand and clay on the way.

Rather than find El Dorado and eternal wealth, Raleigh’s hopeful journey ended in disease, death, and disappointment. He lost a good chunk of his crew and returned to England. After several decades of writing, failed adventures, and political intrigues, the crown ordered him beheaded with an axe.

Raleigh would have done better to forget about golden folk tales and focus on places like Pitch Lake and its tar sands. Fortunately, as investors, we can focus on the world’s giant tar-sand deposits and make plenty of money...

You see, Raleigh and his men hadn’t made any rare or dramatic discovery at Pitch Lake. The world is littered with tar sand deposits, many sitting out in plain view...

In ancient Mesopotamia and Babylon, the Elamite, Akkadian, and Sumerian people mined shallow deposits of asphalt, or bitumen. The Dead Sea was called the Lake Asphaltites, as in “asphalt,” because of the semisolid lumps of petroleum that washed up on its shores from underwater seeps.

In fact, about 70 countries around the world, including Canada, the former Soviet Union, Venezuela, Cuba, Indonesia, Brazil, Jordan, Madagascar, and Trinidad and Tobago, boast oil-sands deposits, according to the American Association of Petroleum Geologists (AAPG). The United States contains scattered deposits, mainly in Utah, Kentucky, Kansas, Missouri, Oklahoma, California, and New Mexico.

But the two most important countries in this business are undisputed:Venezuela and Canada. The numbers speak for themselves...

The current accepted estimates place a reserve of 1.7 trillion barrels on Canada’s deposits, located mainly in the Alberta province. For comparison,the entire world’s estimated conventional oil reserves are close to 1.7 trillion barrels as well, located mostly in the Middle East. It’s no wonder my friend Rick Rule says the potential energy legacy of Alberta is “Persian Gulf-style.”

Venezuela comes in around 1.7 trillion barrels as well. But, a volatile communist dictatorship is part of the package.

If you’re interested in speculating in tar sands, Venezuela carries a little too much political risk for my tastes, and I wouldn’t put any real money there. There’s plenty of opportunity to be had in Canada... several plays you can check out here are Suncor (SU), Canadian Natural Resources (CNQ), Nexen (NXY), and EnCana (ECA).

There is simply too much petroleum and money trapped in heavy oil and tar sands for us to ignore it. I see oil prices rising like the steps of a Mayan pyramid. While we may plateau at around $50 to $60 per barrel for a while, prices will eventually go higher.

Unless some new miracle technology comes along, our society is bound to oil. And tar sands will be called on to fill growing demand, as light crude gets increasingly expensive to find and produce. That means tar sand – and Canada’s in particular – is the long-term investor’s friend.

Good investing,


Market Notes


Readers of Barron’s found out last week what Matt Badiali’s readers have known about all year... that supermajor oil company ConocoPhillips (COP) may be the best buy in the stock market.

Trading for seven times earnings, ConocoPhillips is one of the cheapest stocks on Earth. And as Matt detailed in the December 2005 issue of the S&A Oil Report, COP’s list of assets is simply incredible.

The company is the largest refiner and the largest natural-gas producer in North America. It owns a $15 billion stake in Russian oil monopoly Lukoil. It also has large positions in both Canadian and Venezuelan oil sands.

Matt even shared his analysis in DailyWealth column in August. Given its diversified portfolio of energy assets and excellent management, he called ConocoPhillips one of the best “energy hedge funds” in the world.

Bully for Matt... COP shares have gained 11% since his recommendation a year ago. Now that the rest of the world is catching on, the real bull run is just beginning.

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