Canadian oil sands
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After Nexen's Buyout, How Should You Play Canadian Oil Sands Stocks?
The purchase of Calgary-based energy company Nexen Inc. (NYSE: NXY) for $15.1 billion by China's CNOOC Ltd. (NYSE ADR: CEO) is the largest overseas purchase ever by the world's second-biggest economic power.
But it will likely be the last time China, or any other country, takes a big chunk out of Canada's oil sands - the world's third-largest proven reserves of crude oil.
That's because after Canadian Prime Minister Stephen Harper approved the Nexen deal in December, he banned further foreign firms' investment in Canada's oil sands and will allow them only under "exceptional" circumstances.
"The government's concern and discomfort for some time has been that very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this [oil sands] industry from one that is essentially a free market to one that is effectively under control of a foreign government," Harper said in December.
"Foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada," he added.
But foreign government control isn't the real problem facing Canadian oil sands companies.
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Approval of Keystone Pipeline Will Pump Profits Out of Canadian Oil Sands
With U.S. President Barack Obama expected to approve the long-delayed Keystone XL oil pipeline late this year or early in 2012, several companies already producing in the Canadian oil sand fields stand to benefit.
The 1,700-mile pipeline, which could be finished as soon as mid-2013, will carry 700,000 barrels of crude per day from the Canadian oil sands in Alberta to refineries in Port Arthur, TX.
That will make it easier for the oil-producing companies to get their product to market.
"It's a great idea," said Money Morning Global Resources Specialist Peter Krauth. "According to the EIA, Canada is the top petroleum exporter to the United States - delivering more oil than Saudi Arabia and Mexico combined and, for the most part anyways, Canadians don't hate Americans."
Approval of the Keystone pipeline, first proposed by TransCanada Corp. (NYSE: TRP) in 2008, has been delayed for more than a year because of environmental concerns.
In particular, Nebraska residents fear leaks from the pipeline fouling the Ogallala Aquifer, which supplies the drinking water for more than 2 million residents. Environmental groups say the complex methods required to extract the oil from the sands are destructive to the land and generate excess greenhouse gasses.
However, political pressure to "do something" about the high price of oil and a desire to create jobs almost certainly ensures that the pipeline will get built.
"For the Obama administration, having an answer to high prices will be much more important in 2012 than it is today," Kevin Book. managing director at the research firm ClearView Energy Partners, told CNN Money. "We think it will get approved."
Up to Obama
Because the Keystone pipeline crosses an international border, the U.S. State Department is responsible for approving it, but President Obama is expected to make the final decision.
The State Department issued a report in August that said the environmental impact would be limited, and is expected to recommend that the president approve it.
"We still anticipate State will approve the project by year end," Christine Tezak, an energy and environmental policy analyst at asset management firm Robert W. Baird & Co., wrote in a research note last month. "The White House will cite national energy security, trade with a close neighbor, new jobs, and historically strict permitting requirements as justification for approval."
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