NOT OIL COMPANIES ARE CREATED EQAUL: THE BEST PLACES TO INVEST WITHIN THE ENERGY PATCH

THE GOOD, THE BAD & THE UGLY

IT IS MORE IMPORANT TO AVOID THE PLACES NOT TO INVEST IN THEN FOCUS ON THE MOST LUCRATIVE. ALTHOUGH MANY PEOPLE TALK ABOUT OIL COMPANIES AS IF THEY POSSESS THE SAME CHARACTERSITICS, NOTHING COULD BE FURTHER FROM THE TRUTH. IN MY OPINION THERE ARE ONLY TWO AREAS TO AVOID IN OIL AND GAS. THE FIRST AND MOST UNPROFTABLE ARE THE REFINERS SUCH AS VALERO, MARATHON, SUNOCO, FRONTIER AMONG OTHER. THIS IS BECAUSE THEY MAKE PROFIT FROM THE "CRACK SPREAD" AKA THE PRICE THEY BUY IT FOR PLUS THE COST OF REFINING, WHICH IS THEN SUBTRACTED FROM THE SALE PRICE. AT HIGH PRICES THIS HAS OFTEN LEAD TO RAZOR THIN MARGINS. THE SECOND IS THOSE WHO HAVE NOT DISCOVERED ANY OIL YET "EXPLORERS". THIS IS BECAUSE THE MAJORITY OF THE WORLDS OIL HAS BEEN FOUND.

NOW THE MOST PROFITABLE IN THE INDUSTRY ARE DEEP WATER DRILLING, EQUIPMENT MAKERS & THE OIL SANDS AT HIGH PRICES, DUE TO THE LARGE RESERVE BASE.

CANADIAN OIL SANDS ISN'T AN INTERESTING SECTOR OF THE OIL PATCH ON ON ITS OWN, BUT THERE ARE ALWAYS OPPORTUNITIES AND THIS IS TURNING OUT TO BE AN INCREDIBLE STORY FOR SIX OIL COMPANIES, MOST NOTABLY THE CANADIAN OIL SANDS UNIT TRUST- WHICH HAS NEARLY A 40% WORKING INTEREST IN THE SYNACRUDE PROJECT WHICH WILL PROVIDE AN INCREASE IN RESERVES FROM 1.8BILLION BARRELS NOW, TO NEALRY 7 BILLION BARRELS. THAT IS >300% AND WILL PROVIDE 40+ YEARS OF SUBSTANCIAL OIL PRODUCTION. SUNCOR AND A FEW OTHER ARE ENAGED IN THE SYNACRUDE PROJECT, BUT COS.UN IS THE PURE PLAY.

THE BEST AND CHEAPEST DEEP WATER RIGS ARE TRANSOCEAN, ENSCO & DIAMOND OFFSHORE (VALUATIONS WILL BE POSTED SHORTLY). THESE CURRENTLY TRADE AT 1/3 OR LESS OF THIER INTRINSIC VALUE, ASSUMING YOU THINK IS GOING BACK TO 150-200 OVER THE NEXT 3-5 YEARS.

THE BEST EQUIPMENT MAKERS ARE NATIONAL OILWELL VARCO, BAKER HUGHES, CORE LABARATORIES, FMC TECHNOLOGIES, OILSTATES INTERNATIONAL AND A FEW OTHERS.

LASTLY THE CANADIAN OIL UNIT TRUSTS ARE ATTRACTIVE DUE THE BEATING THEY HAVE TAKEN AS THEY LOOSE THEIR TAX STATUS IN JAN 2011. MY FAVORITES INCLUDE, : PENNWEST, PEN-GROWTH, ENERPLUS, PANTERA AND A FEW OTHERS.

THE LARGE INTEGRATEDS WILL OFFER GOOD RETURNS BUT UNDERPERFORM THE FROUP MENTIONED ABOVE. THERE ARE A FEW SMALLER INDEPENDENT AND PIPELINE COMPANIES THAT ARE WORTH BUYING IF YOU CAN DECIPHER THE GOOD FROM THE GREAT.

TICKERS : RIG, NOV, ENS, OII, FMC, COS.UN.TO, PWE, PGH, ERP.UN.TO, RIG.UN.TO, DO, BHS