Egyptian turmoil highlights this oil stock’s potential

Canada’s oil sands continue to face strong opposition from environmentalists. That’s mainly because the process of recovering heavy oil from the oil sands produces higher carbon emissions than conventional sources.

However, new technology has let oil stocks cut way down on their oil-sands emissions. As well, turmoil in Egypt and other Middle Eastern countries highlights the oil sands’ strategic importance to the U.S. and Canada. These factors make it less likely that Ottawa will introduce regulations that would slow oil-sands development.

Cenovus: a diversified producer with a focus on the oil sands

In the latest issue of The Successful Investor, we’ve published a special analysis of three oil stocks with significant oil-sands operations. One of these companies is Cenovus Inc. (symbol CVE on Toronto). The oil stock’s shares have risen 36% since the old EnCana Corp. split itself into two companies in December 2009: Cenovus and the new Encana (Toronto symbol ECA).

Cenovus operates three oil-sands properties in Alberta, and one in Saskatchewan. The company ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural-gas properties.

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Big investment should boost this oil stock’s production

The company plans to spend roughly $2.3 billion to expand and upgrade its operations in 2011. It will invest about half of these funds in its oil-sands projects, and up to $650 million in its conventional oil and natural-gas properties.

These investments should increase the oil stock’s 2011 production by 2% over 2010. In addition, the company plans to spend up to $410 million to upgrade its two refineries in the U.S. This will help it handle the higher production.

Cenovus’ 2011 cash flow should be around $2.2 billion, so it can comfortably afford these upgrades. As well, it plans to raise an additional $300 million to $500 million by selling certain properties and investments.

Oil sands producers have big potential—and risk

Canada’s reserves of oil sands are vast. However, extracting oil from oil sands is hugely expensive. Oil sands projects typically run way over budget. That adds to the risk of construction delays and problems. Moreover, petroleum from oil sands needs more processing than regular crude oil. These higher costs make oil-sands producers like Cenovus especially vulnerable to oil-price declines.

As we mentioned, Cenovus has risen 36% since December 2009. In the latest Successful Investor, we look to see if it has the potential to go even higher.

You can get our special analysis, including our clear buy/sell/hold advice, on Cenovus and two other oil stocks with significant oil sands production in the latest Successful Investor. What’s more, you can get this issue absolutely free when you subscribe today. Click here to learn how.