Oil stocks: Mighty Imperial offers lower-risk profit

You may think oil is set to rise sharply, due to fast growth in India and China. Or you may think prices could be set to fall, because high oil prices could prompt users to switch to cheaper natural gas. The truth is, no one knows the future direction of oil prices.

That’s why, instead of trying to predict the future direction of oil prices, we continue to recommend that you stick with well-established oil stocks with high-quality reserves and rising production. In addition, you should limit your investments in oil stocks to a portion of your portfolio’s Resource holdings.

Oil stocks: Imperial is looking to the oil sands for long-term growth

In the latest issue of Canadian Wealth Advisor, our newsletter for safety-conscious investors, we’ve updated our buy/sell/hold advice on Imperial Oil (symbol IMO on Toronto). The stock has risen 18.2% for us in the last seven months.

Imperial Oil is a major integrated-oil company that gets most of its production from its oil-sands projects in Alberta. Imperial also has conventional oil and natural-gas operations in western Canada, and holds interests in offshore projects in Atlantic Canada. The oil stock’s other operations include four refineries and roughly 1,900 Esso gas stations.

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Imperial’s revenue and cash flow rose sharply in the latest quarter, mainly due to higher production, higher oil prices and improved profits at Imperial’s refineries.

The oil stock’s production looks set keep rising over the long term, thanks to its new oil-sands projects, including the $10.9-billion Kearl project, which is more than 50% complete. Imperial owns 71% of Kearl. ExxonMobil Corp. (New York symbol XOM) owns the remaining 29%. Exxon also holds a 69.6% interest in Imperial.

When Kearl starts operating next year, it should add 78,100 barrels of oil to Imperial’s daily production of 256,000 barrels. Its reserves should last 40 to 50 years.

Oil sands have strong 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.

As well, Canada’s oil sands still face opposition from environmentalists. However, new technology has sharply lowered the oil sands’ greenhouse-gas emissions. Moreover, the new Conservative majority government has promised not to impose onerous new carbon taxes or environmental regulations on oil-sands operators.

As we mentioned, Imperial Oil has risen 18.2% for us in the last seven months. In the latest Canadian Wealth Advisor, we look to see if it has the potential to go even higher.

You can get our complete analysis, including our clear buy/sell/hold advice, on Imperial Oil and 19 other investments when you take a 1-month FREE trial to Canadian Wealth Advisor today.

In addition to the latest issue, your FREE trial also includes 5 FREE Special Reports and much more. Don’t wait! Start your FREE trial to Canadian Wealth Advisor today. Click here to learn how.