Good comps are probably limited to Apache, Anadarko, and Occidental. Based on proved reserves, Suncor seems the best deal of the four. Enterprise Value (EV) to reserve ratios tell you quite quickly what a barrel of reserves cost. Occidental and Anadarko weigh in over $20 per BOE (Barrel of oil equivalent). Apache and Suncor are much more affordable: Suncor reserves cost buyers $16.65 per BOE, while Apache’s gas-rich reserves cost $16.52 per BOE.
Suncor’s especially cheap given the remarkably high oil content of its reserves. By buying on the dip, Buffett got his oil-rich reserves at an even better price point, getting barrels closer to $16. An obvious strategy would be to keep Buffett’s value in mind as a future buying point, sticking with his value discipline.
Are there other opportunities out there?
You could always find a different way to play the same game. Suncor is almost a pure play on the Canadian oil sands. Syncrude is an even purer play. Syncrude operates the largest surface bitumen mine in the Athabasca. It’s a consortium of Independents and Canadian Oil Sands Partnership #1. The partnership trades as Canadian Oil Sands Limited on the OTC market. As an LLC, it’s a pass-through entity that generates income for investors. It currently pays a 7% yield . All the typical caveats regarding LLCs, MLPs and tax issues apply.
Devon Energy Corp (NYSE:DVN) is another less obvious way to play in the oil sands. The bulk of Devon Energy Corp (NYSE:DVN)’s reserves are natural gas in the Barnett shale. Poor natural gas prices forced Devon Energy Corp (NYSE:DVN) to expand its footprint in a quest for liquids. Devon Energy Corp (NYSE:DVN)’s Jackfish oil sands projects produce a third of its oil production. Its larger Pike project is also currently in the permitting phase.
Devon Energy Corp (NYSE:DVN)’s dirt cheap with an EV/BOE of $10.50 , largely due to its heavy proportion of natural gas reserves. With natural gas prices firming, a prolonged rise in oil prices would benefit Devon Energy Corp (NYSE:DVN) significantly as margins expanded on its prolific but costly Jackfish operations.
Should you follow Buffett in?
Buffett gave you his opinion. He wasn’t a buyer just weeks earlier at these price levels. With affairs in Syria heating up, oil prices have been spiking making it unlikely that Suncor will be available at his prices in the near future. If you want his price, you may need his patience. But his is a carefully considered long term bet. Watching with discipline for another opportunity might be the best course of action. He’s a buyer of $15 barrels. Look for his price and chances are you’ll do well.
The article Should You Follow Buffett Into This Energy Play? originally appeared on Fool.com and is written by Peter Horn.
Peter Horn holds shares of Berkshire-Hathaway. The Motley Fool owns shares of Devon Energy.
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