Following China's Richest Man... Into Canada
By Matthew Badiali
May 16, 2007
| Some people prefer to invest in restaurants or apartments... I prefer to invest in energy, as it is a daily necessity. |
-Li Ka-shing, China's richest man |
Li Ka-shing didn't know quite what he had when he acquired Husky Oil...
Back in 1987, the man who has become China's richest man bought a controlling stake in the small Canadian oil & gas driller. Husky quickly grew production by 11,000 barrels per day through 1989 and doubled its natural gas production in just one year.
However, in 1991, under Li's guidance, the company made a move that helped it become one of Canada's dominant energy companies: It spent C$1.6 billion on a pioneering heavy oil upgrader, located near the vast tar sands of western Canada.
You see, the majority of the oil that comes from Canada's abundant tar sands is thick and sulphur-laden, which makes it harder to refine than the light, sweet crude that comes from Texas. Heavy oil needs to be "upgraded" before it can be processed by the majority of American refineries.
While not profitable to operate when oil prices are depressed, heavy oil upgraders are enormously profitable and important now that oil prices are north of $60 a barrel.
With the ability to process 77,000 barrels of oil per day, Husky's upgrader has helped propel the company (now called Husky Energy) to the ranks of Canada's largest and most powerful oil companies. America needs these guys now more than ever.
The U.S. is approaching a crisis in oil imports. In terms of either politics or oil production, three of our largest foreign importers (Nigeria, Mexico, and Venezuela) are basket cases.
Mexico's Cantarell field for example – the second-largest field in the world – is dying. Production last year fell by 20%, and output is forecasted to decline by at least 10% a year for the next five years. Nigeria and Venezuela are, of course, Nigeria and Venezuela.
This puts our neighbors to the north in an increasingly larger role in helping the U.S. meet our oil needs. While much of Canada's oil is harder to extract, it's plentiful and under a stable government. That is where Husky and Li Ka-shing have the inside track.
In addition to its early tar-sand investments, Husky further demonstrated it understands the oil business by agreeing to purchase a Valero refinery in Lima, Ohio, this year.
Husky plans to renovate the refinery to handle heavy oil... giving the company an extra outlet to ship tar sand production to the States. With no new refineries built in the U.S. since the 1970s, I'd say Li Ka-shing – known throughout China as "Superman" – understands the importance of refining capacity better than the U.S. government does.
I'm in total agreement with Li and his team at Husky. The Canadian tar sands represent the future of U.S. oil imports... and the companies operating there will enjoy extraordinary growth for the next few decades.
I recommended Husky Energy to readers of the S&A Oil Report last year, and we're already up 25%. I think there's plenty more gains to come...
When someone as smart and accomplished as Li Ka-shing is involved, it's best to just jump on for the ride.
Good investing,
Matt
Editor's note: Matt Badiali is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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