Canada Oil Sands Are Still a Gamble


Energy investors are showing their short memories. The stampede to the initial public offering of Athabasca Oil Sands is a tribute to the allure of Canada’s extra-heavy oil. Last week Athabasca priced at the high end of its range and raised $1.35 billion, twice its goal. Yet it was only two years ago the sector was hit hard by the economy. Greater bullying of private oil companies by governments around the world makes it all too easy to forget the risks of another price slump.
Practically no energy portfolio is complete without exposure to Canada’s oil sands. The country accounts for half the world’s oil reserves that aren’t locked up by national companies of foreign governments. Including oil sands, Canada’s reserves are second only to Saudi Arabia’s — around 175 billion barrels.
The Dudley Do-Right factor also helps. Canada’s stable and predictable government is a rarity in the oil business. True, the sand-rich province of Alberta irked producers in 2007 by demanding an extra cut from the sharp rise in prices. But this was nothing compared to the political risks energy companies are accustomed to in places like Nigeria, Russia and Venezuela.
Even so, Athabasca investors seem merely to be swapping potential troubles. The I.P.O. valuation — at about $1 for each contingent barrel — looks in line with the industry average as calculated by the research firm IHS Herold. But there is the looming possibility of environmental controls. Despite the industry’s best efforts, extracting oil from sands generates about 10 percent more carbon dioxide than conventional oil does. That could make the burden of greater regulation costly.
The economic hazards look dangerous, too. Oil sands stop being economical south of $65 a barrel. That proved especially painful for this corner of the business in 2008 when the price of oil fell below $35. Athabasca’s rivals Suncor Energy and Canadian Natural Resources lost 75 percent of their value while more diversified oil majors fell by much less. Some 90 billion Canadian dollars of the country’s sands projects were shelved. If the economy hits another serious bump, oil sands investors are likely to suffer the worst.
EBay, Go Shopping
EBay is inching from auctions to outlet sales — and maybe beyond. The Internet giant’s latest attempt to revive its core marketplaces division focuses on selling overstocked items for fashion designers. If it really wants to build a business running other companies’ Web sales efforts, though, perhaps eBay ought to do some shopping of its own.
While eBay’s online commerce division is a cash cow, the business has been stuck in a bit of a slump. Revenue fell 4 percent in 2009 compared with 2008. The company is trying to fix problems in its auctions business by eliminating dishonest sellers, improving search functionality and changing how fees are charged. Helping companies sell directly to customers could reignite revenue growth, however. Transactions involving used goods are a drop in the ocean compared with sales of new items.
Selling overstock is a natural extension of eBay’s business. Fashion houses don’t want unsold items sitting around — but they don’t want to sell last year’s clothing at knockoff prices in high-end boutiques either. At the same time, eBay has the visitor traffic and infrastructure to sell things. If eBay sells the items at a set price, it gets additional business and the designers can liquidate inventory while avoiding any big risk to their premium reputations. And there are variations on this theme. Designers could sell second-tier goods made specifically for eBay, for example.
Taken further, this idea could involve eBay running the Web sales efforts of fashion designers and others, handling everything from technology to payments. Since the company already has much of the infrastructure in place and eBay wouldn’t have to hold inventory, returns could be attractive.
Of course, eBay doesn’t have the field to itself. GSI Commerce in the United States and Yoox.com in Europe already run similar businesses. Yoox, for example, has used its Italian roots to sign deals to run online stores for designers like Dolce & Gabbana and Diesel. With eBay sitting on $4.9 billion in cash — much of it trapped overseas — buying an already profitable rival might be a good way to put excess funds to work.
CHRISTOPHER SWANN and ROBERT CYRAN

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Review: http://www.nytimes.com/2010/04/05/business/05views.html

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