E American Sands Energy: A Revolutionary Unique Oil Sands Play

Note from editors: This article discusses a penny stock. Penny stocks are easily manipulated; please do your own due diligence.

The Good, Bad, and the Ugly

I. The Good

It is not much of a debate: the past few years America's entire economy has been held afloat due to increased jobs and production in the energy market. It's no surprise that five out of the ten fastest growing economies in the USA are oil producing states.

(Source: EIA)

The politicians are ecstatic as the U.S. trade deficit shrinks by the help of oil imports being reduced due to the increased domestic production.

(Source: BLS)

Also on the plus side, the added supply of oil being produced in the U.S. will put downward pressure on oil prices, which will drive down costs in many manufacturing countries, especially the agriculture markets that use oil as an input (huge amounts of electricity for pumping water, etc) and of course the average families that will have more disposable income left over instead of paying for higher vehicle gasoline.

II. The Bad

Unfortunately prices are a double-edged sword; a family which purchases cheaper oil means an investor who loses profits.

Countries that are heavily dependent on oil production for income, such as Iran, Russia, Venezuela, and Saudi Arabia, are getting strangled by lower oil prices. If these countries balanced their budgets at $100 dollar-per-barrel, how will they make up for the lost revenue?

It should also be no surprise that most oil producers in the U.S. are marginal and high cost, which will suffer if oil stays below $85.

"If prices fell suddenly to $60 a barrel, the production growth [in the United States] would turn negative," Ed Morse - Citigroup's head of global commodities research.

The last thing the U.S. politicians want are all those jobs and the production that has lifted the anemic economy to fade away. And the last thing investors want is to have their oil rigs producing at costs that exceed global crude price (production costs > sale price = insolvent).

III. The Ugly

Along with the fracking boom, a Pandora's box opened.

With the environmental contamination/damage and the heavy costs of fresh water used in fracking, especially in times of droughts plagueing parts of the U.S., people have started to question the tradeoff between the domestic oil productions pros and cons.

Oil sands in Alberta, Canada have also brought prosperous effects in the economy, but the negatives are mounting. With a rise in greenhouse gas emissions, the destruction of wildlife breeding grounds, and water contamination from tailings, there are many unforeseen consequences that have been caused by the oil boom.

"Greenhouse gas emissions are higher for oil sands production than for conventional oil production," Simon Dyer, The Oil Drum.

IV. The Dilemma and Solution and Choice

Dilemma: Oil supply will be affected by the growing environmental concerns and the plummeting oil price,  directly contradicting America's desperately needed energy boom to continue for employment, revenues, and oil independence. What can the investor do in this predicament?

Solution: Look for low cost producers with a long asset life that are  environmentally cleaner.

Author's preferred choice: American Sands Energy Corp (AMSE) could give investors the solution (above) they need to prosper even within the dilemmas (above) facing the oil market.

American Sands Energy - A Revolutionary Project

American Sands Energy Corp is pre-production oil sands company with resources located in the safe jurisdiction of Utah. The iconic property, the Sunnyside deposit, has an impressive 150 million barrels that is under the company's lease, but has the potential to be upwards of 650 million barrels. It had been controlled in the past by Chevron (CVX) and AMOCO (BP) and had a combined $40 million for drilling on the property.

(Source:DOE/FE/NETL 2006)

Since this is an oil sands deposit there is no decline curve that traditional oil companies use for their wells. Obviously energy and mine companies have a constantly depleting asset, meaning overtime as they are extracted they must find more reserves or run out of resource. The Sunnyside deposit is a mining extraction, not an oil well extraction (link to a video of the mining process). This means that the company plans to extract 5,000 barrels per day worth of oil out of the ground and it will constantly stay at this pace until management increases the amount of decreases the amount. And with the size of the asset it will have a mine life at 5,000 barrels per day of roughly 30 years. They will also not have to spend capex to drill for more holes, significantly reducing discovery costs.

But what separates the company apart from many others is the unique proprietary process it uses to produce bitumen i.e. oil.

The Innovative and Economical Process

(Source:AMSE Presentation)

This revolutionary process allows the following:

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Peter Epstein 5 years ago Contributor's comment

American Sands Energy is high risk, but a real company with a real chance of making it really big. Obtaining permits is the first big challenge/opportunity. Permits should be in hand within a few months. First oil in 2016 is a lot closer than it sounds, it's almost 2015....

Adem Tumerkan 5 years ago Author's comment

Yes this is a speculation not an investment in my opinion. As all early oil development companies are extremely risky and need funding to survive. But AMSE has incredible deposit and cash costs that I dont believe can be ignored.

John Fitch 5 years ago Member's comment

Oil is a finite resource, so inevitably it will be gone. What then will happen to the countries counting on the revenue derived from oil? The majority of US oil consumption was in the form of fuel for our automobiles and airplanes. Ultimately there will need to be an oil-less solution for that (hybrid, electric, etc.) and what happens to oil then? These solutions are also more environmental friendly. Instead of looking for an environmentally clean oil company to invest in, why not find an environmental company to invest in? (i.e. a company that is developing cleaner alternatives to oil) Seems to be more forward thinking in my eyes.

Adem Tumerkan 5 years ago Author's comment

I agree we as people are a dynamic economy but how many people are going to sell their cars to purchase even more expensive energy efficient vehicles such as Tesla?

John Fitch 5 years ago Member's comment

The hope is that with technological advancement, the cost of producing energy efficient vehicles will fall; thus allowing other companies to enter the market, and subsequently, offer lower priced alternatives to Tesla. Perhaps competition in the space will also cause Tesla to lower their prices. Not in the near future, but eventually I do see those vehicles becoming the norm; and people will eventually need to sell their car and slowly begin transitioning to energy efficient vehicles.

Moon Kil Woong 5 years ago Contributor's comment

1) The US is still importing tons of oil due to current US oil company contracts thus leaving a surplus at home which they are now trying to export (a bit ridiculous).

2) The US oil collapse is coming. Now is not the time to invest in more production.

3) The oil price decline should have happened sooner along with everything else but the Federal Reserve is trying to prevent the natural price declines associated with a downturn which did nothing but prolong the downturn for years because the economy can't realign without the natural savings it gets from price declines.

4) Politicians and the government don't make jobs save ones that cost more jobs, they destroy them unless they cut taxes. Given they do not do that, they could care less if the US oil economy collapses or the rest of the economy. In fact a weak economy allows their banker friends to issue even more QE money and give them out like candy to them and the politicians. Thus, regardless of what everyone says, most bankers and politicians love the zombie economy. It means they get rich while you get poor.

Adem Tumerkan 5 years ago Author's comment

1. The US only produces at most 9% of the world supply. Low cost producers are what need investing.

2. As marginal producers came online in America many countries have reduced oil output such as Syria and Egypt, Libya and Nigeria due to internal factors.

3. The with the Fed's war on deflation and cost of productions increasing, I doubt falling energy prices will be short. With many countries bypassing the US dollar in all oil trade anyways is growing worrisome.

4. I agree completely.

Adem Tumerkan 5 years ago Author's comment

As you were just saying, oil prices will come down from globabl worries and growing supply and the feds "low" inflation.

But what will those high cost marginal oil producers do? They will turn off. Its not as if oil isn't a good business, its at what cost. And my argument is that AMSE will be a low cost producer with a great asset that could survive even $55 oil as many other producers in America go offline, which would inevitably lead to high prices anyway.