US Oil Sands Inc. a highly speculative investment

Dec 22nd, 2014 – 1 Comment

The problem in the present is that the promised land will not be visible until the third quarter of 2015.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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USO LOGO

Hey Lou,

What are your thoughts on USO ? I can plainly see from the stock price that the market is not warm to it, however the Company claims to have an extraction technology using oranges of all things that requires no tailing ponds.

Thanks,

John

 

Hey John,

Thanks for the assignment. U.S. Oil Sands Inc. (USO TSXV) is what I like to call a ” Story Stock”. Their story is that they have developed a new and improved method of extracting bitumen from sand using an industrial chemical called d-Limonene. The chemical is derived from citrus peels and is used in paint, cleaning products and fragrances . The company is building out its RP Spring project on 32,000 acres south of Salt Lake City, Utah. Management plans on producing 2,000 barrels of bitumen per day by the third quarter of 2015 and sees the potential of ramping up output to 10,000 barrels of bitumen per day over some unspecified time frame.

USO faces a number of challenges to its mission. These include having to deal with environmental groups who have lost one challenge in the courts but say they are not finished fighting. Another concern is the availability of sufficient solvent to meet the projects needs. Finally the company will have to work with refiners to evaluate their willingness to accept bitumen a l’orange. Refining is an extremely complex process that demands a lot of testing before a stream of material is allowed into the flow.

Other things to consider with this stock is their market capitalization of $76.78 million which would seem like slim shoulders to carry the weight of creative destruction in the oil sands sector. The last factor to consider is the thirty day average volume of 339,467 shares. This translates into about $33,000 a day in trading value which tells me there aren’t many players at this table.

An inspection of the charts will inform my thoughts on USO.

 

USO

The three- year chart has been dominated by the downtrend that started in November of 2013 when the shares were trading near $0.22. The decline reached a 52-week low of $0.075 in November of 2014 where they caught a bounce to current levels. What the chart also depicts is the resistance that comes in at $0.10. What we can discern from the patterns is that USO would have to fit into the highly speculative portion of your portfolio.

 

 

 

 

 

 

USO2

The six-month chart highlights the existing downtrend and the resistance at $0.10. There is very little evidence that indicates that we can expect a new leg up to begin in the near future. The USO story is about the promise of a brighter future using citrus based solvents to improve how producers separate bitumen from sand. The problem in the present is that the promised land will not be visible until the third quarter of 2015.

Make it a profitable day and happy capitalism!

 

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