Oil is currently trading at the virtually the same price it was at its previous peak in 1981 – US$ 35/barrel.  In inflation adjusted terms, oil is 60% below its 1981 peak.  The current oil markets, however, are dramatically different from their 1980s counterparts.

In 1981:
•    Global consumption was approximately 69 million bopd
•    OPEC had approximately 10 million of spare production capacity
•    Global production was increasing approximately 1% per annum 
•    China consumed less than 2 million bopd or less than 1 barrel/person/year 
•    The US consumed 24 barrels/year/person

In 2008: 
•    Global consumption is approximately 84 million bopd
•    OPEC is estimated to have less than 3 million of spare production capacity
•    Global production outside of OPEC is declining by over 5% per annum 
•    Some experts believe that global peak oil is occuring
•    China is the second largest consumer of oil in the world – 8 million bopd but still only 2 barrels/person/year
•    The US consumes 24 barrels/year/person

Alberta and Saskatchewan have non-conventional oil reserves that rival Saudi Arabia – and conventional reserves of oil and gas that make them world class producers.   Oil production in Alberta was being sold for as much as $130,000 per flowing barrel in late 2007, early 2008.  Purchase prices have now fallen to under $20,000 per flowing barrel.  Junior producers are in extreme distress due to an inability to access either the debt or equity markets.  This presents an attractive window of opportunity to purchase oil and gas assets for extremely competitive prices.

Groundswell in currently performing due diligence on a number of funds that are seeking to raise capital to make direct investments in western Canadian oil and gas production at distressed prices – the strategy is to build portfolios of high quality, producing oil and gas wells that will allow investors to obtain solid income streams while having upside exposure to recovering oil and gas prices.  At Groundswell, we expect oil and gas prices to rebound from their currently extremely depressed levels as economic growth resumes, making investments in well managed funds an attractive proposition. 

For more information please sign up for our free “Investing in Oil and Gas” report.