The oil sands deposits in western Canada give the US’s closest trading partner the second largest total crude oil reserves in the world, some 175 billion barrels. Only Saudi Arabia has more.

Last week’s IPO of Athabasca Oil Sands Corp., which will trade on the Toronto Stock Exchange under the symbol ‘ATH’, raised CDN$1.35 billion on the sale of 75 million shares. An overallotment option may add another 11.25 million shares and CDN$150 million to the take. This is the largest IPO on the Toronto exchange in more than a decade.

Athabasca sits on about 7.1 billion barrels of reserves, and last year PetroChina (PTR). invested $1.9 billion in the company.  The Chinese investment no doubt spurred the interest in Athabasca, which has yet to ship its first barrel of bitumen. First production is not due until 2014.

That’s right, the company hasn’t done anything yet except spend a lot of money on exploration. But Athabasca is well-stocked with cash, nearly CDN$3.5 billion.

Part of PetroChina’s investment was used to pay a special dividend of CDN$4.25/share to existing shareholders, including three private equity firms and the company’s own managers and directors, who control 21% of Athabasca.

Athabasca plans to mine bitumen in situ, which is generally more environmentally friendly than surface strip mining, which requires a great deal of surface water and an upgrader (essentially a refinery) to ship the bitumen through a pipeline. The in situ process makes a smaller environmental footprint, uses only ground water from deep reservoirs, and doesn’t need an upgrader to get the mined bitumen through a pipeline.

The economic success of any oil sands project depends largely on the price of crude oil. When crude prices fell below in late 2008 and early 2009, oil sands producers like Suncor Energy (SU) and Canadian Natural Resources Ltd. (CNQ) hit lows from which they are still recovering. To make a profit on oil sands production, crude prices need to be around $60-$65/barrel.

Both Suncor and Canadian Natural Resources are riding the wave created by Athabasca’s IPO. The wave is made a little bigger by the rising price of crude oil, which is going up on the improving economic news from the US, Asia, and Europe.

Suncor and Canadian National Resources are both up over 2% in early trading this morning. It remains to be seen whether the rise in crude prices can be sustained in the face of what is now a fundamentally not over-supplied market for crude.

Paul Ausick

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