He has been called Chiu Yan (“Superman”) and the Warren Buffett of China … a title he earned as one of China’s most-successful businessmen in history.
Forbes magazine lists him as the ninth-richest man in the world, and the richest man in Asia. It’s no wonder, really, because this man controls a vast telecommunications empire … a massive construction company … and even the Panama Canal.
His fortune is centered on the conglomerates he chairs, Cheung Kong and Hutchison Whampoa. Through them is the world’s largest operator of container terminals, a major supplier of electricity to Hong Kong, a giant cell phone provider, a thriving retailing business, and a powerful real estate development company that has built one out of every 12 residences in Hong Kong.
Yet, very few Americans have heard of him … even though he has a $10 billion stake in the most-undervalued energy company in the world, which happens to be right in our backyard.
That’s why I want to introduce him to you today, because one of this China billionaire’s enterprises has the potential to lead you to riches of your own.
A Rags-to-Big-Energy-Riches Story
The man I’m talking about is Li Ka-shing, whose fortune totals more than $18 billion. And the energy company I am talking about is Husky Energy (ticker: HSE on the Toronto Stock Exchange, or HUSKF on the U.S. Pink Sheets).
Li Ka-shing was born in the Chinese city of Chui Chow and was the humble son of a teacher. His father died when he was only 15 years old, and he took on the responsibility of supporting his family.
Li dropped out of school and started working 16-hour days for a Hong Kong plastics company. His hard work paid off in 1950, when he started his own plastics company, Cheung Kong Industries.
He then scraped together enough financing in 1979 to buy a controlling interest in conglomerate Hutchison Whampoa, which he then leveraged to build a business empire that includes banking, construction, real estate, plastics, cell phones, satellite TV, cement production, pharmacies, supermarkets, hotels, transportation, airports, electric power, steel production, ports, shipping, and even the Panama Canal!
One of Li’s most-savvy purchases was fairly unknown at the time and was considered a horrible investment because of the low price of oil in 1991.
Oh, how times have changed, since Li’s purchase of Calgary-based Husky Energy has turned out to be one of the jewels in his portfolio.
How to Ka-ching like Ka-shing!
Many investors have made a lot of money by buying the same stocks that Warren Buffett buys for Berkshire Hathaway. That same “monkey-see-monkey-do” works just as well — if not better — with the Asian Warren Buffett. That’s why adding Husky Energy may make sense right here and now.
And with good reason. In his own words, “Some people prefer to invest in restaurants or apartments. I prefer to invest in energy, as it is a daily necessity.”
If you’ve traveled to Canada, you’ve no doubt seen Husky-branded gas stations. They are everywhere. However, there is a lot more to Husky than a bunch of convenience stores.
Husky is a fully integrated energy company with three business segments: Upstream, midstream and refined products. Here’s a quick primer on each.
- Upstream is the division that goes out and finds the oil and natural gas. The majority of the company’s proven reserves are in Western Canada, offshore Eastern Canada and offshore Indonesia. The connection comes back into play again here, as it also has major offshore wells in the South China Sea.
- Midstream is where the heavy crude oil and natural gas products that come out of the ground are transformed into synthetic crude oil and transported to refineries for final treatment.
- Refined products include refining of crude oil and marketing of refined petroleum products, including gasoline, diesel, and even ethanol blended fuels and asphalt. The jewel of Husky’s refinery is its refinery in Lima, Ohio that it bought last summer for $1.9 billion. (More about this refinery later.)
Husky Energy is unlike any other oil company in the world. That’s because of the tar sands.
You might have heard about the Canadian tar sands, but I can’t emphasize enough how huge of a goldmine they are. TIME magazine called it the "greatest buried energy treasure (that) could satisfy the world’s demand for petroleum for the next century."
And Husky is square in the sweet spot of this reserve, because …
Northern Alberta Sits on the Biggest
Petroleum Deposit in the World!
There are 685 million barrels of proven oil reserves in the Middle East. Meanwhile, there are 300 billion barrels of proven reserves up north … and another TRILLION barrels that are just waiting for recovery technology to improve.
By the way, that’s eight times the oil in all of Saudi Arabia!
This isn’t the type of gushing oil that made Jed Clampett (“The Beverly Hillbillies”) rich, mind you. It’s in the form of tar sands, which resemble gooey coffee grounds.
For centuries, Native Americans used the material to seal their canoes. But the technology to extract the valuable oil has now made tar sands not only economically important but also wildly profitable.
A Million Barrels a Day of Opportunity
Tar sands are a combination of clay, sand, water and bitumen, an extremely heavy form of crude oil. So instead of being pumped from the ground, the bituminous sands are mined.
Next, they’re run through a separation process that uses steam and solvents to extract the oil. The process currently recovers roughly 75% of the bitumen at an average cost of $10 a barrel.
Better yet, the petroleum industry is spending billions on research to find new technology to make it even cheaper. I expect the $10-a-barrel cost to rapidly fall closer to the $3 average that OPEC spends to pump a barrel of oil.
There’s no doubt that this is already becoming a huge business. More than a million barrels of oil are produced from Canadian tar sands each day, making up 40% of Canada’s total oil production.
Canada is now the largest single supplier of oil and refined products to the United States, and Husky Energy has over a half-million acres of rich tar sands projects that hold an estimated 40.9 billion barrels of oil.
With oil pushing $100 a barrel, Husky’s vast tar sands holdings should turn into a mountain of profits.
Energy Prices May Be Pulling Back, But
Here’s Another Way Husky Gets Paid
Husky Energy isn’t the only company mining this gooey black gold, but it is better prepared to make a fortune from it than anybody else.
That’s because, back in 1991, Husky spent $1.6 billion (Canadian) on a cutting-edge oil upgrade facility near the vast tar sands of Western Canada.
Oil that comes from the tar sands has a high sulfur content, which makes it harder to refine than the light sweet crude that you hear so much about. Tar sands oil needs to be "upgraded" before it can be processed by the majority of American refineries. So Husky gets paid no matter who takes the tar sands out of the ground.
Like any energy company, however, it will rise and fall along with the price of oil. But I believe that high energy prices are here to stay thanks to Asia’s rapid (and continued) growth.
Husky Energy is listed on the Toronto Stock Exchange (HSE.TO) but is also available on the Over-The-Counter (HUSKF.PK) market too. When possible, I recommend that you buy on the home market, but Husky Energy is actively traded on the OTC market.
Now, I’m not suggesting you rush out and buy Husky Energy today. Tar sands will play a big part in our country’s energy future, and nobody is better-positioned to exploit that lucrative niche than Husky Energy.