At Edward Jones, we believe there’s a bright future for energy’s long-term demand. In addition, we believe commodity prices will remain above historical levels because of geopolitical concerns and the challenging supply outlook.

However, with the significant rise in stock prices of riskier companies, we recommend you review the investments in your portfolio and rebalance them, if necessary. Keep in mind that not all energy stocks offer the same risk-and-reward balance; therefore, it’s critical that you choose wisely.

Canada’s Increasing Role
Canada plays a significant role in supplying oil and natural gas to the United States and will increase its global role because of the tremendous resources being developed in the Alberta oil sands. Asian government officials have traveled to Canada to assess this country’s potential to supply a portion of the growing demand in Asia. Today, Canada ranks as the eighth largest oil producer worldwide.

Alberta Oil Sands Are the Future
The oils sands are estimated to contain 1.7 trillion barrels of oil, and based on today’s technology, it’s believed that 178 billion barrels can be recovered. To
put this in perspective, the size of the recoverable resources ranks second only to Saudi Arabia. The oil sands currently account for approximately one-third of the 3.1 million barrels of oil produced per day in Canada. We believe oil sands production could reach 4 million barrels per day toward the latter half of the next decade.

We have a positive view about the oil sands because the resource is close to the surface, providing virtually no exploration risk. There is, however, operating risk because these large projects cost billions of dollars to develop. As a result, it’s critical that the developer has the necessary experience and scale to maximize profits for shareholders.

Once running, a typical oil sands project can maintain relatively constant production for up to 40 years.

Edward Jones currently follows three major producers in the oil sands: Shell Canada (SHC – Buy), Petro-Canada (PCA – Buy) and Imperial Oil (IMO – Hold).

Stay with Integrated Oil Companies
When you invest in the energy sector, we recommend you focus on the integrated oil companies. These companies not only are engaged in exploration and production operations, but they also have refining operations, own service stations and run petrochemical businesses. Historically, these companies also have provided among the best long-term returns with less volatility than others in the energy sector. We believe this trend will continue.

In addition, we recommend integrated companies that offer exposure to oil operations outside Canada, including BP (BP – Buy), ConocoPhillips (COP – Buy) and Chevron (CVX – Buy).

Recommended Industry Weighting
Edward Jones recommends that energy stocks comprise 10% of a well-diversified equity portfolio. We believe energy stocks offer the opportunity for good returns and diversification benefits, along with the potential for rising income.