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As U.S. shale reserves deplete, U.S. companies focus on Canada’s Montney Montney has relatively undeveloped geology and room for growth The increased interest in Canada’s oil fields comes after a decade of declining foreign investment.
(Reuters) – U.S. oil and gas producers seeking new drilling territory are considering expanding into western Canada’s Montney Basin. The remote but massive shale business is already a hotbed of M&A activity, and could soon see more deals, executives, analysts and advisors say.
Massive drilling in the US shale fields over the past 15 years or so has made the country the world’s largest oil producer. Drilling prospects in the Permian field, the largest U.S. oil field straddling Texas and New Mexico, are becoming less attractive to oil producers after such a long period of expansion, as the area of high production potential is shrinking. In contrast, the Montney is a relatively undeveloped region, so Texas shale pioneers are looking to Canada for future growth.
“Everyone is looking for inventory,” said Clint Barnett, director of geology at Indigo Energy Advisors, a division of advisory firm Efficient Markets. “Operators are looking to expand their horizons and find cheaper inventory.”
The Montney River stretches 130,000 kilometers across northeastern British Columbia and northwestern Alberta, and is currently dominated by Canadian natural gas drilling companies such as ARC Resources and Tourmaline Oil.
The region produces approximately 10 billion cubic feet of natural gas per day, approximately 50% of Canada’s total production. Canadian companies have been rapidly expanding land in Montney in recent years as they prepare to expand supply to the country’s new liquefied natural gas export industry.
Acquiring land in the Montney is much cheaper than in the Permian. Michael Spiker, principal analyst at Canadian upstream advisory firm HTM Energy Partners, said a U.S. oil field site costs six times as much as a Monney site. Just a few years ago, insurance premiums on the Permian were much cheaper, twice as much as on the Montney, he said.
“As that gap widens, it’s almost a fiduciary duty to say, ‘At least we have to know what’s going on in Canada and share the information,'” Spiker said.
More than 20 private equity-backed U.S. oil and gas companies are currently considering the Montney and other Canadian fields in various capacities, he said.
Two oil and gas industry sources also said a number of U.S. private and public companies are exploring potential acquisitions in Canada.
US company registers Monni interest
This year alone, Montney accounted for 28 per cent (C$8.6 billion) of M&A deals in the Canadian oil patch, according to Thayer Energy Advisors.
Most of the deals this year were between Canadian companies, although the companies involved included U.S. carriers. In November, Denver-based Ovintiv acquired NuVista Energy for $2.7 billion, expanding its footprint in the region. Earlier in October, US private equity groups NGP Energy Capital Management and Carlyle financed Signet Energy’s acquisition of Kiwetinoke Energy, which has assets in the Monney and Duvernay shale fields.
Other U.S. companies are also sniffing around. SM Energy, EOG Resources and Code Energy made unsuccessful bids for the Monni assets this year, or expressed interest in making a bid for the Monni assets, two people familiar with the matter said.
The officials requested anonymity to discuss sensitive details. SM and EOG declined to comment. Code did not respond to a request for comment.
Enverus said Montney has the longest resource life of any unconventional oil and gas operation in North America, with more than 45 years of drilling inventory remaining at the current pace of development.
In contrast, Embers estimates that the Permian Basin has about 11 years of drilling inventory left at its current pace of development.
“Montney is one of the world-class condensate and gas resources in North America, so there’s a lot of interest,” John Gorman, Halliburton’s vice president for Canada, told Reuters on the sidelines of an industry conference in Calgary.
growth potential
The renewed U.S. interest is notable as foreign direct investment in Canada’s energy sector has declined significantly since 2015.
During this period, falling oil prices, the rise of ESG investing, and perceived political and regulatory barriers in Canada deterred many international and U.S. companies from pursuing Canadian assets, and most major global companies exited Canada’s oil sands.
As a result, Montney is underinvested compared to other locations in North America, Ovintiv CEO Brendan McCracken said in an interview.
“As[the U.S.]matures its resources, the silver lining to the lack of investment is that there remains a large amount of untapped resources,” McCracken said.
The Montney River’s oil production is relatively small at just over 90,000 barrels per day, about 2% of Canada’s total, but it has more than doubled in the past decade, according to RBN Energy Statistics. That’s thanks in part to advances in the same type of horizontal drilling technology that propelled the U.S. shale boom.
