U.S. Buyers’ Growing Interest in Affordable Canadian Energy

According to researchers, US corporations and private equity groups have become more interested in acquiring Canadian oil and gas companies due to reduced valuations, significant fossil fuel reserves, and improved market access.

Potential buyers are highly interested in companies operating in the vast Montney shale formation, covering northern Alberta and British Columbia, responsible for about half of Canada’s gas production. Additionally, assets in the smaller Duvernay and Clearwater formations are also catching their attention.

Major oil sector deals in the United States have resulted in an increase in interest, including Exxon Mobil’s $60 billion offer for Pioneer Natural Resources and Chevron’s $53 billion agreement to acquire Hess.

These deals were motivated, in part, by the buyers’ desire to expand their drilling resources and ensure future output in important U.S. shale regions following a period of low exploration investments.

The third-largest oil reserves in the world are located in Canada, predominantly bitumen within Alberta’s concentrated oil sands.

But according to Scott Barron, head of TD Securities’ Calgary investment banking, there’s a lot more interest now than there has been in the previous five or six years in the Canadian energy industry’s non-oil sands sector.

“One of the major driving factors for U.S. companies to consider Canadian acquisitions is that there’s the potential for Canadian drilling inventory to be less expensive than what they’re seeing in the United States,” said Barron.

Canadian energy companies often sell at lower prices compared to their U.S. counterparts, due to limited market access and export pipeline congestion over the years. This situation required producers to accept considerable discounts on their oil and gas, making them less appealing to international buyers.

According to data from LSEG, acquisitions of Canadian oil and gas assets by U.S. companies have more than doubled from the previous year, reaching a 12-year peak of $3.2 billion in 2023.

The significant increase in acquisitions was mostly due to ConocoPhillips buying the remaining 50% stake in the Surmont oil sands facility from TotalEnergies for $2.7 billion.

“We’re seeing a number of inbound conversations from U.S. private equity funds, which is more of a recent trend – not something that we would have seen a couple of years ago,” said Adil Kieray, head of energy M&A at BMO.

Improved market access is anticipated with the Trans Mountain pipeline expansion, owned by the Canadian government, which will transport an extra 590,000 barrels of crude oil daily to Canada’s Pacific Coast starting next year.