Energy Companies Reinvest in Canada with Major Acquisitions

Oil and gas companies are showing renewed interest in the Canadian energy sector, exemplified by several recent high-value acquisitions. Notably, Ovintiv Inc., previously known as Encana, is returning to its roots in Calgary with a significant acquisition, signaling a potential shift in strategy for the industry.

In early November 2023, Brendan McCracken, the current CEO of Ovintiv, announced the acquisition of Calgary-based NuVista Energy Ltd. for $3.5 billion. This transaction enhances Ovintiv’s existing presence in the Montney formation, a key resource area straddling the Alberta and British Columbia border. The move marks a return to Canada for a company that had previously shifted its focus away from its home province during a challenging period for natural gas.

Baytex Energy Corp. also made headlines by announcing it would divest all its U.S. assets to concentrate on its Canadian operations. This strategic pivot comes just two years after Baytex invested $1.9 billion to expand its footprint in the Eagle Ford region of Texas. Meanwhile, Cenovus Energy Inc. finalized its acquisition of MEG Energy Corp. for $8.6 billion, further solidifying its position in Canada’s oil sands.

Sector Dynamics and Government Support

While these transactions are encouraging, they do not yet indicate a definitive trend favoring the Canadian energy landscape. Several factors influence these decisions, including Baytex’s need to manage debt and potential economic downturns linked to international trade tensions, particularly arising from U.S. policies. Nevertheless, the latest acquisitions are a positive sign for the Canadian government, which has been actively working to attract international investment in the natural resources sector.

Prime Minister Mark Carney has established the Major Projects Office to expedite the approval process for energy and infrastructure projects deemed critical to national interests. This includes the expansion of the LNG Canada facility in Kitimat, British Columbia. By streamlining development processes, the government aims to demonstrate that extracting and exporting Canadian energy resources can be more efficient.

According to Jeremy McCrea, an energy analyst at BMO Nesbitt Burns, the past decade saw a series of regulatory changes that deterred international investors. Recently, however, he notes a shift in sentiment, with more operators expressing interest in Canadian oil and gas. This change is partly attributed to a federal government that appears more willing to collaborate with the industry to facilitate market access.

Challenges and Opportunities Ahead

Despite these positive developments, challenges remain. U.S. shale oil and gas production has faced a troubling decline, raising concerns about long-term viability. Producers like EOG Resources Inc. and Pioneer Natural Resources Co. have mastered fracking techniques, propelling the U.S. to the status of the world’s leading oil producer. However, depletion rates for shale wells are now becoming evident, with estimates suggesting that EOG may have only a few more years of prime drilling locations available.

Canadian energy companies, on the other hand, have retained a variety of attractive undeveloped assets, positioning them well for future growth. In a recent call with analysts, Ovintiv’s CEO highlighted NuVista’s Montney portfolio as one of the highest-quality undeveloped lands in North America, affirming the strategic fit with Ovintiv’s existing assets.

As the Canadian energy sector navigates these shifts, the balance of opportunity and risk will be closely monitored. The renewed focus from companies like Ovintiv and Baytex could pave the way for a more robust and competitive energy landscape in Canada, provided that regulatory environments adapt to support this resurgence.