Why US producers are paying attention to Canada's most popular shale play

Executives, analysts, and advisors say that U.S. producers of oil and gas are seeking new drilling territories in Western Canada's Montney Basin, an enormous shale play in a remote area. The basin is already a hub of M&A and may see even more deals in the near future.

The United States has become the largest oil producer in the world as a result of extensive drilling on shale deposits over the past 15 years. After a period of rapid expansion, oil producers are less interested in drilling prospects within the Permian oilfield, which extends across Texas and New Mexico. This is because the remaining area with high-production potential has shrunk. The Montney, on the other hand, is relatively untapped. This has led Texan shale experts to turn to the Canadian play as a source of future growth.

Clint Barnette is the director of geology for Indigo Energy Advisors. This unit is part of Efficient markets. Operators are expanding their horizons to secure inventory at a lower price.

Canadian gas drillers, such as ARC Resources, Tourmaline Oil, and others, dominate the Montney. It spans over 130,000 km in northeast British Columbia and northwest Alberta.

About 50% of Canada's natural gas production is produced in this region. Canadian companies have purchased Montney acreage over the past few years to prepare for an increase in supply to feed Canada's new liquefied gas export industry.

Land in the Montney can be purchased for a lot less than land in the Permian. Michael Spyker is a principal analyst with Canadian upstream advisory company HTM Energy Partners. He said that drilling locations in the U.S. are six times more expensive than those in the Montney. He said that just two or three years ago the Permian premium was double the Montney.

Spyker stated that "as this gap widens it is almost your fiduciary responsibility to say, 'We must at least be aware and abreast of what's going on in Canada.'"

He said that more than 20 U.S. private equity-backed oil and gas companies have been looking at the Montney?and various other Canadian oilfields? in different capacities.

Sources involved in the oil and gas industry also stated that a number U.S. private and public companies are exploring possible acquisitions in Canada.

U.S. Companies register MONTNEY?INTEREST

According to Sayer Energy Advisors, this year, the Montney represented 28% of the total value of M&A transactions in Canada's oilpatch (C$8.6 Billion).

The majority of the deals this year were between Canadian and U.S. companies. Denver-based Ovintiv increased its presence in the region by acquiring NuVista for $2.7 billion. In October, the U.S. private equity firms NGP Energy Capital Management, and Carlyle, funded Cygnet Energy to acquire Kiwetinohk Energy. This company has assets located in the Montney shale, as well as in the Duvernay field.

There are other U.S. firms that have been sniffing about. Two sources say that SM Energy and EOG Resources, as well as Chord Energy, have either bid unsuccessfully on Montney assets, or expressed an interest in bidding this year.

Sources requested anonymity in order to discuss confidential information. SM and EOG declined comment. Chord has not responded to requests for comments.

Enverus claims that the Montney plays have the longest resource life of any unconventional oil and gas play in North America, with 45 years worth of drilling remaining at the present pace of development.

Enverus estimates that the Permian Basin has about 11 years worth of drilling inventory left at its current rate of development.

The Montney is a world-class resource for condensate, gas and oil in North America. John Gorman, Halliburton Canada's Vice-President, said that there was a lot interest at an industry conference held in Calgary.

Potential for Growth

Foreign direct investment into the Canadian energy sector has declined dramatically in the years following 2015.

In that time, low oil prices, ESG investing, perceived political and regulatory barriers, and the decline in oil prices deterred international and U.S. companies from pursuing Canadian assets. Global majors also largely abandoned Canada's oil-sands.

In an interview, Ovintiv CEO Brendan McCracken said that the Montney had been "under-invested" compared to other North American sites.

McCracken stated that the silver lining to this under-investment was a large amount of undeveloped resources at a moment when "the United States" is maturing its resource.

RBN Energy's statistics show that oil production in the Montney, which is just over 90,000. barrels per day (about 2% of Canada total), has doubled since the 1990s. This is due in part to the advancements?in horizontal drilling technology that powered the U.S. Shale boom.

Last year, the Trans Mountain expansion pipeline was launched. This opened up the possibility of increased Canadian oil exports. Mark Carney, the new prime minister, has taken a more positive stance on fossil fuel development compared to his predecessor Justin Trudeau.

Carney promises to change the regulatory and climate laws in Canada to encourage investment.

Birchcliff Energy, a Montney-focused natural Gas producer, said that Chris Carlsen is the CEO.

The political tone of the country has changed. This may make it more attractive to U.S. companies."

(source: Reuters)