Why are US investors eyeing the Canadian oilpatch despite falling oil prices?
Interest among American investors in the Canadian oilpatch is growing, a trend fueled by friendlier rhetoric from the federal government and confidence that the industry north of the border will more reliably return them cash in the coming years.
Jeremy McCrea, Calgary-based managing director of BMO Capital Markets, described the trend as a “rotation,” with more investment coming from the United States and a slight decline from Canada.
Whereas reduce oil prices While investment has generally slowed down a bit, he said, many portfolio managers still want to hold some energy stocks and see more potential in the Canadian sector than in the US.
“You’re seeing more American investors saying, ‘If we have to keep energy, we’re going to keep Canadian energy right here today,'” McCrea said.
He said U.S. funds now own about 59 per cent of Canadian oil and gas companies, up from 56 per cent at the end of last year. Meanwhile, Canadian ownership of these companies has declined from 37 per cent to 34 per cent.
Calgary oilpatch CEOs are seeing this trend taking effect in their companies.
Whitecap Resources CEO Grant Fagerheim said currently about 66 percent of his company’s institutional holders are in the US, up from about 60 percent at the end of last year.
“It’s quite remarkable,” he said.
Tamarack Valley Energy CEO Brian Schmidt said he believes there is still some hesitancy among Canadian investors, particularly pension funds, about investing in the oil and gas sector, but American investors don’t feel the same reluctance,
If he’s visiting an American city, “I can fill a day or two with meetings,” Schmidt said. “I haven’t been able to do that in Canada.”
He estimated US ownership of his company is now about 40 percent, up from 20 percent before the COVID-19 pandemic.
change in tone
The shift in investment began to accelerate about a year ago, McCrea said, at which point the federal Conservatives leader in surveys and promised major policy changes Increase Oil and gas sector.
While the federal Liberals were ultimately re-elected, Prime Minister Mark Carney promised in his election night speech Making Canada an energy “superpower”.
Asked by CBC’s Power & Politics host David Cochrane about separatist sentiment in Alberta, Prime Minister Mark Carney says his government is ‘committed’ to working with Canadians across the country.
“There’s been a slight change in tone that is making investors feel a little more comfortable coming to Canada,” McCrea said.
Schmidt said the completion of the Trans Mountain pipeline expansion has also increased investor interest by boosting the region’s export potential.
Part of the increase in interest is also driven by the relative economics of the oilpatch in Canada versus the U.S.
In the US, most oil production still comes from oil wells. Once the wells are exhausted, new wells have to be dug. This costs money and depending on the price of oil it may not be worth it for companies.
a fresh Survey of US oil companies found that most required a price of around US$65 per barrel to justify drilling a new well. Meanwhile, according to the US Energy Information Administration, oil prices are expected to average below $60 US/barrel by the end of this year and near $50 US/barrel by 2026.
Earlier this month, the CEO of one of the top oil producers in the US said he expected production in his country to increase stall out If the price of oil remains at the current rate.
‘Attractive’ future for oil sands
The economics of drilling new wells in the US are worsening as the country’s top oil field, the Texas-based Permian Basin, is rapidly depleting. It is now producing more water and gas less oilWhich means new wells are likely to generate lower returns.
In comparison, most of Canada’s oil production occurs here oil sandsOilsands projects are expensive to build up front, but once completed, they can run at low costs for decades.
In recent years, oilsands companies in Canada have focused less on building new oilsands projects and instead opted to return more money to shareholders, which is attracting investors on both sides of the border.
“We’ve seen that these companies are generating a lot of cash and returning almost all of it to shareholders,” said Boston portfolio manager David Samra. with milwaukee based investmentsNT firm Artisan Partners, which has invested in Suncor Energy.
“That’s the future that we see, and we find that future very attractive.”
BMO Capital Markets’ McCrea said it’s unclear how big this trend could become, but overall, the future looks “encouraging.”
As for Fagerheim with Whitecap Resources, he said he believes investors in Europe and Asia, like their counterparts in the U.S., are increasingly eyeing the Canadian oilpatch.
“The world has also taken notice,” he said.
