Key Takeaways:
- U.S. oil and gas producers are looking to expand in Western Canada’s Montney basin due to its relatively untapped resources and lower drilling costs compared to the Permian basin.
- The Montney basin is a massive shale play that spans 130,000 km across northeast British Columbia and northwest Alberta, producing about 10 billion cubic feet per day of natural gas.
- Acquiring land in the Montney is much cheaper than in the Permian, with drilling locations in the U.S. field being as much as six times the price of those in the Montney.
- Over 20 private equity-backed U.S. oil and gas companies are now looking at the Montney and other Canadian oilfields, with some already making acquisitions and expressing interest in bidding for Montney assets.
- The Montney has the longest resource lifespan of all North American unconventional oil and gas plays, with more than 45 years of drilling inventory remaining at the current pace of development.
Introduction to the Montney Basin
The Montney basin, located in Western Canada, is a remote yet massive shale play that is gaining attention from U.S. oil and gas producers. After years of extensive drilling in U.S. shale fields, the country has become the world’s biggest oil producer. However, drilling prospects in the Permian basin, the largest U.S. oilfield, are becoming less attractive due to the shrinking area with potential for high production. In contrast, the Montney basin is relatively untapped, making it an attractive option for U.S. companies looking to expand their operations.
Comparison with the Permian Basin
The Montney basin offers a more attractive option for U.S. companies due to its lower drilling costs. According to Michael Spyker, principal analyst at Canadian upstream advisory firm HTM Energy Partners, drilling locations in the Permian basin are as much as six times the price of those in the Montney. This significant price difference is driving U.S. companies to consider the Montney basin as a viable alternative. Additionally, the Montney basin has a longer resource lifespan, with over 45 years of drilling inventory remaining at the current pace of development, compared to the Permian basin’s estimated 11 years.
M&A Activity in the Montney Basin
The Montney basin has seen significant M&A activity in recent years, with Canadian companies snapping up acreage to increase supply for the country’s new liquefied natural gas export industry. U.S. companies are also taking notice, with over 20 private equity-backed companies looking at the Montney and other Canadian oilfields. This year alone, the Montney accounted for 28% of the transaction value of M&A deals in Canada’s oilpatch, according to Sayer Energy Advisors. Notable deals include Denver-based Ovintiv’s $2.7 billion takeover of NuVista Energy and U.S. private equity groups NGP Energy Capital Management and Carlyle’s funding of Cygnet Energy’s takeover of Kiwetinohk Energy.
U.S. Companies’ Interest in the Montney Basin
Several U.S. companies have expressed interest in the Montney basin, including SM Energy, EOG Resources, and Chord Energy. While some have placed unsuccessful bids on Montney assets, others are still exploring potential acquisitions. The renewed interest from U.S. companies is notable, given the decline in foreign direct investment in the Canadian energy sector in recent years. However, with the current political tone in Canada shifting towards a more supportive stance towards fossil fuel development, U.S. companies may be more inclined to invest in the Montney basin.
Potential for Growth
The Montney basin has significant potential for growth, with oil production more than doubling in the last decade. The startup of the Trans Mountain pipeline expansion last year has opened the door to increased Canadian oil production for exports. Additionally, advances in horizontal drilling technologies have improved the efficiency of oil production in the Montney basin. While Canada’s climate laws and regulatory environment have inhibited investment in the past, the new Prime Minister Mark Carney has promised to make changes to help the sector grow. As a result, U.S. companies may find the Montney basin an attractive option for expansion, with its relatively untapped resources and lower drilling costs compared to the Permian basin.