Key Takeaways
- U.S. oil and gas producers are looking to expand in Western Canada’s Montney basin, a massive shale play with relatively untapped drilling prospects.
- The Montney is currently dominated by Canadian natural gas drillers, but U.S. companies are showing interest due to the shrinking drilling prospects in the Permian basin.
- 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 looking at the Montney and other Canadian oilfields, with some already making acquisitions or expressing interest in bidding for Montney assets.
Introduction to the Montney Basin
The Montney basin, a remote yet massive shale play in Western Canada, is becoming an attractive destination for U.S. oil and gas producers. With extensive drilling in U.S. shale fields over the past 15 years, 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 left with potential for high production. In contrast, the Montney is relatively untapped, prompting Texan shale pioneers to look to the Canadian play for future growth. According to Clint Barnette, director of geology at Indigo Energy Advisors, "Everyone is hunting for inventory. Operators are broadening their horizons and trying to find inventory that can be secured for less."
The Montney’s Potential
The Montney, which spans 130,000 km across northeast British Columbia and northwest Alberta, is currently dominated by Canadian natural gas drillers such as ARC Resources and Tourmaline Oil. The region produces about 10 billion cubic feet per day of natural gas, accounting for approximately 50 per cent of Canada’s total production. Canadian companies have snapped up Montney acreage in recent years as they prepare to increase supply to feed the country’s new liquefied natural gas export industry. 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. According to Michael Spyker, principal analyst at Canadian upstream advisory firm HTM Energy Partners, "As that gap widens, it’s almost your fiduciary duty to say ‘We have to at least be abreast and aware of what’s happening in Canada’."
U.S. Interest in the Montney
More than 20 private equity-backed U.S. oil and gas companies are now looking at the Montney and other Canadian oilfields in various capacities. Two sources involved in oil and gas dealmaking also said a number of private and public U.S. companies have been exploring potential acquisitions in Canada. U.S. operators were among those involved in M&A deals in the Montney this year, although most of the deals were between Canadian companies. In November, Denver-based Ovintiv expanded its footprint in the region with a US$2.7 billion takeover of NuVista Energy. Other U.S. companies, such as SM Energy, EOG Resources, and Chord Energy, have also been sniffing around, with some placing unsuccessful bids on Montney assets or expressing interest in bidding for Montney assets.
The Montney’s Resource Lifespan
According to Enverus, 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. By contrast, Enverus estimates the Permian basin has approximately 11 years of drilling inventory remaining at its current pace of development. John Gorman, Halliburton’s vice-president for Canada, told Reuters, "The Montney is one of the world-class condensate and gas resources in North America. So yes, there’s a lot of interest." The renewed U.S. interest in the Montney is notable, given the decline in foreign direct investment in the Canadian energy sector in recent years.
The Future of the Montney
The startup of the Trans Mountain pipeline expansion last year opened the door to increased Canadian oil production for exports. New Prime Minister Mark Carney has taken a more supportive stance towards fossil fuel development than his predecessor Justin Trudeau. While Canada’s climate laws and regulatory environment have inhibited investment in the past, Carney has promised to make changes to help the sector grow. Chris Carlsen, CEO of Montney-focused natural gas producer Birchcliff Energy, said, "There’s some unique challenges about Canada. But the political tone has changed, so maybe that makes it a little more interesting to U.S. companies." With the Montney’s relatively untapped drilling prospects, low acquisition costs, and growing interest from U.S. companies, the region is poised for significant growth and development in the coming years.