Infrastructure boosts Canada’s energy game
Canadian opportunities were in the spotlight at RBC’s Global Energy, Power and Infrastructure Conference in New York.
The recent commercial launch of the long-awaited Trans Mountain Pipeline, now expanding crude oil exports, combined with the imminent commissioning of the LNG Canada export facility on the west coast, drew attention to opportunities in the country.
“On infrastructure, we are seeing a bit of a game change here in Canada,” observes Michael Povaschuk, Managing Director and Head of RBC Rundle, which provides cross-border execution to energy companies looking to acquire or divest. “That’s created a pretty good buzz.”
There is increasing recognition of Canada’s wealth of businesses, with their high-quality resources, business plans, and track records of execution, he adds.
“In many cases they are trading at a discount to their U.S. peers,” he says. “Investors have been taking note of the quality of Canadian entities and the potential opportunities to invest in these companies.”
“Investors have been taking note of the quality of Canadian entities and the potential opportunities to invest in these companies.”
Michael Povaschuk, Managing Director and Head of RBC Rundle, RBC Capital Markets
Gas deals poised for a surge
The early part of 2024 has seen a burst of M&A activity in the energy sector, driven by companies seeking to achieve scale. Stability on crude pricing has supported deals, says Povaschuk. However, the gas side of the market has been hobbled by price volatility and doubts over future demand and the speed of LNG build-out.
Jeff Cormack, Managing Director in Global Energy Investment Banking at RBC Capital Markets, expects more activity in the gas space as buyer and seller expectations become more aligned. He points out that gas players are trading at high multiples and anticipating high commodity prices in 2025. “We view it to be a pretty meaningful catalyst to see more consolidation and aggressive growth plans on the gas side of the equation heading into next year,” he notes.
While the relative size of the U.S. M&A market traditionally generates more heat, Cormack sees recent signs of a shift in focus. “You’ve got U.S. counterparties looking across the border into Canada, and creating a lot more competitive tension in the processes we’re seeing,” he reports.
“You’ve got U.S. counterparties looking across the border into Canada, and creating a lot more competitive tension in the processes we’re seeing.”
Jeff Cormack, MD, Global Investment Banking, RBC Capital Markets
Big players still committed to Canada
Recent months have also seen a number of notable divestitures, leading to concern that international entities are leaving the Canadian scene. TotalEnergies sold its oil sands assets, for example, while Repsol exited the Canadian industry.
Povaschuk sees these withdrawals as strategic moves to focus on core strengths. He points out that major international players such as Petronas and Shell remain committed to their upstream resources in Canada, while ConocoPhillips bought half of Total’s Surmont assets. “We actually have some very large entities that, once again, see the quality of resource that we have in place, and in some cases are looking to add to their portfolios,” he says.
Regulation and political direction still uncertain
Cormack sees positive momentum from the infrastructure projects allowing Canadian products access to global markets, alongside schemes such as the Pathways Alliance, which aims to cut emissions from oil sands production. However, there are clouds in the form of provincial and federal elections, as well as regulatory uncertainty.
“There’s going to need to be a whole lot more regulatory certainty, and a political framework in place, to underpin investment within Canada,” he says.
Overall, however, the prospects are good for more deal activity, Povaschuk adds. “We are at a bit of a turning point, with important egress coming on, Canadian molecules getting access to international markets outside of the U.S., and a recognition on the quality of resource that we have in place,” he concludes.
“There’s going to need to be a whole lot more regulatory certainty, and a political framework in place, to underpin investment within Canada.”
Jeff Cormack, MD, Global Investment Banking, RBC Capital Markets
