For the first time since 2016, Canada's oil and gas sector has reached a significant milestone: 32 petroleum producers on the Toronto Stock Exchange now boast a market capitalization exceeding $1 billion, according to new data from analyst Jeremy McCrea at BMO Capital Markets.
Doubling from Pandemic Lows
The number of billion-dollar producers has doubled from the pandemic-era low in 2020, though it remains below the 39 recorded in 2013. Of the current group, 13 companies have a market cap above $5 billion, while 19 fall between $1 billion and $5 billion. Canadian Natural Resources leads with a market capitalization of nearly $117 billion as of Thursday.
“You go through these decade-long cycles. You’ve got a boom, you’ve got a bust, you consolidate. And then you kind of reform again, and we’re in that consolidation phase here right now,” McCrea said in an interview. “If you lose a name, there are more names who are coming up behind here, who have that liquidity and size that are still going to be attractive for institutional investors.”
Consolidation Wave Reshapes Industry
The increase in valuations reflects several industry trends: rising oil prices this spring that boosted energy share prices, growing interest from international investors as the U.S. shale sector matures, and a wave of mergers and acquisitions that has produced fewer but larger companies. The number of publicly traded petroleum producers has fallen from 228 a decade ago to 119 today, though there are signs of new entrants in the junior oil and gas space.
Consolidation has been particularly active over the past two years, with acquisitions of MEG Energy, Veren, NuVista Energy, and most recently ARC Resources. The Middle East conflict pushed oil prices above US$100 a barrel in April, but they have since retreated to $71.92 a barrel on Thursday as tanker traffic in the Strait of Hormuz increased.
Investor Interest and Production Growth
Despite a drop of more than nine percent in the past two weeks, the S&P/TSX Capped Energy Index has risen 25 percent this year. More investors from the United States and internationally are paying attention to the Canadian energy sector, according to analysts and executives. Oil producers have also achieved record output levels as new pipeline capacity comes online.
“The interest in Canada has picked up a lot,” said Brian Schmidt, CEO of Calgary-based Tamarack Valley Energy, highlighting the renewed global attention on Canadian oil and gas.
