There is a growing interest among American investors in the Canadian oil industry, driven by positive signals from the federal government and the perceived stability of returns from Canadian energy companies. Jeremy McCrea, a managing director at BMO Capital Markets in Calgary, characterizes this shift as a “rotation,” where more investment is flowing from the U.S. while Canadian investment slightly decreases.
Despite lower oil prices affecting investment sentiment, many portfolio managers are still interested in holding energy stocks, with a preference for the Canadian sector over the U.S. McCrea noted that U.S. investors are increasingly opting for Canadian energy investments.
Currently, U.S. funds hold around 59% of Canadian oil and gas companies, up from 56% last year, while Canadian ownership has decreased from 37% to 34%. This trend is reflected in individual companies, such as Whitecap Resources, where CEO Grant Fagerheim mentioned that 66% of institutional holders are now from the U.S., compared to 60% previously.
According to Brian Schmidt, CEO of Tamarack Valley Energy, Canadian investors, especially pension funds, show some reluctance towards the oil and gas sector, a sentiment not shared by U.S. investors. Schmidt highlighted the significant increase in U.S. ownership of his company, rising from 20% to 40% post-COVID-19.
The shift in investment began about a year ago, coinciding with a period when the federal Conservatives were leading in the polls and promising significant policy changes to support the oil and gas industry. Despite the Liberals winning the election, Prime Minister Mark Carney’s commitment to positioning Canada as an energy “superpower” has instilled confidence in investors.
The completion of the Trans Mountain Pipeline expansion has further boosted investor interest by enhancing the sector’s export capabilities. Additionally, the relative economic advantages of the Canadian oil industry compared to the U.S. market are driving the increased attention from investors.
While the U.S. heavily relies on oil well production, which requires continuous drilling as wells deplete, Canada’s focus on oilsands projects offers long-term stability and lower operational costs. Canadian oilsands companies have shifted towards prioritizing shareholder returns over new capital projects, a strategy that appeals to investors seeking steady returns.
David Samra, a portfolio manager at Artisan Partners, emphasized the attractiveness of Canadian oilsands companies returning cash to shareholders. McCrea remains optimistic about the future outlook, suggesting that the trend of U.S. investors flocking to the Canadian oilpatch looks promising.
Fagerheim believes that investors from Europe and Asia, mirroring their U.S. counterparts, are increasingly turning their attention to the Canadian oil industry. The global investment community is taking note of the opportunities presented in the Canadian energy sector.