Deal activity in Canada’s oil and gas sector reached US$37.8 billion
Canada’s oil patch is moving toward a “mega merger” moment just as energy stocks hit record highs and Ottawa accelerates a pivot to Asia — all while pipelines, pricing and climate targets pull in the opposite direction.
According to Bloomberg, deal activity in Canada’s oil and gas sector reached US$37.8bn in completed or pending transactions as of December 31, the highest level since 2017, when international majors such as Shell and ConocoPhillips sold oil sands assets to local players.
Since then, consolidation has handed control of Alberta’s oil sands to a tight group: Canadian Natural Resources, Cenovus Energy, Suncor Energy, ConocoPhillips and Exxon Mobil’s Imperial Oil now account for roughly 85 percent of production.
Bloomberg said this wave has left “a pretty short list” of medium and small oil sands names, as BD&P senior partner Grant Zawalsky put it.
He said “a lot of people are asking the question whether there’ll be some consolidation between these bigger players.”
The backdrop mirrors the US, where Exxon Mobil bought Pioneer Natural Resources in 2024 and Chevron’s 2023 deal for Hess included major shale assets.
BMO Capital Markets analyst Jeremy McCrea told Bloomberg that “there’s been five mega deals” in the US over the past two years. “We haven’t seen that yet in Canada, but it doesn’t mean that it can’t happen here,” he said.
Oil’s almost 18 percent decline over the past two years, combined with the risk that export pipeline capacity out of Canada tightens again in the next year or two, is encouraging producers to buy other companies instead of expanding production at their own sites.
Cenovus’s US$5.61bn acquisition of MEG Energy last year fits that pattern.
Canadian Natural, the largest domestic producer, benefits from a low cost of capital and the scale to take on new projects, and has grown quickly since buying Shell’s oil sands mining operations in 2017.
The company did not respond to an email seeking comment.
Suncor has mostly focused on internal growth, and its last full corporate acquisition was Petro-Canada in 2009.
That stance may shift.
On an investor call earlier this month, chief executive Rich Kruger said the company had “earned the trust and credibility” to pursue any internal moves or deals, and that management would act “in the shareholders’ best interest to increase their ultimate value.”
TD Cowen managing director Menno Hulshof told Bloomberg he has “had a lot of conversations about that over the last several days,” and said Suncor told investors it has “the flexibility to consider those things now.”
Bloomberg said Suncor did not return an email seeking comment.
Years of belt tightening after the pandemic and the 2022 oil price spike have strengthened balance sheets at the largest producers.
Hulshof told Bloomberg that asset deals remain more likely than full-scale mergers. He added that “if we did see a mega merger this year, I wouldn’t be completely surprised,” but said such a deal is more likely over the next several years.
At the same time, infrastructure and pricing are again constraining growth.
The Trans Mountain Expansion Pipeline, which started in May 2024, briefly gave Western Canada a surplus of export capacity and new access to Asian markets, prompting producers to consider expanding output.
Rising oil sands production has already begun to strain that capacity, with Enbridge rationing more space on its Mainline system to the US this month than at any time since before Trans Mountain’s expansion.
A sudden jump in Venezuelan crude shipments into the Gulf of Mexico after US military action in January has pushed down the prices oil sands producers receive for their dense, high-sulphur crude.
Canadian heavy crude on the Gulf Coast recently traded at its widest discount to US futures in more than two years.
“It’s not very appealing,” Zawalsky told Bloomberg, “to drill expensive long-term projects to grow your production if you can’t move them to market at world prices.”
Despite those headwinds, investor sentiment has flipped.
Canadian energy stocks hit a record high as rising oil prices pushed the S&P/TSX Composite Energy Index to levels last seen in 2008, the year of the global financial crisis.
The move reflects higher oil prices tied to mounting tensions between the US and Iran and domestic politics.
Bloomberg reported that Prime Minister Mark Carney’s memorandum of understanding with Alberta in November has boosted hopes for a new export pipeline, which could widen access to Asian markets and support higher output as Canada diversifies trade away from the US.
Bloomberg also noted a shift away from investments pegged to environmental, social and governance frameworks.
With Canada’s long-lived energy infrastructure and expectations of extended demand for oil and gas, the sector’s investment case has strengthened as companies have cut costs and fortified balance sheets over nearly 18 years.
Patrick O’Rourke, research director at ATB Cormark Capital Markets, told Bloomberg that the long wait to revisit prior highs “speaks to how long and persistent this sector was generally out of favor relative to some of the asset-light and higher-growth sectors.”
Fears that artificial intelligence could disrupt other parts of the market have pushed investors to take another look at asset-heavy sectors, helping the TSX energy index climb 19 percent so far this year.
