As Chevron Corp. markets its Duvernay shale assets, the U.S. oil major is most likely to find a buyer among a handful of mid-sized Canadian firms that are boosting investment in a region that has yet to fulfill its potential, analysts say.
The play is situated in west-central Alberta and currently produces nearly 200,000 boe/d, according to consultancy Wood Mackenzie. It is much smaller than the nearby Montney shale play and the major U.S. plays like the Permian.
Analysts said Whitecap Resources and Paramount Resources are among potential suitors given their proximity to Chevron's operations, and their recent interest in snapping up Canadian shale assets. Chevron's Duvernay assets could fetch up to $900 million, Houston-based advisory firm Energy Advisors Group estimates.
Whitecap declined to comment and Paramount did not respond to a request for comment.
The Duvernay has seen eight deals worth $2.9 billion in the last three years, Wood Mackenzie said, as well a plan announced in December from Athabasca Oil Corp. and Cenovus Energy to spin-out a Duvernay-focused joint venture.
Tourmaline Oil Corp. is seeking buyers for its 2,000 boe/d of non-core Duvernay production.
"The Duvernay is looking like a hot spot for this year so it's not surprising that M&A is happening," said Phil Skolnick, an analyst at brokerage Eight Capital, noting that lower drilling costs were driving a surge in licensing activity among existing operators.
Skolnick and Wood Mackenzie analyst Mark Oberstoetter mentioned Whitecap and Paramount as potential bidders.
Chevron said last week it will market its Duvernay assets, producing about 40,000 boe/d, as it streamlines global operations following several big acquisitions. The U.S. oil major holds a 70% stake in the assets along with KUFPEC Canada Inc, a unit of the Kuwait Foreign Petroleum Exploration Co.
Chevron told Reuters on Jan. 23 that it expects the assets "to be attractive to other companies with complementary portfolios," though there are no assurances of any sale.
A new era
Skolnick said Murphy Oil Corp., which holds 4,000 boe/d of Duvernay production and sold a portion of its assets there for CA$150 million (US$111.3 million) last year, will likely watch Chevron's sale process closely.
"If Chevron gets a good price I'd not be surprised to see Murphy selling," he added.
Murphy declined to comment.
One recently acquisitive Canadian producer that says it will pass on the Chevron auction is Crescent Point Energy. The company has completed a multi-billion-dollar asset transformation program, including the $700-million purchase of Shell's Duvernay assets in 2021, with its takeover of Hammerhead Energy last year, a spokesperson said.
Oil and gas companies started looking closely at the Duvernay around 2012, but costs of more than $20 million per well deterred significant investment, especially after global oil prices crashed in 2014/15.
Firms eager to exploit Canadian shale instead focused on the nearby Montney that straddles northern Alberta and British Columbia, where costs fell faster and producers anticipated strong demand for gas from the Shell-led LNG Canada project on the West Coast.
But Crescent Point's deal to buy Shell's production signaled a fresh wave of interest in the Duvernay, where companies are increasingly reporting better-than-expected productivity and well costs of around $12 million, analysts said.
Duvernay deal values are trending in line with the North American oil and gas sector average, excluding the higher-priced Permian and Montney, said Wood Mackenzie's Oberstoetter.
The rate of return on Duvernay wells is roughly half that of the Montney, Oberstoetter added, but Chevron is choosing to sell its assets at a time when the market looks strong.
"Chevron has spent about $3 billion on the Duvernay since 2011," he said. "[The asset] is proven up, it's at an interesting point and there's a lot of remaining life."