Foreign money is flooding back into Canadian energy. Experts say that’s a good thing

Canadian investors own controlling stakes in the country’s oil and gas industry, but analysts say international shareholders could gain a larger foothold as the oilpatch enters a potential wave of growth.

“The Canadian oil and gas sector is too big for just Canadian money,” said Heather Exner-Pirot, director of natural resources, energy and environment at the Macdonald-Laurier Institute.

Exner-Pirot argues the industry needs international investment — to help it grow and sustain itself — and that some foreign ownership is a net positive for Canada.

The overwhelming majority of Canada’s oil, gas and natural gas liquids production is owned by companies headquartered in the country, according to data from Wood Mackenzie Ltd.

Still, the largest investors in several of those producers are from outside the country.

To better understand foreign ownership in Canadian oil and gas firms, the Calgary Herald and the Financial Post tallied the top 10 shareholders in the country’s largest players.

The analysis found foreign firms make up the majority of the top 10 investors in Suncor Energy Inc., Imperial Oil Ltd., Cenovus Energy Inc. and Canadian Natural Resources Ltd.

Imperial had by far the most foreign ownership. Among the producers’ top 10 investors, the largest Canadian shareholders hold just three per cent of its shares, with Texas-based giant ExxonMobil Holdings Corp. controlling nearly 70 per cent.

In the top 10 alone, foreign investors own over 49 per cent of Cenovus, nearly 39 per cent of Canadian Natural and over 19 per cent of Suncor, the analysis shows.

Jeremy McCrea, an analyst with the Bank of Montreal, said there are clear advantages of accepting some degree of foreign investment — beyond cold, hard cash — such as access to technology and talent.

“The U.S. has done an incredible job advancing their drilling and completion designs,” McCrea said. “It ultimately helps improve the overall economics for a lot of the Canadian operators.”

However, risks could emerge if foreign firms were allowed to take over large swaths of resource plays across Western Canada, according to McCrea.

“It’s more difficult for new entrants, new startups,” he said.

There’s also an important distinction between foreign investors who are there to exert strategic control over a company, versus institutional investors who are simply looking for a return, McCrea added.

“Institutions are much more inclined to make money, and if they sense there’s opportunity elsewhere, they typically vote with their feet,” he said, noting they won’t necessarily nudge companies to shift strategies.

Canadian energy has garnered more international attention amid the conflict in Iran, which has renewed focus on secure, reliable suppliers. It’s also run in tandem with Ottawa’s shift in tone under Prime Minister Mark Carney’s pro-investment, open-to-development stance on oil and gas pipelines.

That attention has been apparent through big deals — such as supermajor Shell PLC acquiring Calgary-based ARC Resources Ltd. for $22 billion — and there are signs the overall mood is shifting.

Earlier in August, Ezra Yacob, chief executive of EOG Resources Inc., one of the largest oil producers in the U.S., told analysts that pipeline access has always been challenging in Canada.

“Now they’ve done some things on the regulatory side, and there’s been some investment in the region that hopefully will clean some of that up in the future,” Yacob said on an August earnings call, adding that some areas of the country have “started to show some potential.”

Over the past decade, the oil and gas industry has fallen out of favour with investors, while a policy rift between Alberta and Ottawa has stalled development. But all of this is changing, argued Robert Johnston, director of energy and natural resources policy at the University of Calgary’s School of Public Policy.

“Those conditions are better now, and it’s not surprising to me that some of the global capital markets players are coming back,” Johnston said.

Still, Canadian-headquartered companies own over 78 per cent of the country’s oil, gas and natural gas liquids production, with the remainder held by international firms, according to data from Wood Mackenzie Ltd.

Canadian ownership is even higher in the oilsands at almost 90 per cent, the energy analysis firm said. Its data does not look at the individual investors in companies.

“We want to have a balance between really healthy foreign investments and our own homegrown companies as well,” Johnston said.

Exner-Pirot said large takeovers — such as Shell’s Arc purchase — may mean fewer headquarter jobs in Calgary. But those deals still inject plenty of foreign capital into the industry and help with access to international markets, she argued.

“I haven’t seen anything that’s raised my eyebrows yet,” Exner-Pirot said.

“Where I think is likely to be a red line — it would be a takeover of one of the big three,” Exner-Pirot said. “They might be too big anyways, but I think that would be something where the Investment Canada Act would probably be applied.”

As Carney pushes for more foreign investment in Canada, some of that capital may flow into the country’s oilsands.

“My philosophy is capital doesn’t have a nationality,” Exner-Pirot said. “It’s going around the world seeking the best returns, and it’s good that we’re attractive to any kind of capital.”

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