Jeremy McCrea — 8.3 Million Barrels: Canada's Pipeline Revival

0:18 A structural shift in energy sentiment

• Recorded Jul 14, oil ~$80. Sentiment "a lot better" than a year — let alone five years — ago; PMs who missed the 2022 run and underperformed in 2025/26 now feel they need to own energy or risk their benchmarks on a black-swan oil move.
• The sector is "more profitable than it's ever been" — paying taxes, paying good dividends, demand still rising.

1:47 The politics finally stopped moving the goalposts

• The decade-long fear was waking up to a new environmental regulation / pipeline dismissal — "the rules keep changing… the worst thing for investors."
• Now the tone has shifted; everyone knows the rulebook, so capital can come in at a lower risk premium.

2:37 Three new crude-export pipeline proposals in six months

• After ~10 years of dead pipelines, three legitimate crude-export proposals appeared — investors are half-joking "do we have too many?" Skepticism persists that even one gets built, but three proposals is a real change of tone: "maybe Canada is back."

4:04 ~5 mb/d today → proposed ~8 mb/d

• Today ~5 mb/d exports via the Enbridge mainline, Trans Mountain, Keystone and Express systems. New proposals — Prairie Connector, the West Coast pipeline, Northern Shield I & II — take proposed capacity to ~8 mb/d; enough to grow Canadian oil ~60%.
• Northern Shield could replace Line 5 (~0.5 mb/d) if it's shut. Not all get built, but the signal says "Canada is open for business."

6:34 13F flows — best inflow in 5 years

• BMO's quarterly 13F-flow chart (every fund that's ever owned Canadian energy) showed ~$4B of inflows last quarter — the most in the ~5 years they've tracked it — and it's the sticky long-only managers, not just hedge funds.

7:22 Structural or political? The AI "halo trade"

• Part of the flow is investors hunting "heavy assets" insulated from an AI bubble — software's been hit hard, and they worry AI disruption spreads to finance and other sectors. Energy is the "halo trade": real assets AI can't erode.

8:27 WCS differential — pipelines kill the blowouts

• The heavy-oil WCS differential should be ~$10–12 (transport cost) but blew out to $20–30 for a decade — brutal on a $80 barrel, and it cost Alberta royalties and killed projects.
• New pipelines should largely eliminate those blowouts → less volatility → lower cost of capital → higher valuation multiples.

10:22 Ranking the pipelines — Prairie Connector first

• Prairie Connector is the most logical: close, uses existing Keystone XL rights-of-way, cheap, private-led (more fortitude to push through). Plus ~800 kb/d of optimizations on existing lines ≈ an extra pipeline.
• Those two ≈ 1.3 mb/d — enough growth for 5–7 years; West Coast / Northern Shield are "nice to have."

14:13 How do you fill the pipelines? The chicken-and-egg

• Companies won't expand until pipelines are confirmed; pipelines need confirmed fill — the balance being worked through now. The new federal framework is "moving in the right direction."
• Confidential wells fell to 48% of new licenses = companies doing development, not risky exploration; they already own the inventory. Less risk → less volatility.

16:38 All three at once — dividends, buybacks, debt paydown

• With ~5–6% dividend yields, companies can pay dividends, buy back stock and pay down debt — debt being saved as dry powder for the consolidation wave.
• Middle-East windfall cash → mostly debt paydown for now; Q3 guidance (2027 capex) is the key data point, bias to higher estimates if oil holds.

17:36 Boom → bust → consolidation → rebirth; ~35 new farm teams

• ~35 brand-new companies forming with new management teams raising capital — the "farm teams" that seed the next production growth. We're in the consolidation phase heading to rebirth.

20:23 Algo/AI funds now read the research for tone

• Algo funds scan sell-side research for positive-vs-negative words; more positive words → they buy. AI is shifting the analyst's job from press-release regurgitation to interpretation.

21:43 The gas side — 8.2 bcf/d of LNG proposals, worst sentiment in years

• Proposed West Coast LNG ≈ 8.2 bcf/d ≈ 40% of Western Canadian supply if all built. LNG Canada phase 1 disappointed (industry over-drilled ahead of it) — "the most negative gas sentiment I've seen in a long time."
• If the wave (LNG Canada 2, Cedar, Woodfibre, Ksi Lisims, Tilbury, Summit Lake, "Canada LNG") comes on ~2029–31, it soaks up the excess basin supply.

24:31 Ranking LNG — phase 2 & Ksi Lisims closest

• LNG Canada phase 2 was designed into phase 1 for cheap expansion; Ksi Lisims is a couple megatons of offtake from the ~10 Mt needed for positive FID. Expect news by year-end. LNG won't move Station 2 near-term but ends Canada's "end-of-the-pipeline" discount story.

27:22 Canadian gas is the lowest-cost feedstock

• BMO runs ~200 plays across North America; pure-play-for-pure-play, Canadian gas economics beat the US. F&D ~25–50¢/mcf ("almost free") → the arbitrage works even if global LNG prices fall — why super-majors are showing up.

29:44 M&A wave — record year, more to come

• Consolidation because Canada's undeveloped inventory competes favorably with US plays: Ovintiv/NuVista, Shell/ARC, and "yesterday's" ~$1.3B oil-sands deal (Greenfire). 2025 was a record ~$30B; eight other Q2 deals topped $100M.

32:34 Multilateral drilling — the Clearwater engine

• Multilaterals (a "pitchfork" — up to 8 lateral legs off one vertical bore) made the Clearwater the fastest-growing play 2018–25 by finally capturing known-but-stranded oil. The metric isn't payout, it's 2× / 3× payout.
• Re-entering old conventional pools gives "full-cycle economics for half-cycle costs" (roads, pipe, power already there).

33:47 Top picks — Headwater & Tamarack

• "Our two top picks" — best-quartile wells hit 2× payout in 2–3 years; long cycle times (5–6+ yrs) can't grow a business, so nimble juniors with fast cycle times grow fastest.

34:48 Mannville next — inning 2–3 of the tech

• Multilaterals expanding into the Mannville heavy oil (Clearwater is one stacked layer within it; Mannville is ~3× the area with ~8 layers → "a lot of oil"). Being tested in the Bakken, Charlie Lake, deep basin, Sparky, Montney.

36:26 Why oil isn't going to $150 — the bell-curve band

• Capital efficiency keeps a lid on price. His bell curve: supply destruction ~$65–70, demand destruction ~$120 → oil bounces in that band. BMO's global cost study puts marginal cost ~$73–75; the Dallas Fed survey's new-well price averaged $66 ("66 is the new 50").

38:16 Early water floods flatten the decline curve

• Putting water injectors on Clearwater wells early avoids pressure depletion → decline rates of 5–10% vs the usual 25–35%, so the production base holds up and growth stays high.

40:52 Cheap multilateral wells = more shots

• Multilateral wells cost only ~$1.5–2.5M vs a Montney well at $8–10M or US shale at $8–15M USD — you can take far more chances downhole. Alberta's post-2015 royalty "C-star" lets operators recover cost first, cutting risk.

42:38 Royalties — the risk-averse way to own the basin

• Topaz and PrairieSky have Clearwater + Mannville royalties and benefit from basin growth without operational risk. They lack E&P "torque," but offer "huge optionality" — they sit wherever the next play emerges (PrairieSky's Duvernay went from nothing to ~10–15% of oil volumes).

44:13 US institutional interest surging

• Record US PE/institutional attendance at the Calgary Stampede; more US investors reading BMO's research and subscribing to service providers — "US interest is coming back in a big way."

46:13 Still no shovels in the ground

• "Talk the talk, walk the walk" — until construction actually starts, some skepticism stays. The bull case for now: cheap valuations let you "take a punt."

46:54 Why own Canadian oil & gas now

• Three reasons: a supportive federal government + sentiment shift (even ESG-constrained European/Quebec money loosening); better-run, profitable, long-term businesses; and valuation cheaper than almost every other sector.

50:41 Q&A — path to a large Clearwater consolidation

• A $50B PM needs ~$20M daily liquidity; there's no Canadian name in the $10–20B range with this growth. Consolidating the Clearwater's ~6–7 operators could create a large, highly profitable pure-play that finally attracts international capital.

52:45 Q&A — a mid-cycle $65 for DCF? Modeling blind spots

• That oil fell back to ~$70 despite the war shows models have blind spots (Chinese inventories, global trade flows). Even the EIA's ~$300M budget can't nail it — near-term oil is unforecastable; long-run it reverts to marginal cost. Take advantage of the near-term swings.