Title: Jeremy McCrea (BMO Capital Markets) — 8.3 Million Barrels: Canada's Pipeline Revival
Show: Trevor Rose podcast (YouTube channel "Trevor Rose")
Guest: Jeremy McCrea (BMO Capital Markets, Canadian energy research)
Date: 2026-07-23
URL: https://youtu.be/xT7irtUaE04
Length: 55:00
Note: fillers (um/uh/"you know"/"like" as verbal tics) and stutters/false starts removed; wording otherwise verbatim (garbled auto-transcript spellings left as-is — e.g. "Beimo"=BMO, "clear water"=Clearwater, "Manville"=Mannville, "solisms/solism"=Ksi Lisims, "oventive"=Ovintiv, "New Vista"=NuVista, "conerure"=unresolved acquirer of Greenfire). Interview recorded July 14 per the host's remark ("Today is July 14th and oil is around $80"); published July 23, 2026.

(00:02) Good morning, Mr. Jeremy McCrae. Thanks for coming back for part three. >> Great. Thank you. >> It's good to see you. The podcast has grown since our original recording in Kensington. I don't know if you remember that. >> Yeah. Way back 2023, I think somewhere. Anyway, it's good to be back.
(00:18) This sector has definitely changed for the better and it's good to still be in energy. >> Today is July 14th and oil is around $80. So, like we were discussing before we started, energy sentiment seems to be getting better, >> a lot better. I would say it's a structural shift that we're seeing here right now from where we were even just a year ago, let alone even 5 years ago.
(00:43) And a big difference is there's a lot of portfolio managers who are looking at the sector saying we missed the run in 2022, we underperformed in 2025, we're underperforming in 2026. And we just never know when there's going to be a black swan event as it relates to oil and if we underown energy or are not part of energy.
(01:01) We underperform our benchmarks and as a result we just need to be in the sector and as we've looked into the sector they say this sector is a lot more profitable than it's ever been before. We're paying taxes. We're paying good dividends and a lot of it comes back to the sector is not going away anytime soon.
(01:19) Demand keeps rising and like you say it's not going away. >> It's not going away and it just more and more data points that show that that is the case and that energy on a carbon basis is going to be here for quite some times and it's always refreshing to hear politicians say that here as well too which really gives that knack for investors saying this is probably a safe industry that we can be in and regulation isn't going to shut down the business here.
(01:47) >> We'll get into it, but it seems like the tone has shifted politically in Canada, too, which maybe is a soft indicator for investors that supports their investment thesis. The number one thing that investors were worried about here for the last I want to say decade was you wake up in the morning you read the Global Mail and there's a new article that says there's a new environmental regulation pipeline dismissal or just a number of regulations that was just too risky to put any money in just in terms of we
(02:17) don't know the rules of this game that we're playing here and the rules keep changing and it's when the rules keep changing that is the worst thing that we can have as investors. And that was one of the biggest issue was we just never knew what kind of sandbox we were playing in before. >> So for the past 10 years, pipelines have basically died.
(02:37) But the last month or so, there's been three new proposals for crude export capacity. So what's been the shift and why? >> It's funny like we saw no pipeline announcements at all and then suddenly we get a few of them here in the last 6 months and it's to the point where do we have too many pipelines? That's a valid investor question that I'm getting here now.
(03:00) And >> I'll never say there'll be too many here. You could always debate that. But it's more so the investor sentiment of what that signals and will we get all these three major pipelines to come through? Maybe, maybe not. I think there's still a lot of investors who are skeptical that even one of these will go through.
(03:21) But the fact that there's now three, it's a real change of tone and sentiment that these investors saying, maybe Canada is back here. When you have that many proposals that seem very legitimate, that's where they say at least one of these will probably go through. We can come back to Canada because growth is back in Canada where there was no effective growth that we saw for the last decade.
(03:43) And what investor wants to invest in a stagnant industry? None really. And so now that we can get back to having this egress here and a lot of that egress where we could probably grow Canadian oil by another 60% or so, investors are saying there's a lot of good value creation that Canada's going to be able to deliver here for the next several years.
(04:04) Today we're exporting about 5 million barrels a day through the mainline Enbridge system, Trans Mountain system, Keystone system, the Express Enbridge system, but there's a whole bunch of other new proposals including Prairie Connector, the West Coast pipeline, Northern Shield part one, Northern Shield part two. So will all these go through? I think there's the skepticism that they all will, but the way politicians are talking, indigenous groups are talking, companies, it sounds much more real than we've ever really kind of seen past
(04:34) proposals here. It seems like everyone is aligned. Everyone's gone through the last decade in terms of what do we need to do? What does consulting mean? What is environmental protection that we need to have? And there's not this so long debate that we used to have. It's this is what is required if we want to be the number one cleanest most responsible energy provider in the world we all know what those rules are now and as a result of those rules we can proceed faster with these pipelines to get to the
(05:04) finish line. So it really goes back to this rule-based thing. As long as we don't keep changing these rules, we know what we are dealing with and as a result, capital will come in for that. And that's why we start to see a lot of these share prices perform as well as we've seen them because globally especially from US investors, they're saying Canada is back here and given the relative valuations that these companies are still trading at relative to our own like US investors thinking that they're their own US
(05:32) companies, there's a lot better risk-reward that we're hearing from these investors here. So, you put out some great charts. For anyone that is listening, you can find them on LinkedIn and X and I think you published them through your email and whatnot, but the future export capacity was roughly 8 million barrels a day.
(05:51) So, that is a big step up. >> It's a big step up. You go from just over 5 million today up to potentially eight. Now, some of these pipelines are negotiating tactics for, cuz you still have issues with, line five here, which is about half a million barrels or so in terms of does that get shut in, does that not? But either which way, the Northern Shield would be a good replacement for that.
(06:13) So, are you going to get up to that full eight in a bit? Maybe, maybe not. But these are the proposed pipeline capacities that really will all come on over the next 5 to 10 years. But today, it's a signal that says Canada is open for business here. And that's why we're seeing a lot of this new capital come back into the sector.
(06:34) We always do this quarterly chart that looks at 13F flows. Basically 13F form is if you are an institutional investor, you need to disclose what your holdings are. And so every quarter we look back at every fund that has ever owned a Canadian energy fund and say what are these funds buying and selling today? And the last quarter was the most amount of capital that we've seen performing this analysis here for the last I want to say 5 years we've been doing it, about $4 billion coming into the energy sector
(07:02) alone. So it's a real show that capital is coming back and institutional companies and it's not just the hedge funds it's the long only type of funds that are the fund managers that you want holding your stocks. >> Do you think it's a genuine structural change or a political moment? >> It's a good question.
(07:22) Investors look for where there's upside and right now just given how negative the sentiment is with Canadian energy that's what's coming back. I think they're also looking at a lot of other trades relative to what AI is doing to a lot of their investments. And one of the other comment that we hear from investors is this AI bubble like I think you can't find anywhere where there's not commentary about talking about an AI bubble and as a result we're just seeing some of that flow where investors are calling it the
(07:52) halo trade and basically just looking for heavy assets that aren't going to be influenced by AI to the detriment here. So you look at software companies that have been hit hard. So a lot of fund managers are saying could this happen to the finance industry? Could it happen to other industries that AI could influence here? And so that's why we're seeing a lot of that capital look for more what they call a heavy the halo trade here that will be protected from or less detrimental to from it from AI
(08:27) disruption. >> And so the WCS differentials existed for a long time. Do you think that'll help the differential get better? And for the listener, what is the differential? What has it meant the last few years? >> So the big reason why investors struggled with Canada here as well was the pipelines.
(08:43) But the reason why the pipelines were the issue is because we had excess oil, heavy oil here. And every so 2 months, 3 months, 6 months, we would have these blowouts in our WCS, heavy Western Canadian heavy oil differential where your cost to transport from Canada to effectively the US refineries, call it $10 to 12 is typically your transportation cost.
(09:10) And the bright price that you should get for a heavy oil differential discount. That's what should be normal. But we saw these differentials go out to $20, $30. And so when oil is only trading at $80 and you got a $30 discount over the last decade, that hurts kind of thing here. And that has missed royalty opportunities for Alberta, for a lot of new projects that could be built.
(09:33) And so to get these pipelines built should pretty much eliminate that differential. I don't want to say forever but really mitigate the problem with these differentials that we had for the last decade here. So that just gives investors confidence that they're not going to get the swings in Canadian oil prices that we see with the US like oil prices move up have enough volatility as it is you don't need to add another factor with the differential here that adds even more volatility to that swing. So
(10:07) if you can reduce the volatility, reduce the risk, basically leads to better cost of capital that you should have and as a result that should improve valuation multiples for these companies. >> More pipelines to the states means you can get a better price for your crude that you send down there >> effectively. Yes, in a nutshell.
(10:22) >> To rank the projects. Do you have a list of which ones you think will be done first or >> for the pipelines here? So the prairie connector seems the most logical. It's close. It's close and it's using a lot of the existing Keystone XL rightways here. The cost is very very reasonable.
(10:45) And when you have private companies spearheading these projects, there's a little bit more fortitude in terms of how to get these projects through and obstacles that they may face here. When we look at how Trans Mountains was built and I'm not going to get into some of the details that because it's probably hearsay and you never know what the rumor mill is always kind of saying in terms of some of the things and the cost overruns and why they had them but it's a different company mentality I think when it's a private versus a public
(11:13) operator building these different projects here so this prairie connector seems very logical. I think these optimizations on existing pipelines which adds up to just over 800,000 barrels, that's almost an equivalent pipeline in yourself in terms of the optimization. So that seems very reasonable.
(11:32) So those two projects together you're at 1.3 million barrels which will give you enough growth all the way out for the next 5 6 7 years. So that's where investors are coming back into Canada saying these other projects with the west coast with the northern shield these are all nice to have and even if it takes a little bit longer to get those on at least we have enough capacity here for the foreseeable investment future.
(11:56) that some of these new growth plans that the E&P companies have will go through. >> However, investors are right or not. You can't fault them for being skeptical, but you think there's been a shift in tone. >> You can't fault them and I'll meet lots of institutional investors every year and the amount of institutional investors that I see now have probably rolled over 80% from where they were a decade ago.
(12:19) And that was the problem with the sector here is when you have energy specialists and just with the state of the sector it just doesn't perform as well those funds and energy funds shut down you just don't have as many portfolio managers doing energy and as a result they typically don't go down market they stick with a couple big large cap names just to have a bit of energy but more often than not if you're a US investor for example and energy is only 3% of the S&P 500, you don't necessarily need to own any energy. And so, as a result, you
(12:53) just don't have any of those US investors even coming up into Canada. So, as energy becomes more important, especially as relevant benchmark here in Canada, this is where you get those specific energy fund managers, investors make money and as a result, those gains get reinvested back into the sector here.
(13:12) So there seems to be some certainty maybe like we said politically and there's tons of reserves to fill the if you put the lines in the ground >> lines in the ground and when we talk about Canada has like the third largest reserves in the world here those are good reserves here like you talk about doing reserves and we see this sometimes when we do our own analysis on foreign jurisdictions in terms of what gets classified as reserves like our reserves are real we can grow into this pipeline capacity here that's not the
(13:42) issue and you talk about some of the new technology that's being employed here in the sector in terms of a lot of this modular segd mobile segd here we got more oil that is about to kind of start hitting the market and it's nice to see these pipelines go through so everything is coming together and it feels good to be in the energy sector here >> reserves there the pipelines seem to be getting built but on the other hand one of your great sides was the reduction and then in the new exploration well
(14:13) licenses that combined with the return of capital framework that energy companies have kind of shifted towards has meant less new drilling and less supply of hydrocarbons in the markets. So I guess the question is how do you fill the pipelines if they're built? >> So we are seeing there's a lot of skepticism here is it's a chicken and egg issue.
(14:35) Companies don't want to expand production until they have some certainty that these pipelines will get built. But it's hard to build a pipeline if you don't have that confirmation that they can get filled. So that's what this balances that we're going through right now. And ever since the new Liberal government came into place, I'm not quite sure that's the right way to say it, but the new framework here that they're going for here, it's moving in the right direction here for the energy patch.
(15:00) There's still a lot of skepticism that this will go through, but everything that is being said is what ultimately energy investors want to hear and know, but it does feel like some of this projects will go through and we do have the inventory. When we're talking about new exploration wells, it just shows that we don't need to necessarily take outside risk to go do true exploration.
(15:27) we have the inventory already and that's where we're seeing a lot of these E&P operators saying let's improve our valuation. How do we improve our valuation? Let's have less risk and we already have the inventory already so let's just kind of do development wells as opposed to true exploration. >> The stat was that there's fewer confidential wells.
(15:45) They've fallen to 48% of new wells license. >> Yeah. So basically we've seen a lot less confidential wells and typically you do a confidential well when you're doing a little bit more true exploration that you don't want your competitor to see cuz you're exploring new land. But basically what it comes down to is companies are saying we have our play, we have our land, we don't need to do new exploration, we are just going to do true development which ultimately shows that companies are taking less risk.
(16:14) they don't need to take on as much risk and as a result that less risk should give investors confidence that there's less volatility with these companies going forward. >> Companies have also been returning capital in the form of dividends and share buybacks which means less money going into the drill bit but like you say you think there's enough room for incremental production expansion without big exploration program.
(16:38) this the subtle conversations that we've had with a lot of different CEOs is if these pipelines are real and we get confirmation that construction is starting that will give us a lot more confidence that we're not going to get differential blowouts that there is going to be room for us to expand our oil production.
(16:55) We have the inventory we just need some confidence that the market will be there here for us to go through. So you can kind of do all three almost in a way here and which is the good news. So you can pay your dividend which are typically averaging around 5 6% dividend yields here. You can still buy back stock.
(17:15) You can still pay down debt. And a lot of this debt that we're seeing is almost kind of being saved for a rainy day here with all the consolidation that we're starting to see here in the sector here as well too. I always like to say we go through boom then a bust. we're in the consolidation phase here right now and eventually we're going to start seeing some rebirth.
(17:36) So I think the stat here going around is there's about 35 new brand new companies that are being formed here right now with new startup teams, new management teams that are out raising capital and these are the new farm teams here that will be that new vigor of new production growth here for the sector. And speaking of boom, the last quarter has been great with oil prices.
(17:58) I guess it's bittersweet with the war in the Middle East, but from a cash flow perspective has been really good for producers. So where do you think that cash goes going forward? >> So a lot of companies are hesitant to say what we're going to do with this cash because no one knows how long this is going to last and you don't want to say we're going to bump up our dividend by double and only to say oh shoot that was the wrong decision here.
(18:22) it's all going down to pay down debt here in the meantime and then we'll see how long this crisis lasts and that will Q3 is going to be the interesting data point here because that's typically when the next year's capex and guidance budgets come out and for the most part we haven't seen too much big growth changes from the street analyst investors in terms of projections here for 2027 but as the year goes on we'll have a better clarity in terms of where prices are looking to head and that will dictate where
(18:56) estimates are going to go but the bias is likely and looking to be higher here going forward if oil prices stay where they are. Yeah, it's company specific what they'll do with the money, but the point is that it's been a really good quarter and the tide has risen for all the boats >> and I think the balance sheets are going to look great here come the Q2 prints for a lot of these companies.
(19:16) So that just show >> this is a safer sector to invest in from where we were even just a couple years ago, let alone even 5 10 years ago here. We just don't have that same volatility. Our profitability is better. And just the fact that these companies are paying taxes it shows that >> Mhm. >> these companies are profitable and look to remain profitable for some future time here.
(19:38) Do >> you think those quarter record cash flows been priced into the stocks already? >> It always somewhat is almost in a way here. It's always where that incremental new shareholder is coming from here. I think there's still a lot of incremental shareholders and as energy continues to perform quite well, you get new investors saying there's momentum in this sector.
(20:01) I need to start looking at the sector and that's where you start to see that incremental new shareholder come from and a lot of the new incremental shareholders are coming from the US and overseas here just saying maybe this political environment is better here. and when you look at these companies and the fundamentals, they look relatively attractive to still to a lot of different sectors.
(20:23) >> Plus the quantitative funds that ride the momentum, it's not a fundamental analysis, but they seem to it feeds on itself. >> ALGO funds are a real thing and you look at these ALGO funds and the way AI is operating now. So they'll read our research that goes out and if we have certain words that they're looking for here in terms of we've moved our cash flows up higher on the back of this or they look for positive words versus negative words and if you have more positive words in the research
(20:53) they tend to go higher. So it's interesting in terms of when you read transcripts and that it's what AI is doing to our side of the business here is making a big difference. It's not so much regurgitating a press release almost anymore. It's a lot more interpretation of what does this actually mean on a go forward basis cuz you have AI effectively reading company press releases and looking for the positive negative words.
(21:19) It's almost the interpretation of what that means. >> This podcast episode is powered by ATB Capital Markets. ATB Capital Markets provides financial solutions and strategic advisory services to help businesses thrive. With a track record of successful deal execution, ATB is a full-service investment dealer with a deep understanding and commitment to the industries it serves.
(21:43) Visit ATBCapitalMarkets.com for more information. And on the gas side, it's similar story. Proposed West Coast LNG projects are about 8.2 BCF a day, which would equate to about 40% of Western Canadian supply if it all goes through. >> It's big if it all goes through. And I know everyone's been waiting for phase 2 of LNG Canada to be announced.
(22:06) And it seems like we've been sitting here for longer than we think a lot of us have been waiting, but it's nice to see it's on the fast-track program here in terms of the government. And it just shows that the government is committed to getting these projects going forward here that you may not have the red tape that you once used to.
(22:25) And hopefully that can help with the cost reductions in some of these initial construction projects when you're doing the very first construction project here on the West Coast. There's probably additional costs that typically always sometimes happen in these projects.
(22:43) So, it's encouraging to see the amount of proposals that we're seeing here now go through because right now the investor sentiment is all on oil in favor of oil versus gas like and quite frankly, this is probably some of the most negative sentiment I've seen in gas in a long time.
(23:00) LNG was supposed to save us here. And so when phase one of LNG Canada came on, a lot of us were hoping for some better price. The unfortunate thing is as an industry we drilled a lot into it and so we brought on excess supply quicker than when the project actually started up and even now we're only kind of starting to hit the full capacity of the second train of phase one.
(23:25) So it takes time and I think that's the sentiment is we just have too much gas in the basin here to meet this. If all these LNG projects do go through and start coming on in 20 29, 2030, 2031, depending on your project here, it could soak up a lot of this excess supply of gas here that we see. >> There's wood fiber, there's cedar LNG, LNG Canada phase 2, solisms, Tilbury LNG, Summit Lake, and then there's that new one, Canada LNG.
(23:54) What's Canada LNG? >> New one that just kind of popped up here, and we don't know too much about the project here either. Here's the headlines and >> >> but it's encouraging though. It just shows that foreign backed entities see Canada as a safe place to start investing and start doing some preliminary work here.
(24:12) That's the bigger statement that I think comes from that. We'll get more news as the year goes on from that project specifically, but it's a statement that says Canada is open for business. And that is probably the most important takeaways that we've seen here over the last 6 months that the federal government is keen to go forward with some of this.
(24:31) >> That's a lot of export capacity if it all gets built. >> It's a lot. But I think anybody who's stuck it out with the energy patch is encouraged to see what's going to transform here over the next while. But same with I want to say Albertans here too cuz this does translate into a lot more royalty revenue that the government should be taking in more taxes a lot more jobs.
(24:58) So ultimately it should benefit everybody here. >> Do you have a rank of the proposed LNG projects >> that should go through? >> Do you think phase two has been talked about a lot? You look at phase one in terms of the layout of that. A lot of the project was built to add phase two at an easier cost. They've gone out to their engineering contract to start scouting and suggesting hey can you start running us some cost analysis here for phase 2.
(25:28) You look at Solism's project here and the amount of offtake agreements that they've signed here just in the last few months. as you get closer to that 12 megaton capacity, you probably need to get to that 10 for them to go positive FID on that project. So, we're a couple megatons away from that project going through.
(25:45) So, it seems like that is a reachable stage. So, those two projects combined seem like we're in the final stages of hopefully hearing something. I want to say by year end here we should hear something, but it seems like we're getting closer to hearing something on those projects. >> What would that do to eco prices in Station 2? >> Honestly, it's probably not going to do anything here near-term.
(26:09) But the sentiment on the street here or just with investors is Canada is at the end of the pipeline. They've always been at the end of the pipeline. Gas prices have always traded at a big discount, even more so than transportation to Henry Hub here. And we don't need to invest in Canadian gas companies if they're always at the end of the pipeline.
(26:32) this changes that story here that Canada may no longer be at the end of the pipeline here in the coming few years which will start having long-term investors who take that 10-year horizon say maybe this is the chance to start picking away at some of these smaller or not smaller companies but >> negative sentiment on gas given where some of these projects may go.
(26:52) So that's the catalyst that these projects could ignite in terms of new sentiment coming into the sector >> about a month ago Mr. Bandelle mentioned with the catarist projects and some of the other ones that US natural gas goes from about 100 to 135 BCF a day which is amazing. Do you think Canadians do we still have the opportunity to compete on the global market or are we too late? >> So on the global market yes our gas in Canada is I would argue there's like Russian gas and there's some cheap source of
(27:22) gas there but relative to the US our plays are quite a bit economic. So we run plays at Beimo here on about 200 different plays throughout North America and every time when you're comparing pure play gas to pure play gas, Canada's pure play gas economics greatly went out versus US economics and so that's where if we can build more egress into the US as well too.
(27:47) Not to mention our LNG, it's going to be that place where we are one of the lowest cost suppliers of gas. The US is extremely cheap natural gas feed stock, but Canada has as cheap if not cheaper. I would >> if not cheaper. Yeah, I would fully argue. Our F&D cost on pure play gas is looking at 25 to 50 cents in MCF here.
(28:07) So, >> it's almost free. >> It's almost free. You got 25 cents operating costs depending on your facilities and that. So, your marginal cost here for gas for anything above is quite good. So when you see these LNG proposals, these LNG proponents and the backers can still see even if LNG global prices start to come down.
(28:33) having projects on the west coast here makes us think that we can still be economic on the global stage here. So that's why I think we're starting to see some of these super majors come to Canada and look to build these projects. The business plan is that even if LNG prices fall a little bit, the supply from Canada is so low that it's a great arbitrage.
(28:50) >> You can still make the arbitrage work. >> Yeah, that's right. >> Big profits. >> Yep. >> So that's the whole point. >> That's right. Yep. >> But again, do you think that the projects get built in time? >> I think everyone would want to see these projects built sooner, quicker. It's been one of the biggest problems and biggest push backs that we hear from different international investors saying why does it take so long for these different projects to get built >> and you can only just you red tape it
(29:19) is Canada and it is what it is and I think we all get accustomed to that but when you start looking in other jurisdictions in terms of how quickly they can build pipelines there's a bit of a jealousy thing is like how does this work but at the same time too we still have good rules and standards and know that our energy is still coming from a good place I guess is the best way to put it.
(29:44) So >> maybe there's a balance that we can find here in terms of building some of these projects. >> Another thing that's been going on lately is consolidation and M&A in the Canadian energy sector. I think yesterday they announced the conerure and green fire resources deal. >> Yep. >> So why is that happening? So what we're seeing here is a lot of consolidation and what it comes down to is Canada is a good place to invest.
(30:08) they have a lot of inventory that was never developed here over the last decade. And given the quality of this acreage, it competes very favorable to what we see a lot of in the plays in the US. And so that's why we're seeing more US operators. Look up into Canada. You saw oventive here making some moves with New Vista here last year.
(30:29) You see Shell now coming with ARC. These are some major deals here and it's just because this inventory is very competitive relative to a lot of the plays that those companies have elsewhere. So last quarter or last year was one of the biggest M&A years that we saw about $30 billion worth of M&A versus prior years going all the way back to 2017 2018.
(30:56) And even this Q2 here, the ARC transaction is the one big standalone deal, but there's eight other transactions that were all over $100 million. So, there's a lot of non headline transactions that are taking place that is like they still continue. So, here we are, it's the first week of Q3, and we already see $1.
(31:20) 3 billion deal here with an Oil Sands operator. So I wouldn't be surprised if we see more deals going forward. And I always like to look at the amount of consolidation that we've seen cuz consolidation is typically pretty good. You get efficiencies and synergies that improve the overall corporate structure >> is you want to have those farm teams here though.
(31:43) and the fact that we're seeing a lot of juniors now take some of this new technology that we've been adapted over the last few years start new companies and look to grow here. >> We're in this rebirth stage here now for Canada and you're going to watch these companies grow here as well too which will just create a good strong structural sense for the Canadian sector.
(32:04) >> So there's consolidation for inventory purposes and economies of scale but you're also seeing bunch of new startups. I think you mentioned about 30 in the city. Yeah, 30 35 depending on how legit some of these companies are in that but it's a lot of executives who were at these older companies starting up their BD groups starting up and having new ideas that never got typically funded maybe within the bigger company but as a new entity are going back to some of these older
(32:34) plays and I think one of the biggest things that we're seeing in the energy patch here that we haven't really seen elsewhere outside of Canada is the advent of these multilateral drilling wells. So the clear water has been the fastest growing play from 2018 to 2025 and the big reason why is we always knew the clear water existed here like it shows up on a lot of logs and so the oil is there but you never had an efficient way to capture it until we have multilaterals and multilaterals
(33:01) just for context is think about it as a pitchfork going down. So instead of a single lateral leg, you now have eight lateral legs all going up one vertical well bore. So this is what's driving a huge increase in efficiencies here in terms of your profitability for these wells.
(33:21) So I always kind of say it's not when you reach payout of your well, it's when do you reach that two times payout and three times payout. And that's what we're seeing with a lot of these multilaterals. Go back to these conventional reservoirs that are expanding the reservoir pool. And the reason why that's so economic is because these older pools that were developed, you still have a lot of roads.
(33:39) You have your pipelines connected, your pipe, your power, and so you can get full cycle economics for half cycle costs. And that's what's driving a lot of these capital efficiencies and the profitability for our sector here today, much more than what we've seen in other sectors. >> Companies like Headwater and Tamarak, there's just great examples of that taking the technology into older plays and getting more oil.
(34:01) >> I think you're reading our research here. So those are our two top picks basically. When you look at a lot of our plays when we do our economics like I kind of mentioned here it's not so much when you reach the payout it's when you reach the multiple payouts your profits of your wells and typically your top quartiles get that two times payout within a couple two to three years.
(34:25) average is typically that two times pay within five to six years and anything beyond that. It's hard to grow a business when the cycle time to get that profit to put that money back into the ground is that long. So that's why you're seeing some of these junior companies who are nimble and getting that quick cycle time back are able to grow so quickly and that's why we saw the clear water grow so quickly.
(34:48) But that multilateral is now expanding into the Manville heavy oil. But now we're seeing those multilaterals go into more other conventional plays that were developed historically through old vertical wells but we're seeing them being tested throughout the Balkan and the just a number of different plays here that have been successful and unsuccessful but generally it's just a matter of just fine-tuning some of this plays.
(35:14) So it seems like we're in inning two three in terms of how and where this technology may actually progress to. I think one of your other sides was the increase in Manville production and that's the same idea. >> So same idea. So the Manville for the last 5 years has grown at 14% on average per year.
(35:32) And when you look at the Manville aerial extent on Alberta all the way from the southern border all the way up to effectively you call it almost Fort McMurray here. Like it's a huge aerial extent in terms of where >> these where the Manville exists. And the Manville is innocuous term to describe multiple stacked layers.
(35:50) And so the clear water is one of those stacked layers within the manville effectively here. And so when you have another eight layers within the manville and the manville is three times the air. There's a lot of oil. So when we go back to our original conversation about pipelines, is there enough >> oil? Yes, we have enough oil to kind of fill these pipelines.
(36:09) It's just how quickly can we and do we want to grow here? And there's the water floods been around for a while, but there's some interesting things with the polymer floods and surfactants going into the well, better longer wells like four mile four mile wells down in the Williston basin with cord and just a bunch of stuff.
(36:26) So you look at the capital efficiencies and this is why oil is not going to $150 and we have found new ways to develop oil and I have one chart that I always like to look at and when you look at these bell curves you have a clear signal of when supply destruction happens which is typically around $65 70 oil and then where demand destruction happens which is typically around 120 and so there's where your ranges are where oil is probably going to bounce found here.
(36:57) I like to think oil is probably going to end up at that's your marginal supply of oil. That's typically where you're going to be. And on a global stage, we do a global cost study here with our partners at Beimo, and you're typically around that 73 $75 mark here. And that's typically your marginal cost of oil for the world here.
(37:17) You even look at the US, the US always does the Dallas Fed always does a survey with their US producers. And the Dallas Fed survey says in your two best plays, what price do you need to justify drilling a new well? And the average this last quarter was $66 here. So if you go back 5 years ago, it was $50.
(37:35) Like 66 is the new 50. So you're bouncing around that current price even just a few days ago or depending on when this whole broadcast here. Oil could be 70, it could be 80, it could be 65. You just don't know. That's generally where your marginal supply of oil is here is right around that $70 mark.
(37:54) And at that price for Canadian operators though between our tight differential and where the foreign exchange dollar is today, these producers are making some good profits. >> Yeah. Completion designs, all the various aspects of the technological well stack, I guess you call it, they're just getting better and you can get more oil out in a nutshell.
(38:16) >> More oil out. And it goes back to your water flooding here as well too. So that's one of the changing concepts here that we've seen before. Typically you would do water flood at the end of the life of a well after a well has been producing for 10 20 years. But the time to get to that voyage replacement to put all the water back in for all the oil that you replaced would take another 5 to 10 years before you finally saw a response.
(38:37) What's different here with the clear water is they're putting water floods on water injectors on much sooner. So you never get that pressure depletion in the reservoir and as a result your oil rates can stay at a much elevated position for you don't get the same decline rate you stay at that elevated position much longer and at that position so you don't see that decline.
(38:59) So when we think about oil companies, we always think about 25 35% decline rate in the current production. But as more of this production comes under water flood and shows maybe a 5 to 10% decline, that's where we're going to be able to build on that base and why the growth is probably going to still be high. Right.
(39:17) So, we talk about the Manville growth, the Clearwater growth for plays that were effectively the Clear Waters was nothing here back in 2018 and now it's running at around 150 175,000 barrels here. Same thing with the Manville with that 14 15% growth. That looks like it could continue for quite some time here.
(39:36) So, where's the next big play coming? It's interesting to look at different land sales and where different concepts are being applied here. So, it goes back to a lot of these older conventional plays that produced, but there's no reason why it couldn't work maybe in we're seeing some good success in the Charlie Lake and maybe potentially the deep basin that we see this perform.
(39:57) So, it's looking encouraging here to where this may go >> Charlie Lake deep basin any others that you're seeing? >> We're seeing it in the Balkan. We're seeing it in some of these we're seeing in the Sparky. we're seeing or I guess that's part of the Manville but even the Montany we've started to see >> so part of it is it's just technology like these operators are phenomenal you can drill a well 2 miles out and you think about like a city map how far 2 miles is and land that within 2 m of pay like the skills that these operators
(40:30) have here now to steer these wells within that tight of a zone to make sure you capture the full resource is pretty phenomenal. So, it's all these new technologies that have really are making the sector just better than from where it was. >> And the optimization strategies with the water flooding and all that aren't huge risky capital spends either.
(40:52) So, you get your money back sooner and it's not very expensive. >> So, and that was a big change that the Alberta government made when we did the royalty review 10 years ago was the implementation of a what they call the sea star. So, you get your money back and then it suddenly reduces a lot of the risk for these operators to go drill new wells.
(41:13) So that was a good thing they did back then. But even with these conventional plays, you do get your money back sooner. And the thing with these multilateral wells, they typically only cost 1.5 to $2.5 million. So relative to a Montney well that cost 8 to 10 million and some of these US plays that cost 8 to $15 million US dollars you can take a lot more shots and chances down hole here to hit success versus some of these other companies.
(41:45) >> This episode is brought to you by Bunch Projects. Bunch is a construction-led engineering and EPC partner supporting Western Canada's energy industry for more than 45 years. Bunch combines practical field-driven engineering with data-driven planning to improve predictability and support cost certainty.
(42:06) From well pads and compressor stations to gas plants and energy development, Bunch focuses on construction, clear communication, and consistent results. Bunch construction-led engineering is built on trusted partnerships and proven performance. Learn more at bunch.ca. You mentioned a couple names that you like with the water flood and the enhanced oil recovery techniques, but are there any that you like with the enhanced egress? Are there any names that you think will benefit the most from that? >> So, we've talked about a lot of the plays, a
(42:38) lot of new plays that are opening up. you don't know exactly where the next big play is generally going to go. But you can see the sentiment is building within the sector here. And that's where I look at the royalty names as probably a good way to play the whole overall theme in the sectors here. So, both Topaz and Prairie Sky have royalties on a lot of the Clear Water already here depending on your operator.
(43:01) But they also have a lot of exposure into the Manville here as well too. And so as we get better pricing here in Canada potentially with this egress even gas maybe potentially could come back here as well too and a lot of this new development and growth in development the royalty names are a natural place where they will benefit from that growth and typically royalty companies don't have the growth and the feedback that we get from investors is saying if I want to be in oil it's because I'm bullish on oil and I think
(43:31) oil is going to go higher and royalty names don't have that torque per se, not like an E&P and fair comment, but I think there's a lot more growth coming to the whole basin as a whole. And a good way to play that for a little bit more risk adverse investors is through royalty names here. >> Huge optionality with royalties too, >> right? And you just never know where that next big play is.
(43:52) And that's where for I'll go back to prairie sky for example the duvernay was never a play that was contemplated in their original asset playbook and here it's now become a good 10 15% of their productive like oil volumes here. So it's just where new players are developing.
(44:13) It's the royalty companies have a knack to be right there. You also talked to a lot of US institutional investors and I think you mentioned that they're looking up north a bit more and sentiment from their perspective is better. >> A lot better. I've and you saw it with the Stampede here as well too.
(44:33) A lot more like I wish I could show the annual attendance for the Stampede. I wish I could show annual attendance of US >> private equity institutional investors coming up to the Stampede because it's more than I can ever really remember. And you hear a lot of US operators looking to come in. You have software counterparties that we deal with here.
(44:53) So Geologics is one of the better service providers and they talk about seeing a lot more subscriptions for us. I see more US investors reading our research. So you can just see US interest is coming back in a big way here. >> Another soft plug for this podcast is I've heard a few US investors listen to it.
(45:12) It kind of surprised me, but maybe another indicator that people are interested. >> It's all soft data points and I think that's the one thing >> I was surprised. I didn't know. Yeah, it's hard to put a silver bullet on anything, especially in investing. And investing is just trying to deal with large crowd behavior here where there more buyers and sellers and where there are more buyers coming from this angle or this angle.
(45:36) And maybe that's the unique spot that you and I have here is you talk to a lot of different investors and you can kind of see where their sentiment and change of tone is coming and you're like, "Okay, I think I know where you guys are interested and what you're looking for and that should you get a few of them.
(45:51) there's probably a large crowd coming in behind them there. So that's where we're seeing this new US wave of interest suddenly coming. >> But on the flip side, it's been tough and so a lot of US investors, like we said, have been scared of government regulation and wacky Canadian policies. So do they still view it that way? Do we have work to do? >> We have work to do.
(46:13) It's a So the talk is great, but what's the saying? Talk the talk, walk the walk. So we haven't like the reality is there's still no shovels in the ground and until those shovels start going to the ground there's still some skepticism that this will go through. I think valuations were so cheap some were saying let's we can take a punt on this.
(46:34) But until you start putting those shovels in the ground a lot of investors will want to wait until they see that happen. >> So what do you tell us investors? Why should you invest in Canadian oil and gas and why now? There's I could probably come up with 10 different points, but the key ones are it's a different federal government that we have than we've seen before.
(46:54) This is a government that wants to be supportive, is showing talking that they want to be supportive here. And it's a sentiment shift that we're seeing that it's okay to hold energy stocks and portfolios here. I kind of make a joke here like there's a lot of Quebec based funds that still have legal requirements that they're not allowed to invest in oil and gas.
(47:17) So there still are groups of investors who still don't touch it. But even talking to a lot of European counterparts who had the similar rules, those rules are coming undone here. And so you don't hear ESG type of questions nearly as much. Even though it's important, it's very much like health and safety.
(47:34) It's important, but it doesn't make the front slide deck here. it's not page one. And so that's where as long as you're operating proficiently, that's where we're seeing more European investors come in. But there's still other investors who can come in. But between the federal regulation changes, a realization that these companies are run better in terms of the profitability, the better run balance sheets, and just you're building a long-term business, not something to quickly flip here. And so, it's just that you're the
(48:03) overall structure for these businesses are better. So those are kind of the one-two punches here. Why? And then thirdly would just be valuation. Relative to other sectors to invest in. Relative to where our free cash flow is, our growth ability, the value creation that these companies present here today, the valuation that you would pay for that is still cheaper than almost all other sectors based on the investors that we talk to who invest in multiple different sectors.
(48:30) >> Yeah. The one thing I've noticed from the podcast and my perspective is that sentiment may be changing but also the business has become good businesses like Headwater like we were saying they've done everything the last 5 years with zero equity raises which is >> it tells you something like they've gone from 2,000 to 25,000 without any equity all internally funded all within >> 3 4 year period here like you don't typically see that type of level of growth anywhere it's a showcase of just the
(48:58) potential that these industries have. Now, a lot of other companies may not have as good economics as some of the Clearwater operators and a lot of that capital goes back into paying down debt here or buybacks or dividends and we just haven't put into the ground. But there's a change of philosophy here that growth is okay now. Growth is good.
(49:20) This could bring back more investors back into the sector here, those growth investors. And it goes back to you look at all the like we got value investors, we got growth investors, we got dividend investors. And the key factor that we've been missing in Canada is those growth investors cuz they look at this and say if you're only going to grow 5%, >> I got better growth opportunities elsewhere.
(49:42) But that is the big change that we're starting to see here in Canada is that those growth investors start to believe that growth is potential. That's one of the largest segments of growth or group of investors who could come back into Canada. just good business too. It's not just this like you said, you're not just going to flip the company or a huge capex spend and blow out your revenues and when you can actually make sustainable profits.
(50:04) Oh, real investors are interested in that. >> I go back like I've been doing this for research for 20 years here now and I go back to some of the analysis that these companies would drill a gas well even though gas prices were a dollar a decade ago just to have some additional incremental volumes for the quarter so they can have a quarterly beat.
(50:23) and you're like, what are you doing kind of thing like you're showing profits for the sake of showing growth for the sake of just showing growth? It was all backwards before, but it truly is a structural change in terms of how companies operate here today. >> We had a couple questions from X. Do you want to do those? >> Sure.
(50:41) >> All right. First one was from an account titled Energy Investor. Does Jeremy see a path to larger consolidation than Clearwater over the next couple of years? That 100,000 barrel day Clear Water producer seems like it would unlock a next gear as far as giving larger investors access to an oil producer whose break even peers would be unable to match.
(51:02) So you look at the sector here today and if I'm a portfolio manager who runs $50 billion, I need to allocate that capital and I can typically only invest in companies that have $20 million in daily trade. So when you look at our sector here today, there's not that many companies like you only have your oil sands companies, you got a couple montne companies, there is not a single real company in that 10 to 20 billion range that these investors can go down to who have that level of growth. So consolidation makes a lot
(51:37) of sense for the clear water and with that consolidation you suddenly become the only person at the party here where investor can invest and as a result of that you get excess capital flow. So I think a lot of operators are thinking about that type of consolidation especially in the clear water we could be one of the most profitable entities here.
(51:59) um the Clearwater has three dominant operators here, public and private. And then there's a couple periphery companies who have Clearwater assets that are still growing those assets. But if you start to see the consolidation within these six, seven operators, you could create a couple big energy funds, clear water companies that are likely to attract a lot more international attention that typically wouldn't at the current scale now wouldn't attract.
(52:29) >> So it would be good. >> So it would be good end of the day would be good. Not to mention the consolidation and the synergies that you get with water flooding and all the other operational efficiencies up there. So if you own a clear water producer, there's probably some incentive eventually for consolidation.
(52:45) >> I think you ultimately see it here. Yeah. >> Interesting. >> Next one was from an account titled Derek Bron. I know you don't make calls in oil prices, but his question was, "If oil couldn't go higher during the war, then should investors just assume a midcycle price of about 65 and never pay more assuming discounted cash flows and free cash flow yields at 65?" So, I don't know what your thoughts are on that, but >> so a lot of good questions in there and it goes back to I think probably
(53:14) a lot of us were thinking if you were to almost survey any investor out there and say the straight is going to close here for 3 months, where oil prices is going to be after 3 months here and the fact that we went back down to $70. shows that a lot of our modeling had blind spots in it and we don't like it just it just shows modeling global trade flows and inventory levels in China and other countries where there's maybe not nearly as good of a data that we have here in North America. It just shows that we
(53:46) have blind spots in these models and there's a lot of caveats that we don't necessarily model here. So you look at the EIA, they'll spend >> I think their annual budget is like $300 million and they can't even get it correctly here just given their projections that keep going all over the place.
(54:05) So it's very difficult to forecast where oil prices are going to go near-term. I don't even think the king of Saudi Arabia knows where oil prices are going to go in a given week, let alone a given 6 months from now. So where's the oil prices going to go, I think is back to the marginal supply of cost.
(54:21) that is probably where it's going to ultimately end up. But we see near-term fluctuations in the near term for sure. And if you can take advantage of those, that's probably a good place to go here. >> I think that's a great market update. >> There you go. Yeah. Feels good to be back or not.
(54:38) I never left, but still it feels good to be in this seed is probably one of the more optimistic periods I've seen this patch here for a while. >> Yeah. You're not a tourist. >> Yeah. >> You've been doing this for a while. >> A long time. And I've seen a lot of good things and a lot of bad things go on in the sector, but it feels good to be here now.
(54:55) >> Well, like I said, I appreciate your time. Maybe we'll get another update in the fall or the winter. So, >> great. Disreg me.