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Canadian companies outpacing share price performance of U.S. independent producers by 40%
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Weak oil prices in 2026 could lead to leaner times for the global oil industry, but the Canadian oilsands sector has “outperformed” its U.S. competitors recently, and is well positioned within North America to handle the bumpy ride.
A report released Wednesday by energy analytics firm Enverus found publicly traded oilsands companies in Canada have outpaced the share price performance of the larger U.S. independent producers by 40 per cent since January 2024.
They now trade at a meaningful premium, based on their enterprise value to earnings before interest, taxes, depreciation and amortization.
It notes there’s a declining number of low-cost inventory targets for U.S. shale producers to drill in the Lower 48 states, which has “increased the market’s focus on the long-duration, high-quality nature of oilsands resources.”
“These oilsands operators are far more durable than some of their Lower 48 peers,” Michael Berger, a senior analyst at Enverus, said in an interview.
“We expect this to be a structural thing over the next three, five, 10 years — that the high-quality inventory the oilsands operators retain today is not going to change in the years to come. It’s going to remain a structural advantage.”
After the plunge of oil prices last decade, Canadian oilsands producers often took it on the chin from critics who said it was high-cost crude with longer-cycle projects that couldn’t complete in a lower-price world.
Many companies took steps to slash costs, become more efficient and — during periods of higher commodity prices earlier this decade — pay down debt. The sector also consolidated, while incrementally increasing output through smaller scale expansions and optimization efforts.
“It’s been many years in the making,” said Eric Nuttall, a senior portfolio manager with Ninepoint Partners.
“It’s taken several years to garner what is now a premium at the current oil price.”
Berger cites several factors for the shift in investor sentiment.
The startup of the expanded Trans Mountain pipeline last year, which nearly tripled the amount of Alberta oil moving to the West Coast, has narrowed the discount on Canadian crude prices.
Ongoing merger and acquisition activity, more high-quality inventory levels in the oilsands, and the possibility of more favourable federal policies have also contributed to rising valuations, he said.
Since the start of the year, the S&P/TSX Capped Energy Index has climbed seven per cent. For example, Imperial Oil shares have risen by 45 per cent this year, Athabasca Oil is up 29 per cent, while Cenovus Energy and Suncor Energy have each climbed by about nine per cent.
On a net asset value basis, Canadian oilsands operators are now “either trading in line or are arguably more expensive than the U.S. counterparts,” Berger noted.
“The market (is) pricing in duration to these oilsands companies — acknowledging they hold 20, 30 or 40 years of really high-quality resource relative to some Lower 48 counterparts, who hold five to 10 years.”
Oilsands operators are able to sustain output or modestly increase production more efficiently than U.S. shale producers, who face steep decline rates.
Former Suncor Energy CEO Mark Little pointed out the U.S. oil industry has grown rapidly in the past decade and has achieved “energy dominance” as the world’s largest producer.
Meanwhile, the Canadian oilsands sector is generating excess cash flow and has the potential to keep growing with a massive resource base. However, adequate takeaway capacity and the political will to keep expanding — along with favourable commodity prices — are required.
“It’s not like they’re going to grow oil production in the U.S., and they have to keep (drilling) at a ferocious pace to do it, where, with the oilsands, it’s kind of slow and steady growth,” said Little.
“It’s not that the U.S. doesn’t have three (times) the production of Canada, but they’re depleting their resource at a much faster rate,” he added.
“The view is that more and more attention is going to shift to Canada, and that will drive investor interest, assuming the political environment is there.”
Benchmark U.S. oil prices have slid more than $10 a barrel since the start of April amid rising output from OPEC+ countries, concerns surrounding tariffs and relatively weak demand growth.
Enverus expects Brent crude oil to average US$65 a barrel next year, with West Texas Intermediate crude around $60 a barrel.
Total Canadian oil output is projected to increase by 200,000 barrels per day next year, up four per cent, while U.S. output drops by 260,000 bpd, a two per cent decline, according to Enverus.
It estimates the average break-even price for thermal oilsands wells is $40 a barrel in Canada, compared to $45 a barrel in major U.S. oil plays.
“You can view (the oilsands) as some of the most economically competitive barrels in North America,” said Berger.
“We think that the broader Canadian oil group is well positioned to weather a potential lower oil price over the coming year.”
While the oilsands have improved their cost competitiveness and financial performance, “they’re constrained from a market access perspective,” added Ben Brunnen, a former vice-president with the Canadian Association of Petroleum Producers.
“They’ve been forced into this kind of economically resilient position . . . which has really brought them into fighting form,” said Brunnen, now a partner with Garrison Strategy.
“That’s a great position to be in, but there’s just no significant runway to expansion in the absence of greater market access.”
Chris Varcoe is a Calgary Herald columnist.
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