When will the valuation gap between US Permian and Canadian Montney start to narrow?

Big news has emerged from the Permian Basin with the confirmation that Diamondback Energy has finalized its acquisition of certain subsidiaries of Double Eagle IV Midco, LLC, commonly known as Double Eagle. The deal includes a combination of approximately 6.9 million shares of Diamondback common stock and a cash amount of $3 billion. This acquisition has been valued at around 5.2 times the estimated 2025 EBITDA, with an oil production rate of 27,000 barrels per day. It has been noted that the majority of this production is oil, making the run-rate equivalent to approximately 39,100 barrels of oil equivalent per day.

When analyzing the purchase price, which totals approximately $4.08 billion inclusive of shares, one may wonder about the potential equivalency in terms of acquiring Montney production in Canada for the same price. By converting the U.S. dollar amount to Canadian dollars, approximately $5.8 billion, and considering recent M&A transactions in the Montney region, the comparison becomes intriguing.

By using a flowing barrel metric of $45,000 per barrel of oil equivalent per day for Canadian Montney transactions, one could hypothetically acquire roughly 129,000 barrels of oil equivalent per day for $5.8 billion Canadian dollars. This would amount to more than three times the production that Diamondback will obtain through the Double Eagle acquisition.

The table showcasing recent M&A transactions for Montney production in Canada provides a glimpse into the valuation landscape in the region. For instance, the acquisition of Paramount Resources by Ovintiv in the Alberta Montney area amounted to $3.325 billion for 70,000 barrels of oil equivalent per day, with 50% of the production comprising liquids. Similarly, the corporate acquisition of Crew Energy by Tourmaline Oil Corp. in the British Columbia Montney region was valued at $1.3 billion for 29,500 barrels of oil equivalent per day.

Such transactions shed light on the valuation gap between Permian production in the U.S. and Montney production in Canada. As illustrated in the comparison, one could potentially acquire significantly more Montney production for a similar investment in the Permian Basin. This contrast raises questions about the factors influencing the valuation of oil and gas assets in different regions and prompts further analysis on when and how the valuation gap between these two regions may begin to narrow.

Overall, the Diamondback acquisition of Double Eagle highlights the robust M&A activity in the Permian Basin, while also prompting considerations about comparative valuations and investment opportunities in different oil and gas-producing regions such as the Montney in Canada. The data presented in recent Montney transactions along with Diamondback’s acquisition metrics offer insights into the potential value propositions in the energy sector and present avenues for further exploration and analysis in the industry.