The assets in the Northern deal include roughly 30,000 hectares, with production of approximately 4,000 barrels a day.Sue Ogrocki/The Associated Press
Northern Oil and Gas Inc. NOG-N is making its first foray into the Canadian market, buying a 25-per-cent stake in light oil assets in the Duvernay basin for roughly $350-million.
Northern’s acquisition of the Calgary-based Parallax Energy Inc. sites, announced Tuesday, underscores increasing interest in Canadian basins that are rich in light oil and natural gas liquids, such as condensate. That includes the Duvernay, in west-central Alberta, and the nearby Montney region, which spans the province’s northwest and British Columbia’s northeast.
The Duvernay basin extends under 130,000 square kilometres of Alberta, according to the Canada Energy Regulator. The region’s light oil helps meet domestic demand, while the condensate produced there is often mixed with bitumen from the oil sands to thin the heavy crude and ship it through pipelines.
The assets in the Northern deal include roughly 30,000 hectares, with production of approximately 4,000 barrels a day.
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Northern, based in Minnetonka, Minn., said in an investor presentation it would fund the acquisition with $113-million of stock, with the remainder paid in cash. It plans to pay Parallax another $25-million in cash or stock in the first quarter of 2028, dependent on average oil prices through the end of 2027.
Northern expects to close the deal late in the second quarter of this year.
All of the assets will remain operated by Parallax, but the two companies have entered into a long-term joint development agreement under the deal, which includes multiyear drilling commitments.
Parallax was not immediately available for comment.
Northern has looked at opportunities in Canada in the past, but “this deal just screened positively on so many different fronts,” said Evelyn Infurna, Northern’s vice-president of investor relations.
It’s a relatively undeveloped, young basin in terms of its development life, for example, with decades of oil reserves, she said. Plus it is connected to the Plains Rangeland light oil transportation system, which carries oil from Alberta into Montana.
Being an owner, rather than an operator, means Northern is flexible; it’s not locked into any single basin, so it can search for opportunities across North America, Ms. Infurna said in an interview.
The deal with Parallax “checked off every single box,” from the amount and quality of the resource to a stable government with very little geopolitical risk, she said.
“It gives us the assurance that Canada is a great place to invest,” Ms. Infurna said. “We don’t expect this to be a one and done for us.”
Indeed, the company has formed a wholly owned Canadian subsidiary called NOG Energy Canada Ltd. as part of the deal.
The Duvernay play sits at the back of the North American supply stack in terms of inventory quality and quantity, according to Enverus Intelligence Research, and tends to be more expensive to drill given the depth of many reservoirs.
However, the reservoirs that supply the wells included in the deal are shallower than those in other parts of the Duvernay, which means lower drilling costs, Northern said.
Michael Berger, a senior analyst with Enverus, said both the Montney and Duvernay have seen a flurry of merger and acquisition activity over the past few years, though it has been at a smaller scale in the latter.
But work to reduce drilling costs over the past few years has created favourable economics in the Duvernay for companies like Northern that have broad portfolios spanning North America, Mr. Berger said in an interview.
The Montney and Duvernay basins also have the advantage of lower entry costs relative to plays in the U.S., he said. Plus, they have been historically constrained when it comes to transporting fossil fuels from wells to market, which has led to an abundance of resource relative to activity, he said.
“You have these long-dated assets, and then they really do remain quite high quality.”
The Duvernay stands to play an important role in feeding the oil sands’ increased demand for condensate given the major infrastructure expansions coming over the next decade, Mr. Berger said.
Multiple pipeline expansions in the works or in the early stages of planning include capacity increases on the Trans Mountain and Enbridge mainline systems, the potential new Prairie Connector to the U.S., and a line from Alberta to the West Coast being championed by the province.