A flurry of recent deals in the Canadian oilpatch that caught the interest of U.S. producers and private capital is fuelling speculation about a revival of foreign investment in Canada’s perennially unloved energy sector.

Calgary-based Baytex Energy Corp. announced the sale of its U.S. shale operations for $3.25 billion last week, in a move it characterized as “sharpening focus” on its core Canadian assets.

Its announcement follows a wave of deal-making in Alberta’s oilpatch involving U.S. companies or capital: Denver-based Ovintiv Inc.’s $3.8-billion acquisition of NuVista Energy Ltd., and U.S. private-equity-backed Cygnet Energy Ltd.’s $1.4-billion bid for Kiwetinohk Energy Corp.

In the case of Baytex and Ovintiv, the moves appear to be a rebalancing toward Canada by producers operating in both countries and seeing better deals and returns north of the border,

BMO Capital Markets managing director Jeremy McCrea said. “Many foreign operators are looking at Canada again,” McCrea said. “Ovintiv is a good example: here is an operator with assets split in Canada and the U.S., and over the past year it has made two major acquisitions into Canada while selling down U.S. assets.”

“For Baytex, its international diversification was likely not required anymore, especially given the relative well profitability in Canada.”

Interest in the Canadian oilpatch has been growing as U.S. shale oil production costs have risen while highly profitable drilling locations increasingly appear to be in short supply.

Producers and investors on the hunt for more drilling inventory are drawn to Canadian plays like the Montney and the Duvernay, where wells decline more slowly than in many U.S. shale regions and require less capital to maintain, McCrea explained.

U.S. producers are eyeing Canadian energy assets and companies that are up for sale right now, Scott Barron, co-head of TD Securities’ global energy and power group, said in an interview.

“They’re signing confidentiality agreements; they’re coming into data rooms and they’re evaluating opportunities,” Barron said.

“There’s increasingly a need for drilling inventory (and) Canada just has some really deep inventory and producers that trade at a discount versus their U.S. peers.”

But despite some encouraging signs, U.S. and foreign-headquartered oil and gas companies continue to view Canada as a

“complex jurisdiction,” Barron said. U.S. producers in particular are “doing their homework” on Canada’s pipeline infrastructure to try and understand the bottlenecks and capacity challenges that contributed to dramatic price swings that hit Western Canada’s sector over the past 10 to 15 years.

So it’s no surprise, he added, that the U.S. producer most willing to significantly expand its Canadian footprint is one with deep roots in the country’s oilpatch already.

Ovtiniv’s bid for NuVista is the company’s second major Montney purchase in two years. The company formerly known as Encana bought $3.3-billion in assets from Paramount Resources Ltd. one year ago alongside a move to sell off its holdings in Utah’s Uinta basin.

The moves underscore what appears to be a pivot back to Canada for a company that was originally headquartered in Calgary before relocating to Denver in 2020 as part of its rebrand to

Ovintiv Inc. Ovintiv, which was already the largest producer of natural gas in the B.C. Montney, is now also expected to lead the pack on the Alberta side as well, eclipsing ARC Resources Ltd. as the top gas producer, according to an analysis by RBN Energy.

But Ovintiv’s deal is not the only one that analysts are pointing to as an encouraging sign for Canada.

Privately held producer Cygnet Energy’s all-cash offer for for Kiwetinohk last month was funded largely by the firm’s U.S. private-equity backers

— NGP Energy Capital Management LLC and Carlyle Group Inc. A perception in the broader market that Canada’s regulatory environment and export potential is improving may also be driving the renewed interest, McCrea said.

Prime Minister Mark Carney’s push to fast-track major resource projects, the startup of LNG Canada and additional export capacity from Trans Mountain pipeline expansion, Enbridge Inc.’s Line 3 replacement project and its Mainline expansion plans have mollified some investor anxieties.

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“A lot of the initial push into Canada has been through U.S. private equity,” Barron said. “We see interest from U.S. producers, but we’re still waiting for that that first big splashy transaction.”