Canada began 2014 with a boisterous wave of M&A activity propelled for the most part by the development of the country’s shale plays including the Cardium, Duvernay and Montney.

Canada has also attracted foreign investors, though increasingly their money is shifting.

Canada’s deal count rose 15% during first-half 2014, compared with the same period a year earlier, according to a report by Deloitte LLP. Companies were able to muster up the capital for some pricey deals so far this year—the largest reaching nearly $3 billion—despite the country’s ongoing struggle.

Deal activity was up even as Canadian producers were challenged by the lack of major pipelines to provide access to U.S. markets and exports on the coasts.

Encana Corp. (NYSE, TO: ECA), the largest natural gas producer in Canada, has responded by repositioning its assets, much like its counterparts in the U.S., for greater efficiency. Encana’s quest to add liquids had it spending $3.1 billion in Texas’ Eagle Ford Shale.

Canada’s vast oil sands reserves are also cooling off as producers have struggled with rising costs, in part because of stricter environmental regulations. Even with oil at more than $100 per barrel, some large producers have been canceling projects because higher costs have crimpled returns, Deloitte said.

North America shale plays dominated the market accounting for 47% of all E&P transactions during the first half of the year, the Deloitte report said. As a testament to the deal activity, the Cardium, Duvernay and Montney plays continued to show steady growth through 2014.

Production in the Cardium continues to build as operators focus on stable development of their acreage. In the Duvernay, operators continue to delineate their acreage and the play is expected to see a significant ramp-up in 2014. The play is projected to crack the 50 thousand barrels of oil equivalent per day production level this year and increase aggressively thereafter, according to a North American Shale Quarterly (NASQ) report. The NASQ also forecast production in the Montney to average about 3.31 billion cubic feet equivalent per day in 2014.

Most of the deal activity isn’t driven by companies trying to get into the shale plays though, but by large companies, such as Encana, looking to lessen dependence on a single resource.

As shale drilling costs have risen, companies have become more selective in how they invest their capital, said John England, vice chairman, U.S. Oil & Gas Leader, Deloitte.

“Management teams are generally focused on organic growth and cost containment,” England said. “They have a drilling inventory that will last for several years, so they would rather put their money into development than acquisitions.”

Strategic deals

Encana, among other Canadian operators, has been cleaning house of conventional resources this year. Instead, operators are shifting focus to existing oil and liquids-rich plays, which include the Montney and Duvernay.

Encana remains the largest producer in the Montney with an average rate of 920 million cubic feet equivalent per day (MMcfe/d) of gross production in the play for 2014. It also holds a sizeable portion in the Duvernay.

However, in June, the company sold its Big Horn assets in the Deep Alberta Basin to Jupiter Resources, a portfolio of investment funds managed by Apollo Group Management LLC (NYSE: APO), for $1.8 billion (C$2 billion).

The deal gave Encana room to focus on faster growing, more liquids-rich plays, said Ethan Bellamy, Baird Energy senior analyst. The company wielded deals throughout the first half of 2014 in order to reach its transition strategy targeting 90% liquids production growth and 30% overall.

Following the trend of consolidation, Devon Energy Corp. (NYSE: DVN) also sold a large conventional portfolio in Canada as part of its plan to divest non-core assets. In the deal, Canadian Natural Resources Ltd. (NYSE: CNQ) acquired 4.9 million acres in Western Canada for $2.8 billion (C$3.125 billion).

Devon isn’t exiting Canada completely though—the company will continue to operate in the Cardium’s Horn River area and in the Athabasca oil sands to focus on heavy oil projects.

Foreign investment

Canada also continues to attract foreign investors to its shores “albeit at a slower pace than in previous years partly because it is free of the export restrictions that are present in the United States,” Deloitte’s England said.

However, along with environmental restrictions, government authorities have also placed barriers on investment by foreign state-owned companies.

“It hurts us as a country and it causes the foreign investors to pause a little bit,” said Charles Knight, partner, M&A Transaction Services, Deloitte Canada.

An example of this is Malaysia’s Petronas, which has invested in the county’s natural gas throughout the upstream and midstream chains.

Its Canadian subsidiary, Progress Energy Canada Ltd., purchased about 127,000 net acres in the Montney from Talisman Energy Inc. (NYSE: TLM) for $1.4 billion (C$1.5 billion) earlier this year. The acquisition includes Talisman’s interest in the Kobes area and its joint venture with Sasol Ltd. (NYSE: SSL) in the Farrell Creek and Cypress areas.

Additionally, Progress bought 33,500 net acres in the center of its North Montney area in British Columbia for $118.4 million (C$130 million). The seller was not disclosed.

Progress is also working on its proposed LNG export terminal on the West Coast of Canada, which China’s Sinopec has already signed an agreement to buy gas from the plant for 20 years. The company is currently delineating its Montney acreage with a goal of amassing 15 trillion cubic feet equivalent of proven reserves to commit to the plant.