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(Bloomberg) — Canadian oil tycoon Adam Waterous’s Strathcona Resources Ltd. agreed to sell its assets in the Montney shale formation in western Canada in a shift that makes it a pure heavy oil producer.
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Strathcona is disposing of gas-focused operations in three separate transactions worth C$2.8 billion ($2 billion). The largest will see the company sell its Kakwa asset to ARC Resources Ltd. for C$1.7 billion in cash and assumed lease obligations.
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Calgary-based Strathcona is also unloading its Grande Prairie asset to an unnamed buyer for C$850 million, while Tourmaline Oil Corp. is taking a smaller asset and paying C$292 million in shares, according to a statement.
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The sale marks a change of direction under Waterous, a former investment banker who built one of Canada’s largest producers through a flurry of acquisitions during what was an often challenging period for the industry.
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Exiting from the Montney, a formation straddling Alberta and British Columbia that yields natural gas and light oil, will make Strathcona into a pure heavy oil player that has a sizable presence in Alberta’s oil sands. Once the deals are completed, the company will produce 120,000 barrels a day of crude oil and no gas.
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Strathcona shares jumped as much as 14% to C$30.94 in Toronto trading, the highest intraday since Jan. 14.
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The slower decline in production rates in the oil sands will contribute to an extension of the company’s reserve life to 50 from 40 years and will lower the company’s break-even oil price, TD Cowen analysts said in a note. The deal also shores up the company’s balance sheet, marking “a massive, positive swing” from about C$2.5 billion of total debt before the deal, they wrote.
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Strathcona didn’t immediately reply to a request for comment. Waterous declined to comment.
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“They won’t kill the debt as they use the cash to go out and do an all-cash or part-cash, part-stock deal this fall,” said Cole Smead, chief executive officer of Smead Capital Management. “Now, as a pure-play heavy oil company, they can go out and focus on other heavy oil companies,” including possibly rival oil sands producer MEG Energy Corp., which is slightly smaller by market capitalization. MEG officials did not immediately reply to a message requesting comment.
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The assets the company is selling generated C$149 million of operating earnings in 2024, or 12% of the total excluding interest and other corporate items.
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The Kakwa and Grande Prairie sales are expected to happen early in the third quarter, while the deal with Tourmaline is likely to close in the second quarter, the company said.
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