Waterous’ Strathcona to Make $4 Billion Bid for MEG Energy

The MEG Energy headquarters in Calgary, Alberta, Canada, on Monday, June 20, 2022. Calgary, surrounded by fields of oil, natural gas, wheat and barley that make Canada a global exporting powerhouse, is at the epicenter of a post-Covid economic expansion. Photographer: Gavin Bryan John/Bloomberg Photo by Gavin Bryan John /Bloomberg

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(Bloomberg) — Canadian oil tycoon Adam Waterous’ Strathcona Resources Ltd. announced plans to make a takeover bid for MEG Energy Corp. that values the oil sands company at about C$6 billion ($4 billion), advancing a push to become a major heavy crude producer.

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The cash-and-stock offer, which will be formally filed in the next two weeks, will be for about C$23.27 per MEG Share, Calgary-based Strathcona said in a statement. That would value MEG’s equity at about C$5.93 billion, based on the company’s roughly 255 million shares outstanding. 

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A takeover of MEG would be the biggest acquisition yet for Strathcona, which former investment banker Waterous built through a flurry of deals over the past decade. The announcement comes the same day that Strathcona said it agreed to sell its assets in the Montney shale formation in western Canada in a C$2.8 billion deal, a shift that makes the company a pure heavy oil producer.

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MEG Energy is a pure oil sands producer that pumps more than 100,000 barrels a day of heavy crude from its Christina Lake asset. The company’s market capitalization of C$5.4 billion is slightly smaller than Strathcona’s C$6.6 billion. Waterous’ company is more diversified, with both oil sands operations and more conventional heavy oil production in Alberta and Saskatchewan.

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Strathcona said it acquired about 9.2% of MEG’s shares through open market purchases in the first and second quarters of this year. The company sent a takeover offer to MEG’s board in late April, and the company’s chairman responded about two weeks later that MEG wasn’t interested. 

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MEG didn’t immediately reply to messages seeking comment left after normal business hours.

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MEG’s Christina Lake operation would the largest single oil-producing asset for Strathcona, which had forecast production of about 120,000 barrels a day once its Montney deals close. While oil sands well operations are costly to build, once operating, they can continue producing crude for decades at $15 a barrel or less, without the need to regularly drill new wells, as is the case in shale formations such as the Permian basin of Texas.

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Already, the deeper push into heavy oil from Strathcona’s Montney deals was expected to help extend the company’s reserve life to 50 years from 40 years and lower its breakeven oil price, TD Cowen analysts said in a note.

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Strathcona said it has identified C$175 million in cost savings opportunities from combining with MEG, including overhead reductions, interest savings and operating synergies.

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The potential offer for MEG would come as the producer grapples with falling oil prices. MEG’s shares have posted the second-worst performance of Canada’s major oil sands companies this year, falling almost 10%.

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(Updates with deal background starting in fifth paragraph)

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