MEG Energy could attract higher offers in wake of Strathcona's $5.9-billion bid, analysts say

Globe and Mail

20-05-2025

Strathcona Resources Ltd.'s SCR-T $5.9-billion unsolicited takeover bid for MEG Energy Corp. MEG-T could just be the opening ante in a series of higher offers for the last of Canada's large pure-play oil sands producers.
Canada's energy industry has doubled down on oil sands assets in recent years as U.S. and other foreign players retreated from the capital-intensive industry that has struggled with limited access to global oil markets. Sentiment has improved with last year's opening of the Trans Mountain pipeline expansion to the West Coast, which has shrunk the discount on oil sands-derived crude – and growing support nationally for the concept of new pipelines.
Last week, Strathcona bid about $23.27 in cash and stock for MEG. A successful deal would make the suitor Canada's fifth-largest oil producer at around 219,000 barrels a day. Strathcona is controlled by Calgary-based Waterous Energy Fund, which is led by former investment banker Adam Waterous.
Mr. Waterous has described the two businesses as highly complementary 'doppelgangers,' making it easy to combine them.
However, analysts suggest there could be higher offers in the cards for MEG, which has yet to give a formal response to the bid. They cite a who's who of domestic producers as possible rivals.
Greg Pardy, analyst with RBC Capital Markets, sees Cenovus Energy Inc. as the most logical acquisitor. Both companies have operations in the Christina Lake region of northeastern Alberta, which could translate into operational savings, he said. However, Cenovus has large expenditures under way to add its own production and improve performance at its U.S. refineries. That could be dealt with by selling some of its international assets, such as those in the South China Sea, Mr. Pardy wrote in a note to clients.
He also floated Imperial Oil Ltd. as a possible white knight as MEG's assets would complement its own steam-assisted gravity draining oil sands operations. However, the company has significant spending on tap for its own projects in the Cold Lake area, he noted. Imperial Oil, the Canadian affiliate of Exxon Mobil Corp., has often been speculated as an acquirer of companies, but has rarely made large acquisitions.
Travis Wood, analyst at National Bank Financial, said he believes Strathcona's offer for MEG Energy is low, arguing a bid for the company should reflect a takeover price of $24-$26 a share, based on 2026 financial estimates. An offer based on longer-range estimates and potential savings could lift that price tag to $28-$29.50 a share, but that cuts down the list of potential suitors, Mr. Wood wrote in a research report.
Canadian Natural Resources Ltd. tops Mr. Wood's list, based on the likelihood of large costs savings stemming from the company's acquisition several years ago of the Canadian assets of Devon Energy Corp., which are in close proximity to MEG's operations. The company has for years increased its holdings in the oil sands with large deals, most recently last year's takeover of Chevron Corp.'s Canadian assets.
Broadly, he expects more merger and acquisition activity in the Canadian oil patch, following on the heels of other takeovers, including Whitecap Resources Ltd.'s just-closed $6-billion takeover of Veren Energy. 'The Canadian energy sector has witnessed some interesting transactions so far this year, both from a corporate and asset-level transaction perspective, with what we believe is a goal to expedite, unlock and expand value for shareholders,' he wrote.
He said ARC Resources Ltd. is another potential takeover target, based on its liquids-rich natural gas reserves in the Montney region. Oil sands producers covet such production as a blending agent that allows heavy crude to flow in pipelines.