Latest news with #StrathconaResources
CTV News
6 days ago
- Business
- CTV News
Strathcona formally launches takeover bid for oilsands peer MEG Energy
The MEG Energy Corp. logo is seen in this undated handout photo. THE CANADIAN PRESS/HO, MEG Energy *MANDATORY CREDIT* CALGARY — Strathcona Resources Ltd. has formally launched its takeover bid for fellow oilsands producer MEG Energy. Its offer, open until Sept. 15, comprises 0.62 of a common share of Strathcona and $4.10 in cash for each MEG share it doesn't already own. MEG said Friday that its board as well as legal and financial advisers will consider the offer. A special committee of independent directors will assist in that review. The target company is urging shareholders to take no action until it has made a recommendation, which it expects to do within 15 days. Also Friday, Strathcona announced an equity commitment letter with Waterous Energy Fund, whose CEO Adam Waterous is executive chairman of Strathcona. The fund owns almost 80 per cent of Strathcona shares, and the new investment is worth about $662 million. 'WEF's major further investment in Strathcona reflects our view that more than eight years into building Strathcona, our best years are in front of us. As part of the offer, we are asking MEG shareholders to join us as fellow shareholders in Strathcona and trust the Strathcona team as stewards of their capital,' Waterous said in a release Friday. 'We therefore believe it is important that we eat our own cooking, ensuring no one will be more focused on increasing Strathcona's value beyond current levels than WEF. We firmly believe Strathcona represents compelling value at this price with a large margin of safety, and that we and the partners in our fund will do very well over the long run.' Strathcona announced its ambitions to snap up MEG earlier this month. On a call with analysts at the time, Waterous said his company and MEG have assets so complementary they are like 'doppelgangers' or 'brothers from another mother.' Strathcona and MEG both extract bitumen using steam-driven techniques in eastern Alberta and don't have fuel refining or retail businesses like some bigger oilsands players. Shortly before the MEG bid was announced, Strathcona signalled its plans to become a pure-play heavy oil company when it announced the sale of its Alberta shale natural gas operations in three separate deals for a total of $2.84 billion. It also said it bought the Hardisty crude-by-rail terminal in Alberta for about $45 million. Strathcona shares rose more than two per cent to $29.42 in Friday trading on the Toronto Stock Exchange. MEG shares fell almost two per cent to $24.53. MEG's stock has been trading higher than the value of the bid, suggesting investors believe a better offer might come along. Analysts have said competing bids may come from oilsands majors like Cenovus Energy Inc., Canadian Natural Resources Ltd. or Imperial Oil Ltd. This report by The Canadian Press was first published May 30, 2025. Companies in this story: (TSX: MEG, TSX: SCR, TSX: CVE, TSX: CNQ, TSX: IMO) Lauren Krugel, The Canadian Press
Globe and Mail
23-05-2025
- Business
- Globe and Mail
Why Canadian energy is a secret bargain, spurring a hostile takeover bid in the oil sands
Panic over U.S. President Donald Trump's global trade war and unexpected production bumps from countries outside North America have sent oil prices plummeting, making investors fear a 2014-style crash all over again. Adjusting for inflation, the current price of West Texas Intermediate crude, the North American benchmark, is hovering around US$45. The last time it fell to this level, a decade ago, it spelled disaster for Canadian producers – and for the Canadian economy. But this is not 2014. After years of painful restructuring, the Canadian oil industry is much stronger today, and some producers are now so resilient that they've earned the right to brag. 'The discipline today is night-and-day different,' Jeremy McCrea, an energy analyst at BMO Nesbitt Burns, said in an interview. The new era is defined by cost constraint, an aversion to debt and a promise to return excess cash to shareholders instead of spending it on endless expansion. There is also a growing global appetite for natural gas, which is seen as a logical fuel source for AI data centres, and an increasing likelihood that Canada will build more export plants sourced by low-cost gas from the Montney formation in northeast British Columbia. In short, Canada's energy sector is sitting pretty. Yet with more than half of the S&P/TSX Capped Energy subindex trading below their September, 2014, prices, investors aren't ready to admit it yet. Producers, however, see opportunity, which explains why Strathcona Resources Ltd. SCR-T launched a hostile takeover bid for MEG Energy Corp. MEG-T, one of the few pure-play companies focused on the Canadian oil sands. MEG runs a low-cost oil sands operation at Christina Lake, earned $507-million in profit last year and recently paid down a good chunk of its debt early, yet its shares have been trading roughly 45 per cent below their September, 2014, level. It's an odd scenario because the industry looked quite different before the 2014 crash. Costs were bloated, everyone was taking on debt to expand and oil and gas companies were treated as growth stocks. Then Saudi Arabia shocked the market with plans to boost production and the growth bubble burst. 'No one wants to go back to that ever again,' said Mr. McCrea, the BMO analyst. It wasn't just negligence from the producers. As investment in the oil sands exploded, the U.S. energy industry went through a revolution and new technology – fracking – unlocked oil and gas reserves that previously weren't accessible. The U.S. quickly went from being Canada's largest export market to its top competitor. Around the same time, the ESG era that promoted environmental, societal and governance concerns took hold, putting a spotlight on oil sands emissions. Canada also struggled to get a pipeline or LNG plant built to export its energy beyond the U.S. What snapped Canadian energy out of its seven-year rut was Russia's attack on Ukraine in February, 2022, which put an international focus on energy security. For the next few years, Canadian producers were akin to malfunctioning ATMs, spitting out cash as oil and gas prices soared. Things have since settled down, but many companies are still quite profitable even as oil prices fall. Suncor SU-T, for instance, has pledged to cut production costs and in 2024 the company beat its US$4 target per barrel, lowering expenses by US$7 per barrel. The sector's debt load also continues to improve. Cenovus Energy Inc. CVE-T has been hampered by leverage concerns for years, but in March Moody's Investors Service upgraded its debt rating to 'Baa1′ – the same level as industry darling Canadian Natural Resources Ltd. CNQ-T – citing the company's 'commitment to a conservative financial policy,' among other things. Summarizing this new-look Canadian industry, Mark Oberstoetter, head of research for upstream companies at energy consultancy Wood Mackenzie, offered this comparison: Since 2014, 'everyone's been working out, but Canada has been training with a weighted vest.' Adding to the bull case: Canada has long-life oil reserves, meanwhile U.S. shale oil wells are starting to run dry, and the Trans Mountain pipeline expansion is now up and running. Because more oil can be moved to the West Coast for export, the price differential between Canadian heavy crude, known as Western Canadian Select and West Texas Intermediate oil, is now around only US$12, because more Canadian oil can be exported abroad from the West Coast. Previously, it would get trapped in Canada and the supply glut would hurt domestic prices. WTI oil could drop US$20 per barrel, and the Canadian differential could drop another US$20. Despite all that, investors aren't convinced. Cenovus got a debt rating upgrade, and its shares are down 31.7 per cent over the past year. Part of what's still missing, explained Benoit Gervais, head of the resource team at Mackenzie Investments, is policy certainty. Investors can't get too excited about Canadian energy if new export projects never get built. 'Mark Carney really needs to be careful with his first move,' he said. If the new Prime Minister isn't clear about his energy agenda, and the permanency of it, 'we won't attract a meaningful amount of capital. It's pretty simple.' To that end, the new federal Minister of Energy and Natural Resources, Tim Hodgson, who used to sit on MEG's board of directors, delivered a speech in Calgary on Friday and had a clear message: Canada will remain a reliable global supplier of oil and gas for decades to come. 'No more asking, 'Why build?'' he said. 'The real question is, 'How do we get it done?''
Bloomberg
23-05-2025
- Business
- Bloomberg
Cenovus CEO Downplays Chance of MEG Bid Amid Organic Growth Push
Cenovus Energy Inc.'s top executive downplayed the chance the oil sands producer would offer to buy MEG Energy Corp., saying he's more focused on expanding existing assets than making acquisitions. Cenovus has been named as a potential rival bidder for MEG after Strathcona Resources Ltd. unveiled plans last week to take a C$5.93 billion takeover offer to MEG's shareholders. Cenovus operates oil sands wells adjacent to MEG's 100,000-barrel-a-day operation.
Globe and Mail
20-05-2025
- Business
- Globe and Mail
MEG Energy could attract higher offers in wake of Strathcona's $5.9-billion bid, analysts say
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.
Globe and Mail
20-05-2025
- Business
- Globe and Mail
Strathcona bid for MEG Energy is a vote of confidence for Carney's energy agenda
On March 19, Strathcona Resources Ltd. SCR-T executive chairman Adam Waterous and eight other oil patch CEOs published an open letter to the federal government, outlining a crisis in the country's energy sector and a plan to solve it. That afternoon, days ahead of an election call, Prime Minister Mark Carney phoned Mr. Waterous to discuss the group's issues, including a request to lift the federal cap on carbon emissions and speed project approvals. The next day, the two met face-to-face in Edmonton. Mr. Waterous clearly liked what he heard. Last Thursday, Strathcona launched a $5.93-billion hostile takeover bid for neighbouring oil sands producer MEG Energy Corp MEG-T. Mr. Waterous, an experienced M&A practitioner, would only attempt such an acquisition if he believed Alberta's energy future is brighter than its present. This deal represents a vote of confidence in Mr. Carney and the newly elected federal Liberals' evolving energy policies. There's a touch of political irony in this sentiment, as Mr. Waterous joined numerous CEOs in signing an election ad backing the federal Conservatives. The MEG takeover is also an endorsement of the signature infrastructure project during Justin Trudeau's much-maligned regime: the expansion of the Trans Mountain pipeline. That's the investment in Alberta that Premier Danielle Smith conveniently seems to forget when she complains about the province's treatment within the federation. And if Strathcona's offer for MEG kicks off a bidding war – and it is expected to do so - it will show that oil patch CEOs are shifting gears by using strong balance sheets to fund growth strategies rather than focusing on returning cash to investors by boosting dividends and buying back shares. (That's been MEG's approach – the company returns 100 per cent of its free cash flow to shareholders.) Last Thursday, when Strathcona launched its bid, Mr. Waterous said MEG's board had turned down takeover overtures, so he decided to go public with plans to combine the companies with complementary operations, which make them 'doppelgangers, brothers from another mother, twins.' Strathcona's pitch came in at a relatively thin 9.3-per-cent premium to MEG's share price. On Friday, MEG shares soared 18.7 per cent, a clear sign the market expects Strathcona to sweeten its offer or another bidder to emerge. What Mr. Waterous didn't say is that he's trying to snap up MEG before engineers boost the Trans Mountain pipeline's capacity through relatively simple, safe steps such as diluting oil sands bitumen, making it easier to pump it through the 1,150-kilometre network. The pipeline's operators can increase capacity by 25 per cent or more, said analyst Robert Hope at Bank of Nova Scotia in a recent report. Last week, days before bidding for MEG, Strathcona took steps to reduce the risk of bottlenecks by lining up an alternative transport route. The company spent $45-million to buy the Hardisty Terminal, roughly 200 kilometres southeast of Edmonton, which loads bitumen into tanker cars and sends it to refineries. Newly appointed federal Energy Minister Tim Hodgson – like Mr. Waterous, a former investment banker – visited Alberta last week right after being sworn into cabinet. The trip was the first sign of a government intent on delivering on election promises to increase oil sales to Asian markets to lessen the country's dependence on exports to the United States. Mr. Waterous decided not to wait for details of Ottawa's new approach to the oil sands. He's bidding for MEG while there's still uncertainty over Mr. Carney's appetite for an economic diet consisting of larger helpings of fossil fuels. Other CEOs are likely to react the same way, by making rival offers for MEG. Their role model is Murray Edwards, who built Canadian Natural Resources Ltd. into the country's largest energy company and became a billionaire by systematically snapping up oil sands properties when market downturns and climate change concerns pushed others to sell. It's been seven years since the last large hostile takeover attempt in the oil patch. In 2018, Husky Energy Inc., controlled by Hong Kong billionaire Li Ka-shing, took an unsuccessful run at MEG. Three years later, the Li family exited their investment by selling Husky to Cenovus Energy Inc. in a $23.6-billion transaction. Calgary-based Cenovus suffered a bout of indigestion after the Husky purchase as it paid down debt from the deal. Its balance sheet has now been rebuilt, and the same synergies that drove Husky to make an offer for MEG exist for Cenovus. On Thursday, Strathcona predicted that combining forces with MEG could cut costs by $175-million a year. Cenovus and other oil sands platforms can expect similar operational savings. Strathcona also demonstrated that banks continue to be willing to lend in the oil sands. The Calgary-based company revealed that Bank of Nova Scotia and Toronto-Dominion Bank are backing its bid. Mr. Carney's government still needs to turn election pledges into legislation that boosts the energy sector. Strathcona's big bet on MEG shows that Mr. Waterous, an experienced and well-connected deal maker, sees a shift in policy coming. If other oil patch CEOs share this view of a changing political dynamic, there will be a bidding war for MEG.
