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Strathcona Resources Ltd. chair Adam Waterous says the odds of a new oil pipeline to tidewater being built in Canada are improving, as well as a major carbon capture and storage project, but the large capital outlays involved will only be possible for the largest companies, which could trigger a consolidation drive in the Canadian oilpatch over the coming months.
“It is reasonable to expect that not only will new oil pipelines be built, but also it is more likely that (the Pathways Alliance carbon capture network) is going to be advanced,” he said on Friday after Strathcona formally launched a $6.7-billion hostile takeover bid for oilsands major MEG Energy Corp.
“If there’s going to be more pipelines, you need to be an investment-grade business to be able to make these large commitments. What this is really leading to is a further consolidation of the business.”
Waterous’s comments come as the clock begins ticking on Strathcona’s hostile takeover of MEG Energy.
Bypassing MEG’s management, Strathcona has gone directly to shareholders with its cash-and-stock offer valued at $23.27 per share — representing a 9.3 per cent premium to MEG’s closing price on May 15 — and they have until Sept. 15, 2025, to decide whether to accept the offer, according to a circular filed on Friday.
The filing also confirmed and finalized a key element of financing for the deal, namely a $662-million equity commitment from Strathcona’s controlling shareholder, Waterous Energy Fund (WEF), the Calgary-based private-equity firm founded and run by Strathcona chair and veteran oilpatch dealmaker Adam Waterous.
The fund will buy 21.4 million shares at $30.92 each, providing the $662 million to fund the cash portion of the MEG offer and reduce the reliance on short-term debt.
“We are obviously going very long on the oilsands business,” Waterous said, adding that WEF’s investment is the largest single public or private-equity investment in the Canadian oil and gas patch in more than a decade.
“WEF backing up the truck on this acquisition is clear evidence that we believe that the creation of this new Canadian champion will provide compelling returns.”
The terms of the deal are the same as a proposal that was originally made to MEG in April, which was subsequently rejected by the company’s board on May 13. MEG indicated at the time that it was not interested in pursuing a combination, according to Strathcona.
In response to Strathcona’s filing Friday, MEG urged shareholders to wait until the board could provide a formal recommendation.
MEG’s board has formed a special committee of independent directors to evaluate the offer, the company said Friday, noting that it would provide a recommendation within 15 days.