Oil Patch CEOs Bet on a Brighter Energy Future in Canada

Strategic Insights -

Oil patch CEOs, led by Strathcona Resources Ltd. executive chairman Adam Waterous, are making big bets on a brighter energy future in Canada, taking advantage of a new federal government's evolving energy policies. This includes the expansion of the Trans Mountain pipeline and a potential increase in oil sales to Asian markets. Waterous's company has launched a hostile takeover bid for MEG Energy Corp., which represents a vote of confidence in Prime Minister Mark Carney and the federal Liberals. The bid is also a sign that oil patch CEOs are shifting gears, using strong balance sheets to fund growth strategies rather than focusing on returning cash to investors.

Key Takeaways:

  • Strathcona Resources Ltd. executive chairman Adam Waterous has launched a $5.93-billion hostile takeover bid for MEG Energy Corp.
  • The bid represents a vote of confidence in Prime Minister Mark Carney and the federal Liberals' evolving energy policies.
  • The expansion of the Trans Mountain pipeline is a key factor in this decision, with Strathcona taking steps to reduce the risk of bottlenecks by lining up an alternative transport route.
  • Oil patch CEOs are shifting gears, using strong balance sheets to fund growth strategies rather than focusing on returning cash to investors by boosting dividends and buying back shares.
  • Strathcona's offer for MEG includes predicted cost savings of $175-million a year by combining forces.
  • Banks continue to be willing to lend in the oil sands, with Bank of Nova Scotia and Toronto-Dominion Bank backing Strathcona's bid.
  • The Calgary-based company has shown that it can make a big bet on MEG before engineers boost the Trans Mountain pipeline's capacity through relatively simple, safe steps.

Statistics:

  • $5.93 billion: The value of Strathcona Resources Ltd.'s hostile takeover bid for MEG Energy Corp.
  • 9.3 PERCENT: The premium of Strathcona's bid to MEG's share price
  • 18.7 PERCENT: The increase in MEG shares on the day of the bid announcement
  • $175 MILLION: The predicted annual cost savings from combining Strathcona and MEG operations
  • 200 km: The distance from Edmonton to the Hardisty Terminal, which Strathcona bought for $45 million
  • 1,150 km: The length of the Trans Mountain pipeline
  • 25 PERCENT: The potential increase in Trans Mountain pipeline capacity through diluting oil sands bitumen

Sources:

  • By Andrew Willis, Staff, The Globe and Mail
  • Robert Hope, Analyst, Bank of Nova Scotia (no date provided)