CALGARY — The executive chairman of Strathcona Resources Ltd. says his company aims to join two complementary oilsands players with its unsolicited takeover bid for MEG Energy Corp., but one analyst calls the $5.9 billion being offered an "affront" to shareholders.
"I am actually not aware of two businesses of any scale in North America that share this level of complementary nature," Adam Waterous told analysts on a conference call Friday.
"These are doppelgangers, brothers from another mother ... identical twins."
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.
Earlier this week, 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 with a total of $2.84 billion.
It also said it has bought the Hardisty crude-by-rail rail terminal in Alberta for about $45 million.
A takeover of MEG would further that strategic shift, Waterous said.
"If someone's interested in a lower-risk, long-life, low-decline, high-free-cash-flow oil business of scale in North America, we think that this is going to be the business to own."
A combination with MEG would create Canada's fifth-largest oil producer, Strathcona said.
Strathcona, which disclosed late Thursday it owns about a 9.2 per cent stake in MEG, said it sent a takeover offer to the MEG board of directors in April, but was rejected earlier this week.
"Strathcona respects the MEG board's right to dismiss any offer made for MEG, and it has no reason to believe that its decision to dismiss Strathcona's proposal was not made in good faith," the company said in a late Thursday news release.
But it said MEG shareholders should have the chance to decide for themselves.
MEG said Friday that its board of directors will consider and the Strathcona offer once it has been received and urged shareholders to take no action until it has made a recommendation.
Strathcona is offering 0.62 of a Strathcona share and $4.10 in cash per MEG share in the proposal worth $23.27 per MEG share based on the closing price of its shares on Thursday.
MEG shares shot higher Friday, topping the implied value of the takeover offer and suggesting investors believed a higher bid might be possible.
MEG shares closed up $3.99 or almost 19 per cent at $25.29 on the Toronto Stock Exchange.
Desjardins Securities analyst Chris MacCulloch said Strathcona is offering a "modest" 9.3 per cent premium and competing offers are likely to come from bigger oilsands players like Canadian Natural Resources Ltd., Cenovus Energy Inc., Suncor Energy Inc., Imperial Oil Ltd. or ConocoPhillips.
"Although we are naturally supportive of further consolidation of the Canadian oilsands to create a stronger and more resilient sector, we view the (Strathcona) takeover offer as an affront to MEG shareholders and highly unlikely to be accepted," he wrote in a note to clients.
Enverus senior analyst Michael Berger said the offer price seems "a little bit light" given what MEG has going for it.
"They operate some of the highest quality acreage in the oilsands today," he said.
"Do I think all the major operators in the oilsands are going back to sharpen their pencils on what MEG would look like in their portfolios? Absolutely."
Strathcona has identified $175 million in annual synergy opportunities, including $50 million in overhead reduction costs, if the deal goes ahead.
Berger said there are signs of accelerating merger and acquisition activity among Canadian oil and gas producers. Between the first and third quarters of 2024, there was US$2.5 billion worth of transactions, he said. Contrast that with the US$19.1 billion in deals announced between the fourth quarter of last year and now, with western Canadian shale an oilsands the focus.
MEG is a solid operator that can hold its own as a stand-alone company, Berger said. But broadly, oilsands players recognize that scaling up can mean better efficiency and costs.
"I think that consolidation is likely to continue."
The MEG takeover offer comes on the same week Whitecap Resources Inc. closed its friendly $15-billion deal to join up with Veren Inc., creating Canada's seventh-largest oil and gas producer with a hefty footprint in Alberta and B.C. shales and Saskatchewan oilfields.
In the refining and fuel retail space, Texas-based Sunoco struck a friendly deal last week to buy Calgary-based Parkland Corp. for US$9.1 billion.
Strathcona made its offer after it reported a first-quarter profit of $205.3 million or 96 cents per diluted share, up from $100.6 million or 47 cents per diluted share a year earlier.
Oil and natural gas revenue totalled $1.33 billion, up from $1.17 billion in the first quarter of 2024.
This report by The Canadian Press was first published May 16, 2025.
Companies in this story: (TSX: SCR, TSX: MEG, TSX: SU, TSX: IMO, TSX: CVE, TSX: CNQ. TSX: WCP, TSX: PKI)
Lauren Krugel, The Canadian Press
