In the Money: Exclusive with Adam Waterous

Key insights from our exclusive interview with Adam Waterous, Waterous Energy Fund

WATCH: Strathcona Resources went from startup to $4B in revenue faster than any company in Canadian history. Now, Adam Waterous is making his boldest move yet: a multi-billion dollar bid for MEG Energy. On this special episode of In the Money with Amber Kanwar, we’ve got a Calgary Stampede edition hosted by ATB Financial. Amber sits down with the CEO of the Waterous Energy Fund in front of a live audience to unpack Strathcona’s takeover bid for MEG and to discuss why Adam believes Canada’s energy sector is at a turning point.

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Investing Style: A Disciplined Value Investing Approach

Adam Waterous shared his “value investing” playbook, emphasizing risk aversion and strategic consolidation to catapult Strathcona to a top-five Canadian oil producer.

• “Protecting Principal, Avoiding Loss”: Rejecting the growth equity model of chasing tier 2 or 3 assets, Adam’s team at Waterous Energy Fund focuses on safeguarding capital by acquiring high-quality, on-stream assets, minimizing technical risk.

• “Low-Cost Producer Insulates You”: To combat price volatility, they target assets with low break-even prices and long reserve life indices, ensuring resilience when “prices go down, not if.”

• “Consolidate to Optimize Economics”: Bucking the single-play trend, Strathcona acquires single-play companies for economies of scale, better purchasing power, and cross-asset learnings, scaling from zero to a powerhouse since 2017.

• “Love the Bears”: Adam capitalizes on investor skepticism, snapping up undervalued assets to grow Strathcona from 5,000 to nearly 200,000 barrels per day, boosting its valuation from $1.9 billion to over $6 billion.

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Bid for MEG Energy: A Strategic Acquisition with a Plan B

Adam outlined Strathcona’s bid for MEG Energy, a move to harness synergies and elevate market presence, with a hefty special dividend as a fallback.

• “Doppelgangers for Synergies”: Strathcona (120,000 barrels/day) and MEG (100,000 barrels/day) are twins with 50-year reserve life indices, enabling Strathcona to drill a quarter of Canada’s SAGD wells for unmatched operational efficiency.

• “Accretion, Not Dilution”: Despite Strathcona’s discount to MEG due to its small public float (80% owned by Waterous Energy Fund), the offer delivers a 9% premium and 16% per-share accretion, totaling a 25% value boost for MEG shareholders.

• “Unique Investing Space”: Success would make Strathcona investment-grade, index-eligible, and North America’s largest pure-play oil company, growing from 220,000 to 325,000 barrels/day by 2031.

• “$10 Special Dividend Plan A”: If the bid fails, Strathcona plans a $10-per-share special dividend, backed by $200 million in cash and low leverage, while targeting 195,000 barrels/day by 2031.

• “MEG’s in Play”: MEG’s board has rebuffed Strathcona’s April outreach and excluded them from the sale process, but with a September 15 shareholder vote looming, Adam welcomes competition as MEG is now up for grabs.

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Future of Energy in Canada: Opportunities Amid Challenges

Adam envisioned Canada’s energy sector as a global solution, leveraging its reserves and public support to overcome regulatory roadblocks.

• “Energy Poverty Emergency”: With 8.3 million annual deaths from energy poverty, Adam calls for doubling Canada’s oil and gas production, asserting a “moral obligation” to address this crisis.

• “Trump Card for Trade”: Canada’s 50-year reserve life versus the U.S.’s 10 years positions it to supply the U.S.’s 7-million-barrel-per-day shortfall, a leverage point for negotiations, as “Trump wants more Canadian oil.”

• “Scrap C69, Attract Capital”: The “Build Canada Now” letter demands axing C69, C48, hard cap emissions, and the industrial carbon tax, plus faster approvals and Indigenous loan guarantees, to draw private investment.

• “Decarbonize, Don’t Demonize”: Strathcona’s $2 billion carbon capture project with the Canada Growth Fund aims to cut carbon intensity by 80%, proving oil can align with environmental goals.

• “Canadians Want Infrastructure”: Public support for energy development has nearly doubled since 2017, with over 70% in most provinces backing pipelines, driven by Canada’s worst economic decade in history.

Send your questions for the next episode! Email questions@inthemoneypod.com

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