Strathcona Resources and Pipestone Energy to merge: A look at Canada’s newest oil giant

Strathcona Resources has struck a monumental deal, agreeing to acquire Pipestone Energy in an all-stock transaction valued at around C$8.6bn ($6.5bn). The acquisition, which includes approximately CAD 2.9 billion ($2.2 billion) in pro forma debt, will result in the total enterprise value of the newly expanded company reaching an impressive CAD 11.5 billion ($8.65 billion). The combined entity will become the fifth-largest liquids producer in Canada.

Formed in 2019 from a merger between privately-owned Pipestone Oil and Blackbird Energy, Pipestone Energy focuses on oil and gas exploration and production. Its primary focus is on developing its condensate-rich Montney asset base near Grande Prairie, Alberta. Currently trading on the Toronto Stock Exchange (TSX), this deal will enable the enlarged Strathcona Resources to go public.

The newly expanded Strathcona Resources will boast a production rate of nearly 185,000 barrels of oil equivalent per day (boe/d), with 70% of it being oil/condensate. Operations will be spread across three core areas, namely Cold Lake Thermal, Lloydminster Heavy Oil, and Montney, producing 55,000 barrels per day (bbls/d), 55,000bbls/d, and 75,000boe/d respectively.

Strathcona Resources to acquire Pipestone Energy in all-stock deal worth CAD8.6bn. Photo courtesy of Strathcona Resources Ltd.

“We are excited about the acquisition of Pipestone, which fits hand-in-glove with our existing condensate-rich Alberta Montney properties and provides a natural hedge to the natural gas and condensate consumed in our Cold Lake Thermal and Lloydminster Heavy Oil operations. We look forward to welcoming Pipestone’s public shareholders as our new partners and growing per share value for them,” said Strathcona Resources’ president and CEO Rob Morgan.

Upon closing, current Pipestone Energy’s shareholders will retain roughly 9.05% of the pro forma equity in the larger entity, while the remaining ownership will go to existing Strathcona Resources’ shareholders, including private equity firm Waterous Energy Fund (99.7%) and Strathcona’s employees (0.3%). Rob Morgan is set to lead as the president and CEO of the expanded Strathcona Resources.

Pipestone Energy board of directors chairman Gord Ritchie said, “We are proud to have grown Pipestone from 152boe/d to 35,162boe/d in just four short years, and now the combination with Strathcona allows Pipestone shareholders to share in future growth and value creation for decades. This transaction is the culmination of a thorough strategic review conducted by the special committee of the board of the directors of Pipestone which concluded that the combination with Strathcona created the strongest value creation opportunity for Pipestone shareholders versus both the status quo and other available alternatives.”

The merger, set to reshape Canada’s oil landscape, is anticipated to complete in early Q4 2023. It awaits approval from Pipestone Energy’s shareholders, the court, TSX, and is subject to other conditions. The business world will closely watch the progress of this high-profile transaction that marks a significant milestone in the Canadian oil and gas industry.