Pipestone shareholders approve merger with Strathcona Resources

A pumpjack draws out oil and gas from a well head as the sun sets near Calgary, Alta., Sunday, Oct. 9, 2022. THE CANADIAN PRESS/Jeff McIntosh

Shareholders of Pipestone Energy Corp. have voted to approve a merger with Strathcona Resources Ltd., a deal the companies say will create what will be the fifth largest oil producer in Canada.

Shareholders voted in favour Wednesday of a proposal which will see privately held Strathcona buy them out in an all-stock deal, creating a combined company with an initial market capitalization of $8.6 billion.

The merger had been opposed by dissident shareholder GMT Capital Corp., which controls about 19 per cent of Pipestone's shares. The final vote tally was not immediately available Wednesday.

Under the terms of the deal, Pipestone shareholders will receive 9.05 per cent of the equity in the merged company, while Strathcona _ one of North America's fastest-growing oil and gas producers _ will go public.

"The arrangement will enable shareholders to participate in the upside of a much larger and more diversified producer with a well-positioned reserves base and much longer reserves life,'' said Gord Ritchie, board chair of Calgary-based Pipestone, in a release.

Strathcona Resources is owned by Calgary-based private equity firm Waterous Energy Fund. Through a series of recent acquisitions, the company has grown its production from 5,000 barrels of oil equivalent per day to 185,000 boe/d in just over six years.

The companies say the new merged company will have current production of approximately 185,000 barrels of oil equivalent per day across the Cold Lake, Lloydminster and Montney oil-producing regions.

"No one is creating deals like this,'' said Cole Smead, CEO and portfolio manager at Smead Capital Management, which owns shares in Pipestone and voted for the merger.

He said Strathcona's bold M&A strategy is unique in the Canadian market right now, as most companies are still behaving conservatively in the wake of the 2020 oil price downturn.

"I think we'll eventually see it leak into other areas of the Canadian (oil and gas producer) space once others see their success,'' Smead said.

Strathcona's executive chair Adam Waterous has said the plan is to continue building Strathcona within the public markets, and has stated his belief that now is an attractive time to be growing an oil and gas business in Canada.

Global oil prices have climbed 30 per cent since June 1, with the benchmark West Texas Intermediate ticking higher than US$93 a barrel on Wednesday, their highest point since November of last year.

The merged company will retain the Strathcona Resources name and will be led by Strathcona executive chair Adam Waterous and current CEO Rob Morgan.

The merger is expected to close Oct. 3.

This report by The Canadian Press was first published Sept. 27, 2023.