Strathcona Resources Ltd. made an announcement on Tuesday regarding its plan to go public through the acquisition of oil and gas exploration company Pipestone Energy Corp. This move is part of their long-term expansion strategy.
Based in Calgary, Strathcona, a prominent oil and gas producer, revealed that the deal would value the combined business at $8.6 billion, making the new company the fifth largest oil producer in Canada.
Strathcona emphasized that the all-share deal is designed to provide Pipestone shareholders with a significant ownership stake in a large, oil-focused producer with a low decline rate.
Upon completion of the transaction, Pipestone shareholders are expected to hold approximately 9.05% of the pro forma equity in the merged company.
During a conference call, Adam Waterous, the executive chairman of Strathcona’s board of directors, explained the decision to go public: “While being private offers simplicity and fewer reporting requirements, we believe that our move towards becoming a publicly traded company is justified by the undervalued state of the sector.”
Waterous further added that as the industry consolidates, certain acquisition targets have expressed interest in partnering with Strathcona, but prefer to take shares in a publicly traded company. This is one of the reasons for their decision to go public.
“We are not going public because we believe that prices are currently great. In fact, quite the opposite,” Waterous clarified.
“We believe that the sector, as a whole, offers numerous attractive acquisition opportunities for Strathcona.”
Dustin Hoffman, the COO and interim CEO of Pipestone, expressed confidence in the combined company’s position compared to other major Canadian oil producers in terms of production growth rate, operating netbacks, and reserve life.
Hoffman stated, “This business combination creates a new publicly traded, large-scale, long-life, oil-focused company with a strategic direction centered on combining production growth with significant free cash flow generation.”
“This transaction represents the culmination of an ongoing effort by the Pipestone management and board to uncover the optimal strategic and financial direction for our shareholders.”
