Strathcona Resources has made a $4.25 billion cash-and-stock offer to acquire MEG Energy, according to Reuters estimates. The proposal represents a 9.3% premium over MEG’s closing share price on Thursday.
In a statement, Strathcona said the merger would bring together two major heavy oil producers, each producing over 100,000 barrels per day. Both companies focus on steam-assisted gravity drainage (SAGD) technology in the oil sands and have similar production costs and reserve life spans.
If completed, the acquisition would create the fourth-largest SAGD oil producer and the fifth-largest oil company in Canada overall, according to Strathcona. The company said the larger entity would be in a stronger position to obtain an investment-grade credit rating.
Strathcona expects the merger to generate about $125 million (C$175 million) in annual savings. These would mostly come from operational efficiencies, lower interest expenses, and reduced overhead costs.
The takeover bid comes shortly after Strathcona announced it would sell its assets in the Montney shale formation. The three Montney assets were valued at $2.84 billion. The biggest sale was the Kakwa property, sold to ARC Resources for $1.695 billion.
Analysts suggest the company is refocusing on oil sands production. This shift is reinforced by Strathcona’s recent share purchases, which gave it a 9.2% stake in MEG Energy before making the offer.
In the first quarter, Strathcona reported production of 194,600 barrels of oil equivalent per day and an operating profit of C$322.4 million, or about $231 million.