Funding Banker Turned Oil Tycoon Takes Canada Vitality Patch by Storm

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(Bloomberg) — In simply over six years, former funding banker Adam Waterous assembled one among Canada’s largest oil producers from scratch by way of a flurry of acquisitions throughout a stormy interval for the {industry}. Which will have been the straightforward half.

Waterous — who nearly actually cemented his standing as a billionaire by taking Strathcona Assets Ltd. public in October  — now could be seeking to enhance the corporate’s inventory worth at a time when oil producers face a number of headwinds. At stake is Strathcona’s potential to proceed its torrid, acquisition-driven development utilizing its shares as foreign money. 

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The previous high power dealmaker for Financial institution of Nova Scotia is assured in his plan and says he’s tackling the problem partly to show that there’s nonetheless cash to be made in an {industry} that’s typically maligned for its local weather influence and upstaged by flashier sectors like know-how.

“If there’s some shock like, ‘Who the hell is that this man?’ the shock ought to be extra, ‘What {industry} did he construct that in?” Waterous, 62, mentioned in an interview. 

Whereas Waterous declined to touch upon his private web price, conservative estimates of his holdings as detailed in securities filings would worth his private stake in Strathcona at greater than $1 billion at present share costs. That might come largely by way of his standing as the overall companion in a fund that owns a C$4.6 billion ($3.4 billion) stake in Strathcona.

He additionally owns different belongings, together with the Mount Norquay Ski Resort in Banff, Alberta, which he says he skied greater than 600 occasions earlier than he purchased it as a part of his “in depth due diligence.”

Waterous’ trajectory would have been arduous to foretell when he left Scotiabank about seven years in the past. After greater than a decade on the agency, culminating as head of worldwide power, he stepped down to begin an energy-focused personal fairness fund, armed with about C$400 million from buyers.

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Waterous Vitality Fund then snapped up a succession of oil and gasoline producers throughout a time when the Canadian power patch’s glory days seemed to be over. Crude costs have been down, Alberta’s producers have been affected by a scarcity of export pipelines, and worldwide oil firms and buyers have been promoting off oil-sands investments amid issues about local weather change.  

Waterous’ acquisitions included Northern Blizzard Assets Inc., Cona Assets Ltd., Pengrowth Vitality and belongings resembling Cenovus Vitality Inc.’s Tucker oil-sands website. Then in August, Strathcona introduced an all-share buy of Pipestone Vitality Corp. that may give it a public itemizing. 

Strathcona now produces the equal of 185,000 barrels of oil a day and is among the many 10 greatest producers in Alberta. The corporate plans to spice up output to 320,000 barrels a day within the subsequent eight years, Waterous mentioned.

Whereas Waterous was already well-known in Canadian power circles from his time at as a banker, Strathcona’s meteoric rise has attracted consideration from US buyers.  

“Who does a backdoor deal to go public?” Smead Capital Administration Chief Government Officer Cole Smead mentioned in an interview of the unusual maneuver. “That’s loopy, however that’s what Adam Waterous does, and that’s the form of person who I need to permit to steer a portion of the capital we give to them.”

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Smead met Waterous on the annual Calgary Stampede — a 10-day rodeo and competition that doubles as a Canadian oil-industry networking occasion — and determined to spend money on Strathcona if it went public. Phoenix-based Smead Capital is now the corporate’s second-largest shareholder and has approached different funds about shopping for their stakes. Smead can be planning to host Waterous and members of the Strathcona staff in Phoenix this winter to introduce them to extra US buyers.

The primary few months of Strathcona’s life as a public firm haven’t been with out pitfalls. The inventory has dropped about 21% because the Oct. 5 itemizing, in contrast with a 6.2% acquire for the S&P/TSX Composite Vitality Index.

A few of that’s little doubt because of the 12% slide in oil costs over that span, however producers like Strathcona — who lack the dimensions of worldwide supermajors — have their very own set of challenges. Traders more and more favor diversified oil giants that gush money by way of dividends and buybacks as an alternative of plowing it into manufacturing development like smaller drillers do. And the oil complicated as an entire has suffered from buyers’ issues about local weather change. 

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A problem distinctive to Strathcona is the inventory’s restricted liquidity, with Waterous’ fund proudly owning 91% of the shares. The corporate’s price-to-earnings a number of trails different massive Canadian oil producers’ and is consistent with smaller Toronto-listed power shares like Lucero Vitality Corp. and Crew Vitality Inc.

“The inventory would most likely underperform till it’s capable of enhance the extent of the float,” BMO Capital Markets analyst Randy Ollenberger mentioned about Strathcona. Ollenberger charges the inventory the equal of a “maintain” and has a Avenue-low C$25-a-share worth goal.

Waterous mentioned Strathcona is spending 100% of its free money circulation to scale back debt and win an investment-grade credit standing. The corporate is at present rated B1 by Moody’s Traders Service, 4 ranges beneath funding grade. The main target will then shift to returning money to shareholders, which is able to nearly actually embody a dividend, he mentioned. 

Waterous mentioned he expects shareholder turnover and for the worth to say no as Pipestone Vitality buyers exit.

“Small guys rush out, and the larger guys come in additional slowly,” Waterous mentioned. “It takes time to have the ability to have larger-cap investor varieties develop confidence.”

—With help from Vernal Galpotthawela.

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