Former investment banker Adam Waterous built one of Canada’s largest oil producers from scratch in just over six years through a flurry of acquisitions during a tumultuous time for the oil industry. That could have been the easy part.
Mr. Waters, who took Strathcona Resources public in October and almost certainly cemented his status as a billionaire, is currently seeing the company’s stock price plummet as the oil producer faces multiple headwinds. trying to push up. At stake is Strathcona’s ability to use its stock as currency to continue its breakneck acquisition-driven growth.
The former head of energy deals at the Bank of Nova Scotia is confident in his plans, proving there’s still room to make money in an industry often maligned for its impact on climate change and lifted by flashier sectors such as technology. He says he is also working on this issue.
“If there’s a surprise like, ‘Who the hell is this guy?'” Perhaps even more surprising is, “What industry did he create it in?” Waters, 62, said in an interview.
Waterlas declined to comment on his personal net worth, but a conservative estimate of his holdings detailed in securities filings values Strathcona’s personal stock at more than $1 billion at current stock prices. will be done. This is likely due in large part to his position as general partner of a fund that owns C$4.6 billion (approximately 340 billion yen) in Strathcona stock.
He also owns other properties, including the Mount Norquay ski resort in Banff, Alberta, which he skied more than 600 times before purchasing as part of “extensive due diligence.”
Mr. Waterlas’ trajectory would have been difficult to predict when he left Scotiabank nearly seven years ago. After more than a decade at the company, culminating as head of its global energy division, he resigned to raise approximately C$400 million from investors to launch an energy-focused private equity fund. .
Then, at a time when the glory days of Canada’s energy belt seemed to be over, the Waterlus Energy Fund made a series of acquisitions of oil and gas production companies. Oil prices were falling, Alberta producers were struggling with a lack of export pipelines, and international oil companies and investors were divesting from oil sands investments over concerns about climate change.
Waterous’ acquisition includes assets such as Northern Blizzard Resources Inc., Cona Resources Ltd., Pengrowth Energy and Cenovus Energy Inc.’s Tucker oil sands site. Then, in August, Strathcona announced that it would acquire all of Pipestone Energy’s shares and take the company public.
Strathcona currently produces the equivalent of 185,000 barrels of oil per day, making it one of Alberta’s 10 largest producers. Waters said the company plans to increase production to 320,000 barrels per day over the next eight years.
Mr. Waterous was already well-known in Canadian energy circles from his days as a banker, but Strathcona’s meteoric rise has also drawn attention from U.S. investors.
“Who makes the secret deals to go public?” Cole Smead, CEO of Smead Capital Management, said of the unusual maneuver in an interview. “It’s crazy, but that’s Adam Waterous’ job, and this is the kind of person I want to allow to lead some of the capital I’m giving them.”
Mr. Smeed met Mr. Waterous at the annual Calgary Stampede, a 10-day rodeo and festival that doubles as Canada’s oil industry networking event, and decided to invest in Strathcona if it went public. Phoenix-based Sumed Capital is currently the company’s second-largest shareholder and has approached other funds about buying shares. Smead also plans to welcome members of the Waterlus and Strathcona teams to Phoenix this winter to introduce them to more U.S. investors.
The first few months of Strathcona’s life as a publicly traded company were not without their pitfalls. Since its listing on Oct. 5, the company’s shares have fallen about 21%, while the S&P/TSX Composite Energy Index has risen 6.2%.
Some of this is no doubt due to the 12% fall in oil prices over this period, but producers like Strathcona, which lack the scale of the international super-majors, have their own challenges. There is. Investors increasingly prefer diversified oil giants that squirt cash through dividends and stock buybacks, rather than spending money to expand production like smaller drilling companies. And oil complexes as a whole are struggling with investor concerns about climate change.
Strathcona’s particular challenge is that the Waterlus fund owns 91 per cent of the stock, giving it limited liquidity. The company’s price-to-earnings ratio is lower than other major Canadian oil producers and ranks with smaller Toronto-listed energy stocks like Lucero Energy and Crew Energy.
“Until we can increase the free float level, the stock will probably underperform,” BMO Capital Markets analyst Randy Orenberger said of Strathcona. Mr. Orenberger rates the stock the equivalent of a “hold” and has a minimum price target of C$25 per share.
Waterlas said Strathcona is spending 100% of its free cash flow on reducing debt and achieving an investment-grade credit rating. The company is currently rated B1, four notches below investment grade, by Moody’s Investors Service. The focus will then shift to returning cash to shareholders, which will almost certainly include dividends, he said.
Waterlas said he expects shareholder turnover to decline as Pipestone Energy investors exit, leading to a decline in prices.
“The little guys rush out and the big guys come in slowly,” Waterlas said. “It takes time to gain confidence in large-cap investor types.”
