Cenovus Energy is taking over MEG Energy in a friendly deal valued at almost $7-billion.AMBER BRACKEN/The Canadian Press
Not too long ago, Canadian oil sands companies were prepping for life without banks.
In 2018, the owners of Alberta energy projects built with billions in debt saw HSBC and a string of European banks stop lending to the oil sands, along with coal-powered plants, on institutional investor concerns about climate change.
Subsequently, oil sands support from domestic and U.S. lenders got wobbly. Bank CEOs signed up for the UN-backed Net Zero Banking Alliance and faced down environmental activists protesting support for oil and gas producers at their annual meetings.
Calgary’s largest oil producers, including Cenovus Energy Inc. CVE-T and Canadian Natural Resources Ltd. CNQ-T, responded to the possibility of losing access to bank loans by tapping bond markets and building operations funded entirely by their cash flows.
Fast forward to the summer of 2025. Mark Carney, former champion of the net-zero alliance, is now a Prime Minister focused on making Canada an energy superpower, in part by boosting oil sands output. And bank CEOs such as Victor Dodig and Jamie Dimon are opening the vaults to energy companies with growth ambitions.
Cenovus to buy MEG Energy in nearly $7-billion deal
Why Canadian energy is a secret bargain, spurring a hostile takeover bid in the oil sands
Last Friday, Canadian Imperial Bank of Commerce CM-T and JP Morgan Chase & Co. JPM-N pledged $5.2-billion in loans to fund Cenovus’s proposed $7-billion cash-and-shares acquisition of oil sands neighbour MEG Energy Corp. MEG-T The friendly takeover offer from the country’s third-largest oil producer topped a hostile bid from Strathcona Resources Ltd. SCR-T
Back in May, Strathcona kicked off this bidding war with an offer backed by loans from Bank of Nova Scotia BNS-T and Toronto-Dominion Bank TD-T.
In the domestic oil patch, a sector that lives and dies by the availability of capital, it has seldom been easier for companies to borrow. The debt-fuelled bidding war for MEG signals a new round of expansion and deal-making is possible.
For bankers, complex deals such as the Cenovus takeover create a cascade of fees. The debt financing from CIBC and J.P Morgan consists of a $2.7-billion term loan and a $2.5-billion bridge facility. After the deal closes, Cenovus plans to replace the bridge loan with corporate bonds, generating another payday for financiers.
Cenovus, and its lenders, are comfortable committing billions to the MEG takeover because the economies of scale in the oil sands are compelling. Both companies use steam to extract oil from Alberta’s Christina Lake region. However, Cenovus runs a far more efficient operation.
MEG uses 2.4 barrels of steam for every barrel of oil it produces, according to a report on Monday from analyst Patrick O’Rourke at ATB Capital Markets. The lower the steam-to-oil ratio, or SOR, the better, for both financial performance and the environment, as producing steam means emitting carbon. Cenovus has an industry-leading SOR of 1.9:1.
Applying Cenovus technology to MEG’s projects will significantly increase oil production, while cutting costs by $400-million annually.
If it can win MEG – Strathcona could come back with a higher bid – Cenovus will have net debt of $10.8-billion. Last Friday, Cenovus executives said they plan to bring debt down to $4-billion through a combination of improved performance and asset sales.
Here’s where the banks’ willingness to lend kicks off more oil patch deals.
Cenovus will likely sell MEG’s dormant Surmont oil sands project once the deal closes, and use the proceeds to pay down debt, Mr. O’Rourke predicted. Surmont’s logical buyer is ConocoPhillips COP-N, which owns a massive property next door. Two years ago, the Houston-based company spent US$2.7-billion to acquire 50 per cent of the neighbouring site it didn’t own.
If ConocoPhillips does bid on Surmont, or another buyer steps up, there will be a lineup of lenders willing to finance the transaction.
While analysts pegged Cenovus as MEG’s likely buyer, because of the proximity of the two company’s properties, they also held out the potential for an offer from Murray Edwards, the acquisition-hungry executive chair of Canadian Natural Resources, the country’s largest oil producer.
Canadian Natural Resources, like Cenovus, has a strong balance sheet and has been expanding over the past year. While Mr. Edwards acquired oil sands assets from Shell Canada Ltd. and Chevron Corp., the company also snapped up conventional oil and gas properties in Alberta’s Duvernay and Montney regions. If Mr. Edwards passes on MEG, it’s likely because he has other targets in mind.
In recent years, oil sands CEOs had to draw up growth strategies that included a worst-case scenario where banks shut the door on loans. With debt now easy to obtain, domestic energy companies have the best-case scenario for takeovers.