Husky Energy proposes MEG Energy share buyout

Oct. 8, 2018
Husky Energy Inc. has proposed an unsolicited offer to acquire all shares of MEG Energy Corp. in a deal worth an estimated $3.3 billion (Can.). Both companies are based in Calgary.

Husky Energy Inc. has proposed an unsolicited offer to acquire all shares of MEG Energy Corp. in a deal worth an estimated $3.3 billion (Can.). Both companies are based in Calgary.

MEG Energy, which produces bitumen via steam-assisted gravity drainage in Alberta’s Athabasca region, said its directors “will consider and evaluate the Husky offer and related takeover bid circular, if and when received.”

Husky said its proposal implies a total enterprise value of MEG Energy of $6.4 billion, including the assumption of $3.1 billion of net debt.

It said its proposal reflects a 44% premium to the 10-day volume-weighted average MEG Energy share price as of Sept. 28 and a 37% premium to the closing price that day.

Husky Chief Executive Officer Rob Peabody said MEG Energy directors had “refused to engage in a discussion on the merits of a transaction, giving us no option but to bring this offer directly to MEG shareholders.”

MEG Energy expects average 2018 production of 87,000-90,000 b/d of bitumen, all from its Christina Lake project 150 km south of Fort McMurray. It has regulatory approvals to produce as much as 210,000 b/d there.

The company has applied for phased development of its Surmont leasehold 80 km south of Fort McMurray, to produce as much as 120,000 b/d of bitumen, and of its May River holdings 165 km south of Fort McMurray, where production might reach 160,000 b/d.

MEG Energy reported a net loss in this year’s second quarter of $179.6 million, compared to net earnings of $104.3 million in the comparable quarter of 2017. It attributed much of the loss to a net unrealized foreign-exchange loss and losses on commodity risk-management contracts.

It had total assets of $8.5 billion on June 30 and total liabilities of $4.6 billion.

Husky reported assets as of June 30 totaling $34 billion and liabilities totaling $15 billion and net second-quarter earnings of $448 million vs. a $93 million loss in first-quarter 2017.

It projects 2018 production of 310,000-320,000 boe/d from Canadian thermal projects and resource plays and developments off eastern Canada, China, and Indonesia.

Husky owns three US refineries designed to handle heavy crude with capacities of 165,000 b/d at Lima, Ohio, 45,000 b/d at Superior, Wisc., and 70,000 b/d at Toledo, Ohio, where its ownership is 50% in partnership with BP.

It also operates an 80,000 b/d upgrader at Lloydminster, Sask., a 30,000 b/d asphalt refinery at Lloydminster, Alta., and a 12,000 b/d refinery at Prince George, BC.

About 69% of Husky shares are owned by L.F. Investments and Hutchison Whampoa Europe Investments, which are owned or controlled by the Hong Kong business empire of Li Ka-shing, whose son Victor T.K. Li is Husky co-chairman.