Gold bars to be exempt from tariffs, White House clarifies
Strathcona Resources Limited’s Q2 2025 earnings call highlighted the company’s strategic focus on growth and potential shareholder returns. The company, currently valued at $5.09 billion, is considering a $10 per share distribution if its acquisition of MEG Energy fails. Strathcona also outlined plans to increase production and pursue innovative projects like carbon capture. The company remains financially robust with strong cash reserves and a net cash position, enabling flexibility in its growth strategies. Trading at $23.59, the stock has delivered an impressive 30% return over the past six months. According to InvestingPro analysis, Strathcona maintains a GREAT financial health score of 3.12, indicating solid operational performance.
Key Takeaways
- Strathcona plans to distribute $10 per share if the MEG acquisition doesn’t proceed.
- The company aims to increase production to 195,000 barrels per day over five years.
- A carbon capture project is in development with the Canada Growth Fund.
- The Hardisty Rail Terminal acquisition is generating $12 million in free cash flow.
Company Performance
Strathcona Resources is leveraging its strong financial position to drive organic growth and explore innovative projects. With an EBITDA of $1.41 billion and a healthy free cash flow yield of 10%, the company plans to boost its production capacity from 120,000 to 195,000 barrels per day over the next five years, reflecting a compound annual growth rate of approximately 8%. This growth strategy is supported by a robust cash reserve and a net cash position, providing significant financial flexibility. InvestingPro subscribers can access detailed financial metrics and exclusive ProTips about Strathcona’s growth potential and valuation metrics.
Financial Highlights
- Strong cash reserves and net cash position.
- Projected production increase to 195,000 barrels per day over five years.
- Hardisty Rail Terminal generating $12 million in free cash flow.
Outlook & Guidance
Strathcona is focused on the potential acquisition of MEG Energy. If unsuccessful, the company plans to distribute approximately $10 per share to its shareholders. Trading at an attractive P/E ratio of 9.88 and generating $3.41 billion in revenue, the company is also progressing on a carbon capture project, expected to be sanctioned in the coming quarters, underscoring its commitment to innovation and sustainability. Analyst price targets range from $24.77 to $29.86, suggesting potential upside. For comprehensive analysis and detailed valuation metrics, explore Strathcona’s Pro Research Report, available exclusively on InvestingPro.
Executive Commentary
Adam Watrous, Executive Chairman, emphasized the company’s growth trajectory, stating, "It’s not like we’re growing slowly, as sort of our base plan A case." He also expressed frustration over the lack of engagement from MEG, noting, "We’ve had no engagement. We have asked for it multiple times and we have been ghosted."
Risks and Challenges
- Potential failure of the MEG acquisition could impact strategic growth plans.
- Market volatility in crude oil prices may affect revenue.
- Regulatory changes in carbon pricing could impact operational costs.
Strathcona Resources continues to position itself as a unique investment opportunity in the North American energy sector, focusing on long-life, low-decline, high free cash flow operations without mines or refineries. The company’s strategic initiatives and financial strength suggest a promising outlook, contingent on successful project execution and market conditions.
Full transcript - Score Media and Gaming Inc (SCR) Q2 2025:
Anas, Conference Operator: Good morning. My name is Anas, and I’ll be your conference operator today. I would like to welcome everyone to the second quarter twenty twenty five conference call of SRABCON at Resource Ltd. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.
For attendees on the conference call who would like to ask a question, press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. I now introduce Angie Lau, Treasurer of Strathcona, to open the conference and introduce the speakers.
Angie Lau, Treasurer, Strathcona Resources Limited: Welcome to the Q2 twenty twenty five conference call of Strathcona Resources Limited. Yesterday, Strathcona released its second quarter results. We encourage our investors to visit Strathcona’s website and review the disclosure materials in detail. Today’s call will be focused on taking questions from analysts. Please note that all commentary made by today’s speakers are subject to the same advisories regarding forward looking information and non GAAP measures as can be found in yesterday’s press release and our other disclosure materials.
In particular, any comments made regarding the offer to MakeShareholders as well as any expectations about the pro form a results or resulting capital structure of StressCona, are based on our current expectations regarding our business and combined business and are in part based on MEG’s available public data. While we believe our current assumptions and expectations to be reasonable, actual results could differ materially from those discussed today and listeners should not place undue reliance on any such statements. Please refer to Strathcona’s offer to purchase and accompanying takeover bid circular dated 05/30/2025, available on our website and under the company’s profile on SEDAR plus for further information. On today’s call, we have from our management team Adam Watrous, Executive Chairman Connor Watrous, Chief Financial Officer Connie DeCancho, Chief Commercial Officer Dale Dabiak, Chief Operating Officer Kim Chew, President, Strathcona Cold Lake Seamus Murphy, President, Strathcona Lloydminster Conventional and Ryan Tracy, president Strathcona Lloydminster Thermal. With that, in keeping with our practice, we will take all of our materials as read, and we would now like to jump straight to questions.
Anas, Conference Operator: Thank you. Ladies and gentlemen, we now begin the question and answer session. Should you have a question, please press star followed by one or retouched your phone. You will hear prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2.
If you’re using a speakerphone, please lift your hands up before pressing any keys. Your first question comes from Patrick O’Rourke with HEB Capital Markets. Please go ahead.
Patrick O’Rourke, Analyst, HEB Capital Markets: Hey, guys. Good morning, and thank you for taking my question. I guess the first question just revolves around the MEG transaction here. In the past, you’ve spoken to engagement or lack thereof with the team over there. They’re obviously running an open strategic process that they provide a few updates on.
Can you comment with respect to any changes in the level of engagement that you have had over there?
Adam Watrous, Executive Chairman, Strathcona Resources Limited: Sure, Patrick, this is Adam Waltrust. We’ve had no engagement. We have asked for it multiple times and we have been ghosted.
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Okay,
Patrick O’Rourke, Analyst, HEB Capital Markets: and then second question here, just with respect to in the scenario where you are unsuccessful with the bid that you’ve put out there. You’ve spoken to a $10 potential $10 per share distribution here in a tax efficient manner. I think you have about 15 in puck. But if you could sort of provide maybe a little bit of color with respect to how you think about the tax efficiency of that. And then alternatively, the extreme strength of the balance sheet being in the net cash position, how you weigh that versus the opportunity set for other M and A or you’re obviously having operational success through the portfolio, the potential that you could accelerate or upsize the organic growth.
Adam Watrous, Executive Chairman, Strathcona Resources Limited: I think I got three questions in there, Patrick. The first is on tax efficiency. I really can’t comment on that, that’s fairly complicated and detailed. The second thing is, how does this relate to, for unsuccessful and MEG, how does this, what are we thinking about doing with the cash? So our thought process was, and I’ve talked about this briefly before, is that plan A has been to organically grow the business from 120,000 barrels a day to 195,000 barrels a day over the next five years.
And the plan A plus would be to acquire MEG. Now that ends up being important in that we’ve had lots of people say to us, well gee, if you don’t buy MEG, you got all this cash, why don’t you go buy something else? Well, the reason why we’re looking to acquire Mega is very specific to that particular opportunity, as opposed to, hey, we just want to buy things in general. And so as a consequence, that’s why if we are unsuccessful acquiring MEG, our plan is to not buy something else, but instead provide approximately $10 a share of proceeds to our investors. So this is not a, sometimes people think, oh, well, you just building a generic war chest to go up and buy stuff?
No, we had a very specific plan A on organic growth, and then at the same time distributing cash to our shareholders. And if we got a particular acquisition being MEG, then we would do it. In terms of the third part of your question, which is if we don’t buy MEG, do we just accelerate growth? Actually, quite like our current growth plan to go from 01/20000 to 195,000. I think it’s a compound annual growth rate of about 8%.
I think, I’m not certain about this, but I think that’s the fastest growth rate organically of any company of our scale in North America. It’s not like we’re growing slowly, as sort of our base plan A case, so that’d be my thoughts, maybe others may have any other comments or perspectives. Hopefully that’s helpful, Patrick.
Patrick O’Rourke, Analyst, HEB Capital Markets: Yeah absolutely, and you caught me trying to ask three questions in one there. Okay, well thank you very much.
Anas, Conference Operator: Thank you. Your next question comes from Meta Halshaf with TD Cowen. Please go ahead.
Meta Halshaf, Analyst, TD Cowen: Thanks and good morning everyone. I’ll just start with a question on your crude by rail business. With the Hardisty Rail Terminal acquisition having closed, can we get an update on the status of integration of that asset? And maybe given your dominance on Western Canadian rail infrastructure, how should we be thinking about vertical integration in the rail activity outlook for Strathcona specifically, if heavy debts were to widen a couple of dollars into the back half of the year?
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Sure, so when we think about the recent transaction, which we did to buy the largest crude by rail third party terminal in the country. Really what we see that as is just a pure natural hedge to that go forward Strathcona upstream business, in that we currently don’t plan to put our own Strathcona barrels through the terminal at this time and have a long term take or pay there with a strong investment grade counterparty that is currently spending off about $12,000,000 of free cash flow per year. And we see that as exactly what the current stabilized run rate cash flow will be on the business in the current spread environment. That being said, if and when spreads on WCS start to widen, there’s about 75 to 80% of that terminal that’s currently not being utilized, which in turn means that there’s a large amount of free space for spot volumes, which we think is certainly based on the past performance of that terminal will start to fill up as spreads in the base start to widen.
Meta Halshaf, Analyst, TD Cowen: Terrific. Thanks for that, Connor. And then maybe just flipping over to your partnership with Canada Growth Fund on the carbon capture side of things. Where do things stand on that front? And has the development trajectory changed at all based on liberal messaging under Kearney to date?
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Sure. So I’d say that we’re still thrilled to have the partnership with the folks at iCanada Growth Fund, and we’ve made a lot of progress over the past twelve months since that partnership. I was first signed on the first steps of the detailed FEED work. Our view is it’s really not a question of if but when our first carbon capture and storage project I guess sanctioned. But we’re still probably a couple quarters plus away from that happening as there’s still a little bit more feed work that we need to do.
And there’s probably a little bit more clarity that we’re seeking in terms of what kind of carbon pricing world are we in on both sides of the border.
Meta Halshaf, Analyst, TD Cowen: Thanks, I’ll turn it back.
Anas, Conference Operator: Thank you. Your next question comes from Travis Wood with National Bank. Please go ahead.
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Yeah. Thanks. Good morning. The the lower drainage program at Tucker sounds like it’s been successful, especially through July there with the the SORs below three. So two questions and maybe just one broader one.
Could you provide some details around those economics of the wells and how do you measure that? And then two, what’s the timeline of that ramp over those 75 locations as we think about Cold Lake in general? And then the third question, just to top Patrick there maybe, is in general across the assets, are you seeing any inflationary pressure on capital and or OpEx?
Kim Chew, President, Strathcona Cold Lake, Strathcona Resources Limited: This is Kim Chiu with the Cold Lake business unit here. So let me just unpack some of those questions there. So in terms of performance, I think I heard in there, how long does it take to ramp? We’ve actually been very pleasantly surprised off of our first program there on the D East. Our ramp up profile is probably within a month to two months at the most.
In terms
Adam Watrous, Executive Chairman, Strathcona Resources Limited: of their current production and the forecast, I
Kim Chew, President, Strathcona Cold Lake, Strathcona Resources Limited: think that particular pad is doing in excess of 5,000 barrels a day and those eight LVW wells are probably 80% or more of the overall production for that pad. Off the top of my head, have to admit, I can’t remember what the exact rates of return or MOICs on those wells are, but they are certainly highly attractive with great F and D costs and great capital efficiencies. And we are actually in the process of drilling our next batch in Tucker right now, they are scheduled to come online early next year at this point in time. Not sure if I covered all the questions there
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: or not. Yeah, and then Travis, this is Connor again, just speaking to things on the service cost side. I’d say that our views, we’ve been in a fairly stable service cost world for most of the last, I’d call it eighteen to twenty four months. There’s always a couple percent of general inflation per year that kind of forms the hurdle that the teams need to eat back via an ongoing focus of trying to improve per But it’s been a stable service cost world in general.
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Okay. That’s perfect. I’ll turn it back. Thank you.
Anas, Conference Operator: Thank you. Your next question comes from Dennis Fong with CIBC. Please go ahead.
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Hi, good morning. Thanks for taking my question. My first one here is just on MEOTA, maybe following along to Travis’ question. Just wondering if there’s any opportunities to improve on the cost structure there or that’s more of a fixed cost contract structure to build out that potential processing facility.
Ryan Tracy, President, Strathcona Lloydminster Thermal, Strathcona Resources Limited: Brian Tracy here with the Lloyd thermal business unit. As far as the Muota Central facility goes that we’re constructing right now, it’s a mix between there’s some fixed costs, lump sum contracts there on our main facility construction at the central processing facility. But there’s a lot of other components with our drilling and completions and some of our infrastructure that we’ve got to bring in like water, gas, power, that is more on a reimbursable structure. So there’s some opportunity to come in under that capital budget, but as of right now, we’re about halfway through that project from a capital spend perspective, and right now everything’s looking on budget, on time with that project, so nothing too big to report there, but it’s looking positive in general.
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Great, thank you. My second question turns back maybe to Adam, You’ve highlighted obviously in one of the prior questions that VEG is obviously a very unique opportunity for your company. Can you remind us on some of the things that you’re really focused on in terms of opportunity sets and where you view specifically kind of attractive opportunities or what specific metrics you’re continuing to look at as you evaluate the space? Thanks.
Adam Watrous, Executive Chairman, Strathcona Resources Limited: So the reason we’ve been attracted to MEG is really, Dennis, threefold. Number one, the high degree of similarity between their business and our business. And why that ends up being important is our experience is that single play companies are structurally prevented from optimizing the asset on their own due to lack of economies of scale and shared learnings. Meaning as we’ve, each time we have bought an independent SAGD business, the economies of scale that we get by adding that to our existing business, not only is that business that we get have the opportunity to be improved, but the remaining businesses that we already have are improved through shared learnings. We have taken success, some of our success at Tucker, because of how we’re drilling wells, or because how we’re drilling wells at Orion.
This is a super fundamental point, and the reason why this ends up being is that for a very long period of time, the last twenty years, across North America, there has been a focus on single play companies. And the reason people have built single play companies is because they’ve been the easiest to sell. But if you have a single play company, you have a structural impediment to actually optimizing the asset. And so we think by, because it’s so similar to our existing business, not only do we think we’ll end up operating the business more efficiently than existing management, we think that our existing businesses will be operated more efficiently and the performance will improve. I saw a comment by the quickly would say on the quality makes existing management.
It’s a structural impediment that single play companies have. So that’s the first reason we are interested in acquiring it. The second reason is that it provides Strathcona with three things, or in particular really accelerates three things for Strathcona. Number one, it allows Strathcona to become investment grade, which will lower our overall cost of funding. The second thing is it will increase the liquidity that Strathmore currently has in the stock market.
And why that ends up being relevant is that allows us to be able to be included in some indices. As you are included in the indices, that generally ends up being reflected positively in your stock. So these first two things are very, as I would say, very onoff, light switches, happen almost immediately upon completing the transaction. The third is that the combined business will be in a very unique situation in the North American energy landscape in that it will be the only investment grade long life load defined, high free cash flow oil business pure play, that does not have mines, does not have refineries. And it will be in that space of a pure play long life load applying, high free cash flow, it will be many, many multiples larger than the next largest company in North America.
And we think that that will offer a very unique and attractive investment proposition to investors. So that’s why, from Trust Cohen’s perspective, that would be a plan A plus. Now, obviously, MEG’s gonna have their own, shareholders will have their own perspective, but as I’ve said previously, what’s highly unusual about this transaction is that a typical source of a return to a seller is what is the upfront premium. In this case, which is obviously relevant because a seller doesn’t get it anymore than the upfront premium. In this case, the selling shareholders get two additional things.
Number one, they get per share accretion, which is what we previously outlined is depending on whether they’re going to cash flow or NAV, it’s somewhere between 1025%. So it’s very large accretion on a per share basis to two meg shareholders. That’s super rare, it’s usually the target, is usually trading at a discount to the acquirer. In this case, it’s the reverse, and that’s why they’re getting this accretion. But the third source of return to make shareholders after the upfront premium and the per share accretion is that this is principally a share transaction, 82% of the consideration is in Strathcona shares.
And going back to why Strathcona is doing it, because they’re receiving shares, that would be an incremental source of return for MEG. Put another way is, the reason, when we do this, we think that Strathcona’s share price post completing a transaction with MEG is gonna go up. And we think that’s gonna go up a lot. And that’s obviously why we’re doing it. And that ends up being another incremental source of return for MEG shareholders.
All right Dennis, hopefully that’s a helpful response.
Connor Watrous, Chief Financial Officer, Strathcona Resources Limited: Thanks, Adam. I’ll turn it back.
Anas, Conference Operator: Thank you, Dennis. There are no further questions from our phone lines. I would now like to turn the call back over to Adam Waters for closing remarks.
Adam Watrous, Executive Chairman, Strathcona Resources Limited: Thanks everyone for tuning in this morning, especially early. It’s 07:00 in the morning Mountain Time. We look forward to our next conference call with you one quarter from now. Thanks so much.
Anas, Conference Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.