Key Takeaways
- • Calgary-based Waterous Energy Fund plans to raise approximately $1.4 billion for a fourth private equity fund, matching the size of its third fund, according to the Financial Post.
- • Founder Adam Waterous said the firm is "out of money" after its third fund was fully deployed, including Greenfire Resources Ltd.'s $1.3 billion acquisition of a neighbouring oilsands producer this summer.
- • The fourth fund will be hard capped at $1.4 billion, and existing limited partners have already committed 80 per cent of the capital.
- • The strategy remains consolidating a single Canadian oil and gas company through mergers and acquisitions, with a value-investing approach focused on breakeven cost per barrel and reserve durability.
- • Waterous says the Canadian oilpatch is in the "bottom of the ninth inning of consolidation," with fewer available takeover targets nine years after the first fund launched in 2017.
Summary
Adam Waterous' Calgary-based Waterous Energy Fund, which manages three separate pools of capital, plans to raise approximately $1.4 billion for a fourth fund, matching the size of its third, according to the Financial Post. Waterous said in an interview that the firm is "out of money," explaining that its third fund was fully exhausted after Greenfire Resources Ltd. paid $1.3 billion to acquire a neighbouring oilsands producer this summer. The fund's goal, like its predecessors, is to deploy all capital into building a single Canadian oil and gas company through mergers and acquisitions.
Waterous estimates his firm has accounted for most of the private capital deployed by Canadian oil and gas private equity funds over the past nine years, a period in which Canadian private equity in the sector has largely dried up, by his account. He said the fourth fund will be hard capped at $1.4 billion regardless of demand, and that existing limited partners have already committed to supplying 80 per cent of the capital. Many backers are ultra-high-net-worth individuals rather than institutions, according to the article.
Waterous applies a value-investing framework, drawing on Benjamin Graham's margin-of-safety principle. For takeover targets, he focuses on two metrics: the price per barrel required to cover costs to hold production steady, and the size and durability of reserves. The Waterous Energy Fund first executed this consolidation strategy at Strathcona Resources Ltd., which was built from 2017 and combined portfolio companies in August 2020. Strathcona acquired a thermal oilsands project from Cenovus Energy for $800 million in 2022 and Serafina Energy for $2.3 billion later that year. It went public on the Toronto Stock Exchange the following year, has a market value of nearly $6 billion, and produces about 120,000 barrels of oil equivalent per day. Strathcona also withdrew its bid for MEG Energy Corp., clearing the way for Cenovus Energy to acquire MEG.
The new fund will target Canadian regions away from where Strathcona and Greenfire operate and will stay out of the United States. Waterous cited Enverus estimates that Canada could sustain low-cost oil production for nearly 53 years without new discoveries, versus 17 years in the United States. He said the number of available takeover targets has fallen: "You can't start from scratch now."
Waterous estimates his firm has accounted for most of the private capital deployed by Canadian oil and gas private equity funds over the past nine years, a period in which Canadian private equity in the sector has largely dried up, by his account. He said the fourth fund will be hard capped at $1.4 billion regardless of demand, and that existing limited partners have already committed to supplying 80 per cent of the capital. Many backers are ultra-high-net-worth individuals rather than institutions, according to the article.
Waterous applies a value-investing framework, drawing on Benjamin Graham's margin-of-safety principle. For takeover targets, he focuses on two metrics: the price per barrel required to cover costs to hold production steady, and the size and durability of reserves. The Waterous Energy Fund first executed this consolidation strategy at Strathcona Resources Ltd., which was built from 2017 and combined portfolio companies in August 2020. Strathcona acquired a thermal oilsands project from Cenovus Energy for $800 million in 2022 and Serafina Energy for $2.3 billion later that year. It went public on the Toronto Stock Exchange the following year, has a market value of nearly $6 billion, and produces about 120,000 barrels of oil equivalent per day. Strathcona also withdrew its bid for MEG Energy Corp., clearing the way for Cenovus Energy to acquire MEG.
The new fund will target Canadian regions away from where Strathcona and Greenfire operate and will stay out of the United States. Waterous cited Enverus estimates that Canada could sustain low-cost oil production for nearly 53 years without new discoveries, versus 17 years in the United States. He said the number of available takeover targets has fallen: "You can't start from scratch now."
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