Author: Andrew Willis

Open this photo in gallery:

The domestic energy industry got a vote of confidence from institutional investors on Monday as dealmaker Adam Waterous closed the final round of a third private equity fund with $1.4-billion of capital, money earmarked for acquisitions in Alberta’s oil sands.

Calgary-based Waterous Energy Fund (WEF) won institutional investor support for its plan to consolidate oil and gas properties in the Athabasca region, just south of Fort McMurray, by acquiring properties from foreign companies and private investors. The fund will initially focus on backing expansion at an oil sand company WEF already controls, Greenfire Resources Ltd. GFR-T

Over the past six months, WEF invested $450-million from the first round of its third fund to build a controlling 56-per-cent stake in Calgary-based Greenfire. The company’s properties are near massive oil sands developments owned by Cenovus Energy Inc. CVE-T, Suncor Energy Inc. SU-T and MEG Energy MEG-T.

WEF’s backers include domestic and international insurance companies, banks, asset managers and family offices.

WEF is acquiring oil sands properties at a time when foreign energy companies continue to exit the region and smaller private players are selling rather than trying to raise the money needed to build a producing property. The dominant oil sands companies, including Canadian Natural Resources Ltd. CNQ-T, Cenovus and Suncor, are also bulking up.

“If we were real estate investors, we would be the folks who buy one house in a great neighbourhood full of elderly homeowners, then keep buying great houses as they come to market,” said Mr. Waterous, managing partner and chief executive officer at WEF, in an interview.

Foreign energy companies exited the oil sands over concerns that included carbon emissions, the regulatory environment and the high cost of building facilities. Mr. Waterous said WEF backers recognize the region’s long-life assets and focus on lowering emissions with measures including carbon capture and sequestration.

“At WEF, we have learned to navigate the sometimes choppy waters of Canadian regulation,” Mr. Waterous said.

A former investment banker, Mr. Waterous founded the asset manager in 2017. Since then, WEF has raised a total of $3.44-billion.

Investing in domestic oil and gas plays has been out of fashion since commodity prices declined sharply in 2014, ending an Alberta energy boom. WEF is responsible for attracting approximately 75 per cent of all Canadian oil and gas private equity capital since 2017.

WEF’s first fund invested $1.9-billion in Strathcona Resources Ltd. SCR-T, which eventually went public on the Toronto Stock Exchange. With WEF’s backing, Strathcona made 10 acquisitions in five years, building a large oil sands business in the Cold Lake region northeast of Edmonton, using the same steam-assisted gravity drainage approach Greenfire utilizes to get oil out of the ground.

WEF has tripled the value of its investment in Strathcona, a company with a $6.2-billion market capitalization. WEF now owns approximately 80 per cent of Strathcona and Mr. Waterous said the fund manager will continue to distribute shares in the energy company to institutional backers over the next few years.

In July, Strathcona struck a $2-billion partnership with the Canada Growth Fund to build carbon capture and sequestration infrastructure at the company’s oil sands operations. The fund, a federal government-based financing agency, will invest $1-billion. Strathcona will construct, operate and own the infrastructure, with the initial capital costs split 50/50 between the fund and the energy company.

Mr. Waterous previously ran Bank of Nova Scotia’s investment-banking division. He founded a Calgary-based advisory firm focused on oil and gas acquisitions and dispositions that Scotiabank acquired in 2005.

Earlier this month, Mr. Waterous and nine other pipeline-and-energy-company CEOs published an open letter to the leaders of the four major federal political parties. They urged the country’s leaders to declare an energy crisis and use emergency powers to reduce regulations in the sector, actions they said will increase domestic production and boost Canadian sovereignty.

Both the governing Liberals and opposition Conservatives, who are neck-and-neck in the polls, have announced policy changes that move away from some key existing climate initiatives designed to reduce carbon emissions in favour of boosting economic growth.

With files from Bill Curry and Jeff Jones