In just over six years, former investment banker Adam Waterous assembled one of Canada’s largest oil producers from scratch through a flurry of acquisitions during a stormy period for the industry. That may have been the easy part.

Waterous — who almost certainly cemented his status as a billionaire by taking Strathcona Resources Ltd. public in October — now is looking to boost the company’s stock price at a time when oil producers face multiple headwinds. At stake is Strathcona’s ability to continue its torrid, acquisition-driven growth using its shares as currency. 

The former top energy dealmaker for Bank of Nova Scotia is confident in his plan and says he’s tackling the challenge partly to prove that there’s still money to be made in an industry that’s often maligned for its climate impact and upstaged by flashier sectors like technology.

“If there’s some surprise like, ‘Who the hell is this guy?’ the surprise should be more, ‘What industry did he build that in?” Waterous, 62, said in an interview. 

While Waterous declined to comment on his personal net worth, conservative estimates of his holdings as detailed in securities filings would value his personal stake in Strathcona at more than US$1 billion at current share prices. That would come largely through his status as the general partner in a fund that owns a C$4.6 billion (US$3.4 billion) stake in Strathcona.

He also owns other assets, including the Mount Norquay Ski Resort in Banff, Alberta, which he says he skied more than 600 times before he bought it as part of his “extensive due diligence.”

Waterous’ trajectory would have been hard to predict when he left Scotiabank about seven years ago. After more than a decade at the firm, culminating as head of global energy, he stepped down to start an energy-focused private equity fund, armed with about C$400 million from investors.

Waterous Energy Fund then snapped up a succession of oil and gas producers during a time when the Canadian energy patch’s glory days looked to be over. Crude prices were down, Alberta’s producers were suffering from a shortage of export pipelines, and international oil companies and investors were selling off oil-sands investments amid concerns about climate change.  

Waterous’ acquisitions included Northern Blizzard Resources Inc., Cona Resources Ltd., Pengrowth Energy and assets such as Cenovus Energy Inc.’s Tucker oil-sands site. Then in August, Strathcona announced an all-share purchase of Pipestone Energy Corp. that would give it a public listing. 

Strathcona now produces the equivalent of 185,000 barrels of oil a day and is among the 10 biggest producers in Alberta. The company plans to boost output to 320,000 barrels a day in the next eight years, Waterous said.

While Waterous was already well-known in Canadian energy circles from his time at as a banker, Strathcona’s meteoric rise has attracted attention from U.S. investors.  

“Who does a backdoor deal to go public?” Smead Capital Management Chief Executive Officer Cole Smead said in an interview of the uncommon maneuver. “That’s crazy, but that’s what Adam Waterous does, and that’s the kind of person that I want to allow to lead a portion of the capital we give to them.”

Smead met Waterous at the annual Calgary Stampede — a 10-day rodeo and festival that doubles as a Canadian oil-industry networking event — and decided to invest in Strathcona if it went public. Phoenix-based Smead Capital is now the company’s second-largest shareholder and has approached other funds about buying their stakes. Smead is also planning to host Waterous and members of the Strathcona team in Phoenix this winter to introduce them to more U.S. investors.

The first few months of Strathcona’s life as a public company haven’t been without pitfalls. The stock has dropped about 21 per cent since the Oct. 5 listing, compared with a 6.2 per cent gain for the S&P/TSX Composite Energy Index.

Some of that is no doubt due to the 12 per cent slide in oil prices over that span, but producers like Strathcona — who lack the scale of international supermajors — have their own set of challenges. Investors increasingly favor diversified oil giants that gush cash through dividends and buybacks instead of plowing it into production growth like smaller drillers do. And the oil complex as a whole has suffered from investors’ concerns about climate change. 

A challenge unique to Strathcona is the stock’s limited liquidity, with Waterous’ fund owning 91 per cent of the shares. The company’s price-to-earnings multiple trails other large Canadian oil producers’ and is in line with smaller Toronto-listed energy stocks like Lucero Energy Corp. and Crew Energy Inc.

“The stock would probably underperform until it’s able to increase the level of the float,” BMO Capital Markets analyst Randy Ollenberger said about Strathcona. Ollenberger rates the stock the equivalent of a “hold” and has a Street-low C$25-a-share price target.

Waterous said Strathcona is spending 100 per cent of its free cash flow to reduce debt and win an investment-grade credit rating. The company is currently rated B1 by Moody’s Investors Service, four levels below investment grade. The focus will then shift to returning cash to shareholders, which will almost certainly include a dividend, he said. 

Waterous said he expects shareholder turnover and for the price to decline as Pipestone Energy investors exit.

“Small guys rush out, and the bigger guys come in more slowly,” Waterous said. “It takes time to be able to have larger-cap investor types develop confidence.”