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Adam Waterous, seen here on Dec. 15, 2008, said his fund invested $1.5-billion in six transactions to create the producer.

Deborah Baic/The Globe and Mail

Waterous Energy Fund is merging its heavy oil and natural gas companies and has bought a large stake in a privately held oil sands producer to gain economies of scale and maintain access to capital in a limited market for many industry players.

Waterous Energy Fund (WEF), run by former investment banker Adam Waterous, is merging Strath Resources and Cona Resources, a move it says will create the continent’s largest private equity-owned oil and gas producer.

The new Calgary-based company, called Strathcona Resources Ltd., produces about 60,000 barrels of oil equivalent a day, about two-thirds of that in the form of condensate and and heavy oil. The rest is natural gas.

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Mr. Waterous said his fund invested $1.5-billion in six transactions to create the producer. The last acquisition was Cona’s purchase of debt-hobbled Pengrowth Energy Corp. early this year, which brought with it the Lindbergh steam-driven heavy oil project near Cold Lake, Alta.

WEF’s ultimate aim to consolidate the two companies was “the oil patch’s worst kept secret,” Mr. Waterous said in an interview. Indeed, Strath’s condensate and gas production act as a hedge against input costs for Cona’s heavy oil business.

Meanwhile, WEF has acquired 45 per cent of Osum Production Corp. from private equity firms Blackstone Group, Warburg Pincus LLC and Singaporean sovereign wealth fund GIC for an undisclosed sum.

Osum produces about 20,000 barrels a day of heavy crude from another Cold Lake-area project called Orion, and Mr. Waterous said WEF was attracted by the proximity and similarity to Lindbergh. As part of the deal, WEF representatives have four of the nine board seats.

He said bulking up is important because the industry is increasingly capital intensive and, as companies discovered as the COVID-19 crisis triggered a meltdown in energy markets, only larger players have maintained access to capital to fund operations.

“As a consequence, there’s never been such an important need for the industry consolidate itself, for companies to merge to gain scale. So that’s what we’re doing – getting bigger to have operational economies of scale and better access to capital,” he said.

Mr. Waterous said in June that WEF is also seeking acquisition targets in the United States, as the shale-oil sector south of the border contracts under falling cash flows and mountains of debt.

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