Investing.com -- Strathcona Resources Ltd., an oil and gas exploration and production company based in Alberta, announced on May 14, 2025, that it plans to sell its assets in the Montney region in three separate transactions. The total proceeds from the sale are expected to be around C$2.84 billion. Following the sale, the company will primarily focus on oil sands production.

Despite the decrease in operational scale after the sale, Strathcona intends to use part of the proceeds to decrease its debt, which is expected to strengthen its credit measures significantly. In response to this strategy, S&P Global Ratings placed a ’B+’ issuer credit rating on Strathcona, with positive implications for credit watch. The ’BB-’ issue-level rating on its unsecured notes was also affirmed.

The placement on CreditWatch indicates a high probability that Strathcona’s ratings will be raised by one notch after the Montney transactions close and the assumed debt is paid down. Strathcona’s Montney assets will be sold to ARC Resources Ltd (TSX: ARX )., Tourmaline Oil Corp (TSX: TOU )., and a third undisclosed buyer. The assets generated about 70,000 barrels of oil equivalent per day in the first quarter of 2025, which was a part of Strathcona’s total production of about 195,000 barrels per day.

After the sales, Strathcona’s production will be primarily focused on Canadian oil sands, with an output of approximately 120,000 barrels of oil per day. This includes 95,000 barrels per day from thermal oil projects in the Cold Lake region and 25,000 barrels per day of conventional heavy oil production in the Lloydminster area.

Strathcona also plans to acquire MEG Energy Corp (TSX: MEG )., another Alberta-based oil sands producer, for an estimated deal value of about C$5.9 billion. The acquisition will be funded by approximately 82% common equity and 18% cash, which is expected to boost Strathcona’s scale while maintaining strong credit measures.

MEG Energy (OTC: MEGEF ) is a pure-play oil sands producer with a production capacity of about 100,000 barrels per day in the Christina Lake region. If the takeover bid is accepted, the combined company would be a pure-play oil sands producer with a current production of about 220,000 barrels per day and 1.8 billion barrels of oil equivalent in net proved reserves as of December 31, 2024.

Strathcona’s senior unsecured notes’ issue-level rating remains at ’BB-’. The rating is capped at ’3’ when the issuer credit rating is in the ’BB’ category, as it is assumed that the size and ranking of debt claims will change prior to a hypothetical default.

The CreditWatch placement reflects the likelihood that Strathcona’s ratings will be raised by one notch following the close of the Montney transactions and assuming subsequent debt paydown. This rating is not expected to change initially if the company is successful in its takeover attempt of MEG Energy, assuming appropriate debt measures are maintained. The resolution of the CreditWatch is expected around the time of the close of the Montney transactions, anticipated in the third quarter of 2025.

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