October 1, 2018 / 1:26 PM / in 2 months

UPDATE 1-Husky sees MEG as potential 'hand-in-glove' Canada oil sands merger

(Adds CEO comment, background on companies)

By Rod Nickel

WINNIPEG, Manitoba, Oct 1 (Reuters) - Husky Energy Inc's hostile bid for MEG Energy Corp reflects the need for Canadian oil companies to own integrated assets, from production to refineries, to manage the deep price discounts on Canadian crude, Husky's chief executive said on Monday.

Husky's C$6.4 billion cash and stock offer, announced on Sunday, would combine MEG's heavy oil production with Husky's output, pipeline space and refineries.

"This is a real hand-in-glove sort of deal. It just fits together extremely well," Husky CEO Rob Peabody said on a conference call with analysts.

Husky’s bid for highly indebted MEG, which hired a new CEO less than two months ago, is a bet that MEG's production assets will be lucrative once price differentials return to normal. Even so, some investors own Husky shares for its low exposure to heavy oil differentials and may be disappointed by a bid that increases such risks, analysts said.

The offer comes as many Canadian oil producers have struggled with transportation bottlenecks as output has surged, pushing Canadian heavy crude to near-historic discounts to U.S. light crude.

Peabody said Husky will shortly begin to meet with MEG shareholders about the deal, but would welcome talks with MEG's board.

Reporting by Rod Nickel in Winnipeg, Manitoba Editing by Susan Thomas

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