MEG founder and chief executive officer William McCaffrey
A record of success in the Alberta oil sands and the oil spill in the Gulf of Mexico are expected to whet investors' appetite for a $1.25-billion initial public offering from MEG Energy Corp., the latest in a series of mega-deals from Canada's oil patch.
After a decade of raising private money from blue-chip backers in Britain and China, along with his family and friends, MEG founder and chief executive officer William McCaffrey plans to take his company public this summer. MEG needs money to pay for a $1.4-billion expansion of its properties over the next two years that is expected to more than double the company's oil production to 60,000 barrels a day.
While no one in the energy industry wants to be seen as profiting from the nightmare of BP PLC's spill, MEG's debut will benefit from the stability of the oil sands, which stands in contrast to the risks now associated with deepwater drilling. One investment banker working with the Canadian company said: "In the wake of what's happened to BP's platform in the Gulf of Mexico, investors are placing a premium on long-life oil properties that can be developed safely."
MEG employs what's known as the steam-assisted gravity drainage approach to extracting petroleum from sand, a method considered to be the most environmentally friendly approach to recovering oil in the region.
MEG plans to list its shares on the Toronto Stock Exchange by August. None of the company's existing owners plan to sell shares. Cash raised in the deal is earmarked for expansion.
The IPO would be one of the largest ever seen on the Canadian markets, similar in size to a $1.35-billion financing in April from Athabasca Oil Sands Corp. The MEG offering comes in the wake of Suncor Energy Inc.'s $22-billion takeover of Petro-Canada last year and a growing number of oil sands acquisitions by global energy companies. Investment bankers say the oil sands have matured into a premier global energy play.
MEG's roots date back to the late 1990s when oil touched lows of $10 (U.S.) a barrel and international companies walked away from land holdings in Alberta. That opened up an opportunity for Mr. McCaffrey, who had spent the first 17 years of his career as a project engineer, developing oil sands properties for Amoco Canada. After his employer was acquired by BP, Mr. McCaffrey struck on his own, using family money to buy leases from the British oil giant in 1999.
Over the past decade, MEG raised $3.1-billion by selling stock privately, and borrowed $1-billion from banks. One of the first investors was private equity fund Warburg Pincus LLC of New York, which now owns 24 per cent of MEG. In 2005, China National Offshore Oil Corp. (CNOOC) paid $150-million for a 17 per cent stake. Sources say a number of sovereign wealth funds, including major Asian players, backed MEG in the wake of CNOOC's investment.
"MEG may not be a household name in Canada, but it is well known among international investors," said a financier working on the share sale. Credit Suisse Securities, BMO Nesbitt Burns, Barclays Capita and Morgan Stanley Canada are leading this offering.
With fields already in production, 1.7 billion barrels of proven oil reserves and another 3.7 billion of probable reserves beneath the rolling hills of northern Alberta, MEG will arrive on public markets with reserves comparable to established companies such as Cenovus Energy (spun out of EnCana last year) or Canadian Oil Sands Trust. Cenovus owns properties next door to MEG's two major projects. An independent survey pegged the value of MEG's reserves at $19.8-billion. In addition, MEG co-owns a pipeline that connects its projects with refineries in Edmonton.
MEG is going public at a time when stormy markets have sunk a number of IPOs. Porter Aviation Holdings Inc. of Toronto pulled a $120-million stock sale last month after the airline could not attract investors at the price it demanded. Sources working on the MEG pitch said the company will stress that it's a pure play on the oil sands, and that management and owners such as CNOOC plan to stick with the company.
Andrew Willis