MEG Energy Raises $674 million After Slashing Canada Stock Sale Up to 37%

MEG Energy Corp. raised C$700 million ($674 million) in an initial public offering of stock after the Canadian oil-sands developer partly owned by China’s Cnooc Ltd. slashed the deal’s size as much as 37 percent.

MEG, based in Calgary, sold 20 million shares for C$35 each yesterday. Underwriters led by Credit Suisse Group AG were forced to reduce the offering from 23 million shares at a price range of C$42 to C$48 each, which would have raised up to C$1.1 billion. The company sold a 10.6 percent stake.

MEG joined Canadian companies including C&C Energia Ltd. and Mitel Networks Corp. that were forced to pare back their sales to complete their offerings this year. MEG’s sale is the second-largest in Canada this year, after the C$1.35 billion offering by Athabasca Oil Sands Corp. in April. Athabasca fell 33 percent in its first month of trading, making it Canada’s worst-performing IPO in more than two years.

“Investors are sort of full up with the oil sands and have a bad taste in the aftermath of the Athabasca deal,” Bob Lyon, manager at AGF Management Ltd.’s C$196.3 million Global Resources Class. “To some degree, MEG is paying the price for that short history.”

MEG rose 1 cent to C$35.01 as of 4:10 p.m. Toronto time in its first day of trading. That gives it a market value of C$6.85 billion, according to data compiled by Bloomberg.

‘Market Has Struggled’

“The IPO market has struggled a little bit over the past few months,” MEG Chief Financial Officer Dale Hohm said in an interview yesterday. “The key objective of this financing was to raise the capital for the next phase of expansion at Christina Lake, and we’ve done that.” He added: “We’re very pleased with the results.”

Credit Suisse led a group of nine banks including BMO Nesbitt Burns, Barclays Plc and Morgan Stanley in the sale. The banks have the option to sell another 15 percent of the offering when the sale closes Aug. 6.

The company, with 2,175 square kilometers (840 square miles) of oil-sand leases, raised money to expand its project at Christina Lake, which has produced tar-like bitumen since 2008, according to a July filing. MEG has 1.7 billion barrels of proved and probable bitumen reserves as of Dec. 31, according to independent engineering firm GLJ Petroleum Consultants Ltd.

The prospectus for the share sale shows the company plans to expand bitumen production capacity at its Christina Lake and Surmont projects to 260,000 barrels per day by 2020 and produce at that rate for over 30 years.

$4.5 Billion in IPOs

Canadian companies have raised $4.5 billion in IPOs this year, including the MEG deal, compared with $1.82 billion for all of 2009.

MEG was founded by President and Chief Executive Officer William McCaffrey in March 1999. Prior to founding MEG, McCaffrey spent 17 years on business and oil-sands development at Amoco Canada before BP Plc bought the company.

MEG has invested C$3.2 billion in acquisitions and asset development since Jan. 1, 2007, and has raised more than C$2.3 billion of equity from private investors since 2007. New York- based investment firm Warburg Pincus LLC owned about 26 percent of MEG, while Cnooc owned a 17 percent stake before the sale, according to filings.

MEG has a 50 percent stake in the Access Pipeline system with Oklahoma City-based Devon Energy Corp. The 345-kilometer system has two tubes, one of which carries bitumen to refineries in the Edmonton, Alberta, region and the other carries diluent used to thin bitumen for transportation back to the project.

The pipeline gives MEG access to Pacific Coast ports in British Columbia and Washington state through Kinder Morgan Energy Partners LP’s western Canadian system and would connect with a conduit proposed by Enbridge Inc. that would ship bitumen to China and other Asian countries.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net.

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