Photographer: Brent Lewin/Bloomberg

MEG Expands Christina Lake, Taps Debt Market in Oil-Sands Rebound

Updated on
  • Christina Lake Phase 2B output to rise by 25 percent
  • Company to invest C$320 million in project this year

MEG Energy Corp. is boosting production at its Christina Lake project in Alberta and tapped debt and equity markets for financing, further signs of a rebound in Canada’s oil patch as crude prices stabilize.

The expansion at Christina Lake Phase 2B will increase output from the site by about 25 percent to 100,000 barrels a day by 2019, the Calgary-based company said in a statement late Wednesday. MEG is raising $750 million in the high-yield bond market to refinance debt and sold C$450 million ($344 million) in stock to help fund the expansion.

MEG follows Cenovus Energy Inc. and Canadian Natural Resources Ltd in pledging to proceed with the first expansion projects since the oil price crash that began in mid-2014. The announcements follow crude’s rally since the Organization of Petroleum Exporting Countries and other major exporters pledged to cut output late last year and after two pipeline expansions out of Western Canada were announced.

This expansion “offers some of the highest economic returns available to the company today” with an investment rate of return of 50 percent, Bill McCaffrey, MEG’s chief executive officer, said in the statement.

MEG will invest C$320 million in the so-called eMSAGP project this year, more than half of the company’s C$590 of capital investment for 2017. The investment will be funded by proceeds from the equity issuance as well as cash flow and cash on hand, MEG said. Production will average between 80,000 and 82,000 barrels a day, reaching 86,000 to 89,000 barrels a day by the end of this year, MEG said.

High Yield

The company, whose shareholders include China’s CNOOC Ltd., is selling $750 million in second lien senior secured notes maturing in 2025 to refinance its 6.5 percent 2021 senior notes. MEG also announced Wednesday a refinancing plan for its credit facility and term loan to push out maturities. Moody’s Investors Service upgraded the company’s high-yield credit rating to B3 from Caa2.

MEG increased a stock sale to C$450 million from C$357 million, selling 58.1 million shares at C$7.75 each. The stock plunged 6.8 percent to C$7.84 at 10 a.m. in Toronto, cutting its gain in the past 12 months to 39 percent.

Cenovus said last month that it will proceed with the 50,000-barrel-a-day phase G expansion of its own Christina Lake project and Canadian Natural said in November that it was resuming work on its 40,000-barrel-a-day Kirby North project.

MEG’s Christina Lake unit produced more than 80,000 barrels a day in 2015, according to data posted on the Alberta government’s website.

(Updates with refinancing details in 6th paragraph.)
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