MEG expands Christina Lake project, taps debt market as oil rebounds

By Robert Tuttle, Allison McNeely on 1/13/2017

CALGARY, Alberta (Bloomberg) -- 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% to 100,000 bpd by 2019, the Calgary-based company said in a statement. 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 and Canadian Natural Resources 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%, Bill McCaffrey, MEG’s CEO, 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 bpd, reaching 86,000 to 89,000 bpd by the end of this year, MEG said.

High Yield

The company, whose shareholders include China’s CNOOC, is selling $750 million in second lien senior secured notes maturing in 2025 to refinance its 6.5% 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% to C$7.84 at 10 a.m. in Toronto, cutting its gain in the past 12 months to 39%.

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

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

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