Calgary-based MEG reported a net loss of $109-million, or 48 cents per share, for the three months ended Sept. 30, compared with a loss of $428-million, or $1.90 cents per share, a year earlier.thomaslenne
MEG Energy Corp.'s chief executive officer says the company has turned a corner with a deal to refinance its hefty debt load and plans to restart growth in the oil sands using proceeds from an upsized share sale.
The Calgary-based company issued $450-million in stock on Thursday, selling 58.1 million subscription receipts at $7.75 apiece. The syndicate is co-led by BMO Nesbitt Burns Inc., Barclays PLC and RBC Dominion Securities Inc.
The upsized offering came one day after MEG unveiled a bigger budget for 2017 and plans to refinance a chunk of its debt. The company's shares skidded more than 5 per cent in trading on the Toronto Stock Exchange to close at $7.96.
MEG said it would use proceeds to fund a $400-million expansion at its steam-driven Christina Lake project, where it aims to add 20,000 barrels a day of new capacity by 2019.
CEO Bill McCaffrey said the project would boost production by 25 per cent from current levels, marking an "inflection point" for the company as it seeks to compete with lower-cost shale producers in the United States.
"It's something that we've worked on very hard for the last couple of years, with the focus of coming out of lower prices with a different structure for our company," he said in an interview.
The spending is part of an increased 2017 budget, to $590-million, from $125-million it spent last year, signalling renewed confidence in the oil patch after more than two years of harsh austerity.
Indeed, anxiety over high debt levels had weighed heavily on shares of MEG and others as weak oil prices sapped cash flow. The stock has dropped from nearly $40 in 2014, before oil prices started to tumble.
Those concerns are beginning to ease, however, as crude prices climb above $50 (U.S.) a barrel and producers revive stalled growth plans. Moody's Investors Service on Thursday upgraded debt held by the company to B3 from Caa2 and revised its outlook to "stable" from "negative."
"MEG's ability to access the market and their ability to grow production through an equity issuance, I think, speaks to the fact that there is less credit concern than there was before, and obviously an improving pricing environment helps with their cash-flow needs," Paresh Chari, analyst with the rating agency, said in an interview.
"It's been a few years since they've been able to really put any capital into the ground and grow their production, and they're going to start to see that over the next couple of years."
MEG announced late Wednesday a deal to extend by two years the maturity date on its undrawn credit facility, which was lowered to $1.4-billion from $2.5-billion.
Meanwhile, the company said it would refinance and extend a $1.2-billion term loan and $750-million of unsecured notes that were previously due in 2019 and 2021, respectively.
While leverage remains high, the moves will help the oil sands producer fund growth while generating modest free cash flow under the current outlook for future oil prices, Raymond James analyst Chris Cox said in a research note.
It could also provide breathing room to contemplate additional asset sales as it looks to further cut debt and oil prices rebound, he said. That includes a long-planned sale of a 50-per-cent interest in the Access pipeline in Northern Alberta.
The company said Wednesday that it expects to exit the year with production in the range of 86,000 to 89,000 barrels a day. That's up from 81,500 to 82,500 barrels in the fourth quarter last year.
MEG is one of several producers plotting a return to growth, buoyed by a production deal between the Organization of Petroleum Exporting Countries and its allies to shave output by as much as 1.8 million barrels a day. U.S. crude has climbed 17 per cent since late November and on Thursday settled up 76 cents at $53.01 a barrel.