MEG Energy scales back IPO

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MEG Energy sharply scaled back the size of its initial public offering of shares Wednesday, suggesting the oil sands player may have failed in an attempt to distinguish itself from Athabasca Oil Sands Corp. and its disastrous IPO.

MEG Energy planned to sell at least 23 million shares for $42 to $48, an offering that at the upper point of the range would have raised roughly $1.1-billion for the company and given it a market capitalization exceeding $9-billion.

Now, MEG will market the shares at between $35 and $39 each and cut the size to 20 million shares, chief financial officer Dale Hohm said in an interview Wednesday, confirming reports by a number of media services. At the lower point of the range, the company would raise about $700-million and start trading on the TSX early next month with a value of about $6.7-billion.

"The company isn't troubled by that at all," Mr. Hohm said. Over the course of a 3 and 1/2 week road show, investors told MEG Energy "they really like what the company is doing and they see the potential going forward, but they see they'd like to profit from it as well," he said. "The question is how much of the future growth the investors will pay for up front."

While MEG Energy focused its presentation on future prospects, it faced questions about why it is a different story from Athabasca Oil Sands, which has had one of the more ignominious debuts of any Canadian IPO.

Athabasca Oil Sands was one of the most eagerly anticipated initial offerings in years. Coming after the 2009 market-induced IPO drought, the company combined the patina of the Alberta oil patch with the backing of major Chinese interests. At more than $1-billion, it was also one of the largest in Canada in some time.

Yet after pricing at $18 a share in early April, the company immediately began a long slide, trading down in its first day and, as of Wednesday's $11.89 closing price, losing more than one-third of its value. (At its 52-week low of $9.89, Athabasca Oil Sands was 45 per cent below its offering price.)

Unlike Athabasca Oil Sands, which is still in the development stage, MEG Energy is already producing, with 26,400 barrels a day in June and $126-million in revenue in the first quarter of 2010.

MEG Energy plans to use the offering's proceeds to help pay for Phase 2B of its Christina Lake Project, which it estimates will cost $1.2-billion, plus $130-million to $150-million for approximately 40 horizontal production wells. By contrast, Athabasca Oil Sands paid out $1.3-billion in dividends to its private shareholders immediately before its IPO.

Special to The Globe and Mail