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Bill McCaffrey, president and CEO of MEG Energy (Jeff McIntosh/THE CANADIAN PRESS)
Bill McCaffrey, president and CEO of MEG Energy (Jeff McIntosh/THE CANADIAN PRESS)

Profile

Scouting for capital: A case study on oil patch financing Add to ...

Mr. McCaffrey painstakingly recruited local investors, one or two at a time, before amassing 70 high-net-worth individuals. As his capital needs expanded, he shifted sights beyond his own country.

"We have done laps around the Earth raising money," he says. "It was often three nights sleep in three continents. You headed east and come back from the west in five days."

Get through the middle ground

Affluent individuals were fine for providing $25,000 to $50,000 a pop, but he faced a funding gap before the equity funds would kick in with sums of $5-million to $10-million.

"You do not want to raise too many dollars at that stage, and you have this dance back and forth on the right approach," he admits. "Until you get through that phase, there is a little bit of a slowdown in your timing."

He worked his way through the lull, before pitching private equity managers. The breakthrough was a commitment by global investor Warburg Pincus in 2004. It took a year of educating the firm before it came on board, and it is now MEG's largest shareholder with 22 per cent. "The private equity world is so pivotal for the success in the oil sands," Mr. McCaffrey says.

Working with the Chinese

By 2005, MEG was still a mystery to many Canadian investors, but had a cachet in knowledgeable energy circles. Mr. McCaffrey was approached by CNOOC about buying in. The Chinese company had been studying the oil sands for four years and narrowed its focus to one company. MEG wasn't even looking for money, but Mr. McCaffrey found a way to work something out.

The Chinese were interested in financial returns, but they also wanted knowledge - and MEG is a master of SAGD. It has been a true partnership, he says. "We have taught them about technologies and they teach us about China in exchange."

Don't be greedy

As markets regained momentum from the 2008 meltdown, MEG, now a producing oil sands player at 27,000 barrels a day, prepared to go public. It astonished many people by its size and assets. That was partly by design - by seeming to come out of nowhere, it built a certain excitement factor.

But the timing was tricky. MEG came to the market in July, 2010, just after the Athabasca Oil Sands Corp. debacle. When Athabasca had floated its shares, its stock tanked, leaving a trail of angry investors.

"It was a tough time because we had many investors asking if they came in, how did they know the price wouldn't go down?" Mr. McCaffrey says. "All we could tell them was our shareholders were very supportive and committed, and the company was at a much different stage [than Athabasca]"

Gauging the market, MEG lowered its target price and settled for an offering of $700-million, down from earlier estimates of over $1-billion. "Things change a lot at the last minute and you have to be prepared to only accept what you are comfortable with," Mr. McCaffrey says.(Shares closed on Thursday at $49, up from an IPO price of $35.)MEG's current status, with its private equity shareholders and large cash reserves, raises the speculation: Will it be a buyer or seller in the future?

"We're a developer," Mr. McCaffrey quickly replies, insisting that the primary goal is hitting production of 260,000 barrels a day by 2020. Getting there from today's 27,000 barrels will soak up a lot of capital.

Mr. McCaffrey doesn't sound like a seller - "you can hear in my voice how excited I am, because I know how big this prize can be" - but events may be beyond his control. And if MEG sees opportunities that make sense, it could buy, as well.

But while it is a world traveller in scouting for capital, it is a homebody about its operations. "We don't wander around - we stick to our area and we try to get the best value out of every barrel."

______

BIOGRAPHY

Title

Chairman, president and chief executive officer, MEG Energy Corp.

Personal

54 years old

Wife Janice is a former Olympic race walker

Education

Civil engineering degree, University of Alberta, 1981

Bachelor of science degree in biology/chemistry, University of Alberta, 1978

Received designation of professional engineer in 1983

Career highlights

Served 17 years at Amoco Canada in various managerial positions, including manager of business development and growth for oil sands developments

Named Entrepreneur of the Year last month by the Canadian Venture Capital Association

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