An oil pump jack pumps oil in a field near Calgary in this file photo.TODD KOROL/Reuters
Oil sands producer MEG Energy Corp.'s largest shareholder signalled it may cut its stake in the company, which is grappling with weak crude prices and high debt levels.
Calgary-based MEG on Wednesday said U.S. private equity firm Warburg Pincus LLC filed preliminary documents to launch a secondary offering for up to 10 million of the company's shares, to be sold or distributed in one or more transactions over a period of 25 months.
The sale, if carried out in full, would cut Warburg Pincus's stake in the company to 12.3 per cent, down from around 17 per cent, although the private equity firm would remain MEG's largest shareholder. MEG would get no proceeds from the offering.
A spokesman for Warburg Pincus, which held nearly one-quarter of the shares when MEG went public in 2010, declined to comment on the rationale for the potential sell-down.
It comes as U.S. and global oil prices languish well under $40 (U.S.) a barrel, with little relief seen. Industry-wide, companies have shed thousands of jobs and mothballed growth plans to conserve cash, and numerous forecasters are anticipating deeper cuts next year.
Oil sands companies such as MEG have been particularly hard hit as prices fall below the cash costs of production, wiping out financial returns.
Nonetheless, MEG vice-president John Rogers said Wednesday that Warburg Pincus remains supportive of the company and its prospects.
"It is for 25 months, so there's nothing imminent here at all," Mr. Rogers said. "They feel they have a number of options around their shareholding in MEG and they just want to ensure all those options are intact."
MEG shares have been under severe pressure as oil prices cratered, plunging nearly 60 per cent this year on the Toronto Stock Exchange. In October, Moody's Investors Service downgraded the company's credit rating, citing elevated debt levels and dwindling cash flows.
Still, the stock jumped as much as 9 per cent in early afternoon trading on Wednesday.
Like others, MEG has sought to shore up its finances through asset sales. It has been marketing a 50-per-cent ownership stake in the Access Pipeline since August with little progress. Earlier this month, it said it raised $110-million (Canadian) from the sale of an undeveloped oil sands property.
The company expects to spend $328-million in 2016, with 70 per cent of the outlay directed toward maintaining current production levels. That compares with an original 2015 budget of $1.2-billion.
Production from the company's steam-driven Christina Lake development is expected to rise 2 per cent next year to between 80,000 and 83,000 barrels a day.
Warburg Pincus, which holds stakes in several Canadian energy firms, had previously reduced its stake in MEG to the current level from around 19 per cent in 2013.