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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)


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

A decade ago, Bill McCaffrey was like a lot of wide-eyed dreamers in Alberta - a refugee from the corporate world with a big idea for a patch of ground near Fort McMurray.

Most of those visionaries fell by the wayside, victims of gyrating oil prices and a harsh climate for long shots in the oil sands.

But Mr. McCaffrey's star continued to rise, as $100-a-barrel oil turned Fort Mac into a global shopping bazaar. Today, at 54, he runs a much-admired independent producer, MEG Energy Corp. , with a market value of $9.4-billion and about $2-billion of cash in the bank.

The difference between him and other dreamers was an iron discipline and a tireless quest for global money. "There is a big prize at the end, but if you structure your financing wrong, it may never see the light of day," Mr. McCaffrey says. "We were very patient." Calgary-based MEG is a company built in the ground south of Fort McMurray and in the air over North America, Asia and Europe, as Mr. McCaffrey took his road show to the world.

Faced with a tough market in Canada, he circled the globe to find blue-chip investors who shared his long-term vision - from New York private equity players to Middle East sovereign funds and China National Offshore Oil Corp. (CNOOC).

He waited 11 years to take MEG public - an unusually long stretch for a capital-hungry energy startup. Meanwhile, he attracted $3-billion in private equity funding, one of the largest intakes for a North American company in the pre-initial offering stage.

His long-haul strategy was rewarded last month when the Canadian Venture Capital Association named him its Entrepreneur of the Year for building success with venture capital backing.

Indeed, Mr. McCaffrey did attract VC money - Calgary's KERN Partners was there near the start - but many large Canadian institutions are kicking themselves now for not getting in the ground floor.

It reflects a different world in 1999-2000, when oil was around $12 a barrel, and MEG was pioneering costly in situ extraction technology that was less familiar than the prevailing mining approach. And China had not yet become a voracious buyer of Canadian energy assets.

In 1999, Mr. McCaffrey, his brother-in-law and a friend sunk just over $150,000 into their first property leases around Christina Lake, 120 kilometres south of Fort McMurray.

Now, almost a year after the IPO, his stake in MEG is worth more than $50-million, and his 30 elite institutional backers aren't complaining either. "They've done very well," he says.

"MEG has financed itself extremely well and the quality of the asset base is well respected in the industry," says Michael Tims, chairman of Peters & Co., part of the IPO underwriting group.

Indeed, its funding approach is a textbook on how to build value in today's oil patch:

Buy an option on greatness

After former employer Amoco was acquired by BP PLC in 1998, Mr. McCaffrey used some time off to study opportunities. The Christina Lake property was a jewel, but not well known back then. The leases came cheap - even though they contained a billion barrels of oil.

The energy price was depressed but "the barrels weren't going anywhere and there was a lot of value there from a pure options point of view," Mr. McCaffrey says. "All you needed to believe is the world needed energy and you could hold these leases a long time."

Since then, players such as Devon Energy and Cenovus Energy have also made the Christina Lake area a focus for activity.

Mr. McCaffrey, who spent 17 years with Amoco, surrounded himself with a strong technical team. It helped too, that MEG is very efficient in steam-assisted gravity drainage (SAGD) technology, which leaped to the forefront because 80 per cent of the oil sands bitumen is too deep to mine.

Build your following

Mr. McCaffrey's experience at Amoco was broad-based, which gave him seasoning to run a company, but the hard part was learning how to raise money. Mr. McCaffrey, whose wife Janice is a former Olympic race walker, took that same slower-but-steady approach. "You do it one day at a time," he says.

He found himself on the cocktail party circuit and showing up at conferences simply because there would be investors on hand. It was unfamiliar territory, but he was determined to raise equity and avoid debt. And there was no thought of going public. "The pressures of the public market would be too great for that stage of development."

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  • MEG Energy Corp
  • Updated July 24 4:00 PM EDT. Delayed by at least 15 minutes.

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