MEG Energy had a very good run since OPEC’s deal late last November. This all came crashing down on January 12: The company announced an ambitious refinancing and growth plan. First, here is what we know as of now:
- The credit facility’s maturity date is extended to November 5, 2021
- The amended credit facility will permit certain opportunities to de-lever without lender’s consent
- The $1.2B term loan will be refinanced to extend its maturity (no word yet on pricing and due date)
- The $750M notes due 2021 will be refinanced (unchanged at 6.50%) and extended to 2025
- The company will issue over 66 million shares for C$7.75 apiece
All over-leveraged energy E&P companies I know had to issue shares and dilute existing shareholders to survive. The share count will increase 30% in our case. I think overall this is good news despite what the market thinks (bad news). I understand the reaction:
- First and foremost: the Access Pipeline still isn’t sold
- The current 2017 production guidance points to lower production
- The massive growth capital program (C$320M in 2017 and C$80M in 2018) will reach full capacity only in early 2019
- The company is committed to paying more in financing costs with extended maturities
This confirms that the company wasn’t able to sell the pipeline because of its credit profile. The market is missing something however. There is now renewed hope the sale will go through because of this refinancing plan:
- Extended maturity dates
- 25% growth to 100,000 bopd in two years
- MEG’s shares are in strong demand from what we saw last week
- OPEC’s changing stance concerning oil prices
- Lower cash costs by 2019
All of this should help convince institutional investors that now is the time to buy the pipeline. For me, the pipeline sale is the biggest catalyst yet to come. And this refinancing plan is another step towards its realization.
I added to my position on January 12.
Disclosure: I am long MEG. Not for republication on Seeking Alpha.