Canadian Oil Sands Producer MEG Energy Plans $950 Million IPO for Christina Lake Project Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Canadian oil sands producer MEG Energy Corporation (Calgary, Alberta) hopes to succeed where other oil sands companies have met with limited results by raising about $950 million to expand the Christina Lake project in Alberta, through an initial public offering (IPO) to be launched later this month.

In April this year, the Athabasca Oil Sands Corporation (TSX:ATH) (Calgary) issued the largest IPO in a decade. However, Athabasca's IPO raised $1.28 billion; amid the market unrest at the time, the stock fell about 40%, causing several other companies amend their plans for IPOs.

MEG points out that while Athabasca is still in the planning stages for various oil sands projects, such as the Mackay River development, MEG is already operating an oil sands project that is producing 25,000 barrels per day (BBL/d). MEG is reportedly planning to price the IPO on July 28 and close on August 6, with an over-allotment option of 15%.

MEG's Christina Lake Regional Project includes more than 80 square miles of leases in the rich Athabasca oil sands region. The company is planning a phased approach to the project and has phases I and II in operation, with regulatory approval in place for Phase II-B. An application for further expansion through Phase III has been submitted.

Phase II-B of the project will be situated adjacent to existing operations and will bring total production capacity from the central processing facility up to 60,000 BBL/d. Phase III, if approved, will add a another two central processing facilities, additional infrastructure and steam-assisted gravity drainage (SAGD) wells to increase total production from the project to 210,000 barrels of bitumen per day.

SAGD is an enhanced recovery technique used for very heavy crude oils and bitumen. Two parallel horizontal wells are drilled into the oil-containing formation, vertically separated by about 4 to 6 meters. Steam is injected into the upper well, and the heat from the steam causes the bitumen to flow down to the lower well, from where it can be pumped to the surface.

MEG has a 50% interest in the Access Pipeline, which runs some 343 kilometers from its oil sands leases at Christina Lake to the Sturgeon Terminal blending facility at Edmonton, which is one of the region's largest refining, transportation and upgrading hubs. The pipeline gives MEG access to markets on the Canadian and United States west coast that are not available through other means.

The Canadian oil sands deposits, which are a type of bitumen deposits, only recently became suitable for exploitation through the development of new technologies in recovering oil from the tar-like deposits. Despite the massive reserves, which are estimated at 1.75 trillion barrels of bitumen, in the northern regions of Alberta, several environmental concerns have been raised about oil sands mining operations.

A large part of the oil sands recovery process involves clearing land, and environmentalists have questioned the mine operators' ability to repair damage caused by the extraction. Air quality around mining operations is another issue raised, with significant increases in hydrogen sulfide reported around oil sands upgrading facilities. However, air quality monitoring in the oil sands region since 1995 has not recorded significant increases in pollutants such as carbon monoxide, sulfur dioxide and nitrogen dioxide.

A major concern often raised with oil sands recovery is the large amount of water required for mining operations. A recently published report by the National Energy Board of Canada (NEB) (Calgary), "Canada's Oil Sands: Opportunities and Challenges to 2015," states that for each cubic meter of synthetic crude oil produced, between 2 and 4.5 cubic meters of water are required. For SAGD operations, although up to 95% of the water used is recycled, each cubic meter of bitumen produced requires 1.2 cubic meters of water. The NEB raises concerns that there is insufficient water in the Athabasca River to support all the announced oil sands mining operations.

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