MEG Energy accelerates spending plans

CALGARY — Oilsands producer MEG Energy Corp. surprised analysts with a 2012 capital budget that ramps up spending in all categories to $1.37 billion, about 40 per cent higher than expectations.

MEG set a 2012 average production target of 26,000 to 28,000 barrels of bitumen per day (including the affect of a three-week maintenance shutdown in September) and said it would have an exit output of 29,000 to 31,000 bpd.

But growth was the focus as it geared up to invest in infrastructure, current expansion construction and future phases.

“This budget is focused squarely on our long-term plans to drive a tenfold increase in production capacity to 260,000 barrels per day by 2020,” said Bill McCaffrey, president and chief executive.

“The key elements of that strategy — building our resource base, advancing the next stages of production growth and improving market access — are all targeted in our investment plans for 2012.”

Analysts said the higher than expected spending means MEG will likely meet targets at its steam-assisted gravity drainage operations sooner than expected.

“Although the 2012 budget elicits some sticker shock, much of the figure can be attributed to laying the groundwork for future growth towards 260,000 bpd and beyond,” wrote UBS analyst Chad Friess.

“We continue to view MEG as a compelling long-term story that will deliver positive production and operating cost surprises. In particular, we believe MEG will have increasing opportunities to leverage a falling SOR (steam-to-oil ratio) and redeploy excess steam into new well pairs, delivering incremental production at low cost.”

Jeff Martin of Peters & Co was also supportive.

“MEG has positioned itself to be one of the few entities that will demonstrate large-scale SAGD production growth over the next decade,” he wrote.

“Its spending on diluent/heavy blend infrastructure has been an industry leading initiative, and it continues to rank very high based on the criteria we use to assess oilsands operators.

However, he scaled back his recommendation to sector perform with a 12-month target price of $50 per share, down from $54, because of the change to financial estimates.

In midday trading on the Toronto Stock Exchange Wednesday, MEG stock was down 67 cents at $44.83.

MEG plans to spend 70 per cent of its budget, or $930 million, on growth-oriented projects, including $690 million on continued construction of its 35,000-bpd Christina Lake Phase 2B project.

It said Phase 2B is on budget, with more than half of total costs locked in, and is on schedule for startup in 2013.

MEG is also spending on engineering for its multi-stage 150,000-bpd Christina Lake Phase 3 expansion, now awaiting a decision from regulators.

The company set aside $220 million to be used to expand infrastructure.

It plans to spend $80 million on an expansion of its half-owned Access Pipeline, which runs from its northeastern Alberta operations to the Edmonton area, adding a new 42-inch pipe to carry blended product south and reversing the existing 24-inch blend pipe to move diluent from Edmonton back to the project.

It plans $140 million to develop its Stonefell storage terminal near Edmonton and $80 million for field infrastructure.

dhealing@calgaryherald.com