MEG Energy profit doubles as production rises

October 24, 2013


Oct 24 (Reuters) - Profit at Canadian oil sands producer MEG Energy Corp more than doubled in the third quarter, the company reported on Thursday, driven by a rise in output that is expected to accelerate next year.

MEG Energy, whose key operations are in the southern Athabasca oil sands region of Alberta, said it anticipates finishing the year in the upper half of its production forecast of 32,000 to 35,000 barrels per day (bpd).

Production is expected to more than double to hit 80,000 bpd by early 2015, the company said. Steam injection at Phase 2B of its Christina Lake project started in the third quarter, allowing a significant increase in production.

MEG executives also said the company has been working to diversify its crude shipments in a bid to avoid congestion on pipelines.

"As we follow barrels from the wellhead to market we are seeing good progress on a marketing strategy aimed at bypassing pipeline congestion and achieving world prices for every barrel we produce," John Rogers, MEG's vice president of investor relations, told analysts on a conference call.

Limited capacity on crude export pipelines means Canadian heavy crude tends to trade at a discount to the West Texas Intermediate benchmark. Western Canada Select heavy blend was last trading around $33.00 per barrel below WTI.

Earlier this year, MEG started sending crude to the Chicago area via pipeline and rail, and then loading it onto barges for transport down the Mississippi River system.

It also plans to start shipping significant volumes of crude by rail from the Canexus terminal in Bruderheim, Alberta, later this year.

Don Moe, vice president of supply and marketing, said MEG has leased 18 barges that were already on the U.S. waterway system. They allow the company to send barrels to the U.S. Gulf Coast, where they are priced at a similar level to heavy Mexican Maya crude.

MEG has also secured new capacity on Enbridge Inc's 600,000 bpd Flanagan South pipeline from Flanagan, Illinois, to the oil hub at Cushing, Oklahoma, due to start up in 2014.

The company said its bitumen production rose 20 percent to 34,246 bpd in the third quarter ended Sept. 30.

"We suspect the strong realized prices reported by the company may have been partially attributable to the company's barging strategy in addition to tightening heavy crude spreads in the quarter," BMO Capital Markets analyst Randy Ollenberger said in a note.

Net income rose to C$115.4 million ($111.06 million), or 51 Canadian cents a share, in the quarter, from C$47.5 million, or 24 Canadian cents, a year earlier.

The company's cash flow rose almost six-fold to C$144.5 million, or 64 Canadian cents a share.

MEG Energy shares rose 2.4 percent on the Toronto Stock Exchange on Thursday to C$34.99.