MEG Energy profit doubles as production rises

Reuters

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

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

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

MEG executives also said the company has been working todiversify its crude shipments in a bid to avoid congestion onpipelines.

"As we follow barrels from the wellhead to market we areseeing good progress on a marketing strategy aimed at bypassingpipeline congestion and achieving world prices for every barrelwe produce," John Rogers, MEG's vice president of investorrelations, told analysts on a conference call.

Limited capacity on crude export pipelines means Canadianheavy crude tends to trade at a discount to the West TexasIntermediate benchmark. Western Canada Select heavy blend waslast trading around $33.00 per barrel below WTI.

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

It also plans to start shipping significant volumes of crudeby rail from the Canexus terminal in Bruderheim, Alberta, laterthis year.

Don Moe, vice president of supply and marketing, said MEGhas leased 18 barges that were already on the U.S. waterwaysystem. They allow the company to send barrels to the U.S. GulfCoast, where they are priced at a similar level to heavy MexicanMaya crude.

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

The company said its bitumen production rose 20 percent to34,246 bpd in the third quarter ended Sept. 30.

"We suspect the strong realized prices reported by thecompany may have been partially attributable to the company'sbarging strategy in addition to tightening heavy crude spreadsin the quarter," BMO Capital Markets analyst Randy Ollenbergersaid in a note.

Net income rose to C$115.4 million ($111.06 million), or 51Canadian cents a share, in the quarter, from C$47.5 million, or24 Canadian cents, a year earlier.

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

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

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