MEG Energy's Christina Lake all set to top 100,000 bbl/day by year end

MEG Energy's Christina Lake all set to top 100,000 bbl/day by year end

MEG Energy released a rather optimistic outlook on its Christina Lake in-situ oil sands facility, located 150 km south of Fort McMurray, Alberta. The operation is currently split into Phase 1 and Phase 2, using steam-assisted gravity drainage (SAGD) to extract bitumen from the oil sands.

IMPROVING ON SAGD TECHNOLOGY

MEG says it has completed its eMSAGP (Modified Steam And Gas Push) modifications on Phase 2B producing assets. As a result, Christina Lake averaged over 98,000 bbl/day in July and is expected to exit 2018 at over 100,000 bbl/day. Combined with its debottlenecking and expansion initiatives, the technology has allowed the company to put additional wells into production, pushing the steam-to-oil ratio (SOR) from about 2.6 to as little as 1.3 on optimized wells.

COURTESY MEG ENERGY

MEG's patented eMSAGP technology involves the drilling of infill wells between producing wells to improve bitumen recovery rates. The use of infill wells has spurned several lawsuits in the industry as various companies have patented similar technologies for in-situ recovery of bitumen and heavy oil. MEG is now facing a legal challenge from an Edmonton-based inventor who claims eMSAGP infringes on his patent.

Aside from implementing eMSAGP, the company says it continues to advance its eMVAPEX pilot, (enhanced Modified VAPour EXtraction) which involves the injection of light hydrocarbons instead of steam.

MEG says its remains fully funding to grow overall production at the SAGD facility to 113,000 bbl/day in 2020. Christina Lake has regulatory approvals in place for 210,000 bbl/day.

ADVANCING PARTIAL UPGRADING

MEG has also hired TD Securities to review options for developing its proprietary HI-Q® partial upgrading technology, which will allow it to dramatically reduce diluent blending and transportation costs. MEG says it wants to find a third-party to commercialize the technology, allowing it to use the process without having to invest additional capital.

GETTING BARRELS TO MARKET

About half of the company's second quarter volumes were sold into the Gulf Coast via Enbridge's Mainline network, connecting into the Flanagan South and Seaway pipelines. The remaining barrels were sold in Edmonton.

The company says it is working on diversifying its export markets in order to mitigate the impact of apportionments on the Mainline network, which throttles crude volumes shipped on the line due to excessive demand. Those alternatives include shipping some of their production by rail and sending volumes to storage when necessary. MEG says it has the capacity to load about 20,000 to 25,000 bbl/day of crude by rail, primarily destined for the West Coast and Gulf Coast. 

The company says the situation will improve once Enbridge's Line 3 is replaced at the end of next year, allowing it to ship all its committed volumes on Flanagan South and Seaway. MEG currently has 50,000 bbl/day of diluted bitumen committed on the two pipelines, which doubles to 100,000 bbl/day in 2020.

Transportation costs have creeped higher due to the recent divestiture of its 50% stake in the Access Pipeline and Stonefell Terminal.

Q2 BY THE NUMBERS

Production averaged 71,325 bbl/day in the second quarter, 23% lower than the same quarter last year. Output was negatively impacted by a 33-day maintenance shutdown at Christina Lake Phase 3B, the largest turnaround in the company's history. 

Excluding energy, operating costs rose almost 30% y/y to $5.47 per barrel due to higher property taxes and maintenance activities. However, net operating costs declined 24% to $5.64/bbl, thanks to lower natural gas costs and revenues from the sale of surplus power to Alberta's electrical grid.

Second quarter transportation expenses were reported at $8.28 per barrel, up 20% y/y.

RAISING EXPECTATIONS FOR FULL-YEAR 2018 NUMBERS

Full year production guidance was boosted to 87,000 to 90,000 bbl/day, up 2,000 bbl/day from previous estimates. Operating costs are tracking at about $4.50 to $5.00 per barrel, excluding energy.


SOURCES:
MEG ENERGY • SECOND QUARTER 2018 • AUG 2018
MEG ENERGY • INVESTOR PRESENTATION • AUG 2018
POSTMEDIA • THREAT OF PAYOUT HANGS OVER MEG ENERGY, AS ANOTHER OILPATCH PATENT BATTLE HEADS TO COURT • JUL 2018
MEG ENERGY • 2017 ANNUAL REPORT • MAY 2018
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