MEG Energy reports higher oil production in Q3 but fails to turn a profit
MEG Energy reported negative cash flow for the last quarter, blamed mostly on loss of revenue for bitumen product used for the initial fill a newly-commissioned pipeline. The Access Pipeline, which is a 50/50 partnership with Devon, runs from Conklin, AB to the Sturgeon County Terminal just outside of Edmonton. Although MEG reported production of 76,400 barrels per day (bpd), about 6,700 bpd were used to fill the new line.
The company expects a similar situation in Q4, when it is required to fill the new Flanagan South Pipeline, currently being completed by Enbridge. The 600 mile Flanagan South Pipeline runs from Pontiac, Illinois to Cushing, Oklahoma. MEG has reserved 25,000 bpd on the new line, increasing to 100,000 as required over the next few years.
MEG Energy's Christina Lake SAGD operation, located south of Fort McMurray, AB, reached a production rate of 76,500 barrels per day by the end of the third quarter. Operating costs for the facility have risen to $10.31 per barrel (compared to $9.40 for the same time last year). The higher costs were blamed on high natural gas prices and lower revenue for surplus electricity sold to the Alberta power grid. The company remains on-track to reach its nameplate capacity of 80,000 bpd at the Christina Lake facility by Q1-2015.
MEG Energy realized a bitumen price of $65.12 per barrel in the third quarter, down from $74.33 for the same period last year. Cash flow from operations rose to $239 million, or $1.06 per share, 65% higher than the same time last year. The company also took a $203 million dollar charge on US denominated debt due to a weaker Canadian dollar. The end result was a net loss of $101 million for Q3-2014 versus a profit of $115 million in Q3-2013.
Christina Lake is 100% owned by MEG Energy and regulatory approvals are already in place for future expansion to 210,000 bpd. The company also has plans for another SAGD facility on their Surmont Lease, located north of Christina Lake. The Surmont SAGD operation has the potential to add another 120,000 bpd to the company's bottom line.
Apart from its SAGD operations, MEG Energy also recently completed a 900,000 barrel storage facility at the Stonefell Terminal, which connects to the Access Pipeline. Stonefell has a rail-loading-facility which will provide access to the US Gulf Coast. MEG Energy currently has a capital expenditures budget of $1.6 billion.
China National Offshore Oil Corporation (CNOOC) is a minority shareholder of the company owning 16.69% of the corporation.