MEG Energy sells midstream assets to focus on growth at Christina Lake

MEG Energy sells midstream assets to focus on growth at Christina Lake

MEG Energy announced the sale of its 50% stake in the Access Pipeline and Stonefell Terminal to Wolf Midstream for $1.52 billion plus capital commitments of $90 million for future expansions. MEG says it will use those funds to "pursue highly economic growth projects" in the oil sands.

Under terms of the deal, MEG will retain exclusive use of the Stonefell Terminal and has secured a 30-year agreement for up to 113,000 bbl/day of capacity on the system. Wolf has also agreed to convert an existing unused 16-inch pipeline to transport natural gas liquids (NGLs) from the Sturgeon Terminal near Edmonton into the Christina Lake area. The NGLs will be used as part of MEG's eMVAPEX program.

FUNDING FUTURE EXPANSION

Upon closing of the deal, MEG says it will use net proceeds to repay $1.225 billion of debt and fully fund a $275 million expansion of Phase 2B at Christina Lake.  The company's 2018 capital budget for Phase 2B has now been boosted from $510 to $700 million, with the additional funds being used to add more steam capacity and two well pads. Production out of this latest phase is expected to begin in the second half of 2019, adding another 13,000 bbl/day of capacity by 2020.

MEG is banking on its eMSAGP technology to expand output to as much as 100,000 bbl/day by the end of this year. eMSAGP (enhanced Modified Steam And Gas Push) involves the co-injection of a non-condensable gas along with the steam and the drilling of infill wells. The enhancement project allows for higher bitumen production rates without increasing the steam load. In its first phase of implementation, the company says it has seen steam-to-bitumen ratios cut in half, while boosting bitumen production by 10%. Aside from lower operating costs, less steam also translates into lower GHG emissions per barrel.

 

GRAPHIC COURTESY MEG ENERGY

 

The next step change in technology will come from its eMVAPEX program, where a light hydrocarbon will be injected into the wells to partially de-asphalt the bitumen in place, producing a higher quality bitumen, with less heavy bottoms. The technology has the potential to dramatically reduce water usage and GHG emissions. The company says it has already proven the concept using propane and is now working towards ascertaining "commercial viability" towards the second half of this year. 

MAP COURTESY MEG ENERGY

2017 ANOTHER RECORD YEAR FOR CHRISTINA LAKE

Operating costs at Christina Lake declined another 4% in 2017 to an average of $6.84 per barrel ($4.62 ex-energy). Production averaged 80,774 bbl/day for the full year but the facility exited December at 93,674 bbl/day. The company is planning a 35-day turnaround at the in-situ facility sometime in the second quarter.

A GOOD DEAL FOR WOLF MIDSTREAM ... AND CANADIAN PENSIONERS

Wolf Midstream purchased Devon Energy's 50% stake in the Access Pipeline in the summer of 2016 for $1.4 billion, now giving it 100% ownership of the system. The Access Pipeline includes both a diluted bitumen export line from Christina Lake into the Edmonton area and a diluent return line.

The Stonefell and Sturgeon Terminals are located just north of Scotford, Alberta, and have a combined storage capacity of 1.25 million barrels.

Wolf Midstream is backed by the Canada Pension Plan Investment Board (CPPIB).

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