Life after Husky: MEG Energy scales back spending as it seeks to monetize its partial upgrading technology
MEG Energy released its 2019 spending and production plans this morning, in the aftermath of Husky Energy's failed takeover attempt.
Plans for 2019
The company slashed its full year capital budget from an initial plan of $670 million to just $200 million, which it expects to be fully funded from operating cash flows. About $115 million will be allocated towards sustaining and maintenance capital, largely spent towards the completion and tie-in of sustaining wells. Another $40 million will be spent on growth projects, including the advancement of its eMVAPEX technology.
MEG says it has the capacity to average 100,000 bbl/day of output from its Christina Lake operations, but full year production is expected to average closer to 90,000 bbl/day due to Alberta's mandated production cuts.
Ex-energy, operating costs will rise about $0.25 to about $5 per barrel due to the curtailments.
Leaving room for more spending
The company also says an additional $75 million could potentially be sanctioned later this year, if market conditions improve. That capital would be focused towards its Phase 2B Brownfield expansion, allowing production to rise to 113,000 bbl/day by next year. MEG has already spent $165 million on this latest phase of expansion, with total capital costs tracking towards $275 million.
Strengthening its balance sheet, and core competencies
CEO Derek Evens says his company remains focused on "cost containment, preservation of liquidity and optimizing production." The company has revived plans to monetize its HI-Q® partial upgrading technology, hiring a financial advisor to assist with the process.
Although MEG was able to declare victory in its fight against Husky's hostile offer, it also failed to find another buyer or solicit a better takeover price. According to Reuters, Husky had more than enough support from MEG shareholders to follow-through with its merger, suggesting the company terminated the deal due to revised valuation metrics.
The company’s Board of Directors is now "evaluating its composition" to ensure its members have "the necessary skillsets and backgrounds" to move the company forward.