RECORD QUARTER
MEG shares soar on strong Q4 production
Shares in MEG Energy Corp. gained more than four per cent to close at $46.50, up $1.81, on Thursday after it reported record production and financial results for the last quarter of 2011.
The thermal oilsands company that’s making a habit of upside surprises beat even optimistic forecasts, reporting that production from its northern Alberta operations averaged a record 30,032 barrels of bitumen per day, more than 20 per cent above nameplate capacity of 25,000 bpd and 2,000 bpd ahead of consensus analyst expectations of 28,027 bpd.
Annual production for 2011 averaged 26,605 b/d, at the upper end of MEG’S guidance of 25,000 to 27,000 barrels per day.
“We believed this goal was ambitious because, to our knowledge, it was the first time, even taking into account our plant turnaround, that an oilsands company was able to operate for a full year above design capacity,” Bill Mccaffrey, president and chief executive, told analysts.
He added the operation had industry leading operating costs and netbacks.
MEG’S cash flow per share was also a beat, coming in at 62 cents per share versus consensus of 47 cents.
MEG’S net earnings for the fourth quarter of 2011 were $91 million or 46 cents per share, compared to $61 million or 31 cents per share in the fourth quarter of 2010.
UBS analyst Chad Friess said confidence is increasing that MEG could meet the high end of its 26,000-28,000 bpd 2012 production guidance.
“MEG’S Q4 results reinforced our central thesis on the story, namely that operational performance will continue to impress, driving opportunities for enhancements such as infill wells, non-condensable gas injection and the repurposing of conserved steam to new wells pairs, all of which will facilitate increased production at minimal incremental capital cost,” Friess wrote.
Canaccord Genuity analyst Phil Skolnick said MEG has the right combination of a quality reservoir and operational excellence, making it one of the top three in situ oilsands projects in northern Alberta.
“Cenovus, Suncor (with Firebag 3) and MEG, of the companies I cover, so far are setting themselves apart on the SAGD side,” he said.
Michael Dunn of Firstenergy Capital pointed out that MEG’S fourth-quarter cash flow of $122 million almost matched its $125 million cash flow in the full year 2010. It had cash flow of $65 million in Q4 2010.
MEG’S steam-oil ratio, the barrels of steam required to produce each barrel of bitumen, a key measure of energy efficiency, was 2.3, the same as fourth quarter 2010 and better than facility design of 2.8.
On the call, Mccaffrey said the company is seeing good results from a pilot project to inject small amounts of natural gas into the horizontal wells to replace some of the steam, a plan intended to drive down SOR and leave more steam available to use in new or infill well pairs. He said MEG has seen a 10 to 15 per cent reduction in steam in initial results.
Operating costs for the three months ended Dec. 31 were $13.16 per barrel, compared to $13.89 for the same period in 2010. After including power sales from MEG’S cogeneration facilities, net operating costs fell to $8.50 per barrel versus $11.01 a year earlier.
Operating earnings jumped
to $58 million or 29 cents per share from $18 million or nine cents in the same period of 2010, as bitumen prices were driven by better heavy oil differentials to $67.99 per barrel.
Earlier this week, the Energy Resources Conservation Board conditionally approved Meg’s christina lake phase 3,a 150,000-bpd-multi-phase expansion to its steam-assisted gravity drainage operations worth an estimated $6 billion.
Phase 3 still requires Alberta Environment approval, plus sanctioning by the MEG board.
On Thursday, MEG left its 2012 capital budget unchanged at $1.37 billion
It is currently producing from its 3,000-bpd Phase 1 and 22,000 bpd Phase 2 operations at Christina Lake, about 100 kilometres south of Fort Mcmurray.