MEG Energy Corp. released its 2013 capital budget and production guidance today, which includes planned capital investment of approximately $1.9 billion (including $90 million deferred from previously planned 2012 investments) and a production target of 32,000 to 35,000 barrels per day (bpd). Goals for 2013 include:
- Focus on the RISER initiative to deliver high return, near-term production growth which, in turn, advances cash flow to support the company’s significant growth plans;
- Production growth of 20% from projected 2012 volumes and a targeted exit rate of 37,000 to 43,000 bpd;
- Improved efficiency driving non-energy costs to $9-$11 per barrel, a 10% reduction from 2012 guidance;
- Completion, on budget, of the Christina Lake 2B project in the second half of 2013;
- Completion of the Stonefell Terminal and advancement of the Access Pipeline expansion to support accelerated production growth, mitigate differentials and enhance netbacks through improved market access.
“I am very excited about the coming year. All the work we have focused on has positioned us to take giant steps forward in 2013 through 2015,” said Bill McCaffrey, President and Chief Executive Officer. “RISER, Christina Lake Phase 2B, Stonefell and our strategy to increase market access are on track, becoming a reality in 2013.”
The largest portion of the 2013 capital investment plan (approximately $500 million), is directed to MEG’s RISER initiative, which focuses on increasing production and throughput capacity from the company’s existing facilities in the near-term.
“MEG’s 2013 capital budget focuses investment on those projects which are expected to generate the highest returns and lead to near-term production and cash flow gains. Accelerating cash flows further improve the company’s financial strength to support our significant growth plans,” said McCaffrey.
As part of the RISER initiative, MEG plans to deploy enhanced modified steam and gas push (eMSAGP) technology to additional well pads in 2013. Combined with initial production from the start-up of Phase 2B, which remains on budget and scheduled to begin steaming in the second half of the year, MEG is targeting average 2013 production volumes of 32,000 to 35,000 bpd.
“Our production target for 2013 is approximately twenty percent above projected 2012 volumes and we expect further increases that will double current rates in 2014” said McCaffrey. “At the same time that we are driving towards higher production, efficiency improvements with RISER are expected to reduce non-energy operating costs to $9 to $11 per barrel in 2013 from our 2012 target of $10 to $12 per barrel.
In addition to planned spending on the RISER initiative, MEG is planning to invest approximately $700 million in growth capital at the company’s Christina Lake project. Planned investments include $170 million to complete construction of Phase 2B, $100 million for drilling and completion of an inventory of stand-by wells to take advantage of additional freed-up steam with the implementation of eMSAGP, and $220 million for engineering, long lead-time items and site preparation for Phase 3A. A final capital cost estimate for Phase 3A is expected by mid-2013.
“As we’ve continued to advance engineering for Christina Lake Phase 3A, we’ve been identifying synergies with plans for our Phase 3B processing facilities,” said McCaffrey. “With twin plants located side-by-side, there are significant opportunities to optimize our investment for shared access, utilities and infrastructure, as well as leveraging our growing experience with RISER. We see significant benefits for both phases.”
Christina Lake Phase 3A is currently planned for completion in 2016. With future development phases at Christina Lake and the initial phase of MEG’s Surmont Project, the company is continuing to target installed production capacity of 260,000 bpd by the end of 2020.
As MEG advances its growth strategy, it is also investing in infrastructure to support increased production via expanded market access and to further strengthen revenues realized from each barrel of production. Approximately $360 million is targeted to enhance MEG’s strategic pipeline system and marketing hub in the Edmonton area. This includes expansion of the jointly-owned Access Pipeline, which connects Christina Lake operations to the Edmonton area, and completion of the 900,000 barrel Stonefell Terminal in mid-2013.
“Proprietary pipeline capacity and storage are central to our ‘hub and spoke’ marketing strategy,” said McCaffrey. “Together, Access and Stonefell provide flexibility to acquire and move diluent to our projects and ship our product blends to the most attractive markets, helping get more value out of every barrel, while significantly mitigating differentials and pipeline restrictions.”
The Edmonton hub provides connections to current and developing markets through pipelines and other transportation options. MEG has already secured long-term capacity commitments on pipelines to the U.S. Gulf Coast and options on proposed pipeline capacity to Canada’s West Coast. MEG has also secured initial rail and barge transportation capacity to reach higher value markets, with commitments and plans to further expand alternative transportation in 2013.
To support existing operations, MEG is planning $80 million in sustaining and maintenance capital spending in 2013. Funding is planned for new wells to replace expected production declines in Phases 1 and 2 well pairs, as well as capital for routine maintenance.
|2013 Capital Budget|
|($ millions unless otherwise noted)|
|RISER enhancement initiative||480|
|Christina Lake Phase 2B||170|
|Christina Lake Phase 3A||220|
|Core hole drilling and seismic||100|
|Commissioning & start-up and other growth||140|
|Sustaining and Maintenance||80|
|Research & Development||60|
|2013 capital approved||1,850|
|Carryover from 2012||90|
|Total 2013 capital budget||1,940|
|2013 Operations Guidance|
|2013 Budget||2012 Guidance||% Change|
|Production (bpd)||32,000 – 35,000||26,000 – 28,000||+24||%|
|Non-energy operating costs (/bbl)||$9 – $11||$10 – $12||-10||%|
The approval of MEG’s 2013 capital budget is subject to the successful completion of MEG’s current financing activities.
This news release may contain forward-looking information including but not limited to: expectations of future production, SORs, operating costs and capital investments; the timing for completion of the Stonefell terminal; the expansion of the Access pipeline; the impact of MEG’s hub-and-spoke strategy on netbacks and on its exposure to differentials and pipeline restrictions; the anticipated capital requirements, development plans, timing for completion, production declines, accelerated production growth, cashflows, production capacities and performance of the future phases and expansions of the Christina Lake project (including the RISER initiative) and the Surmont project; and the potential financings for MEG’s operations and capital investments. All such forward-looking information is based on management’s expectations and assumptions regarding future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities. By its nature, such forward-looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated.
These risks include, but are not limited to: risks and delays in the development of or in the production associated with MEG’s projects; the securing of adequate supplies and access to markets and transportation infrastructure; the uncertainty of estimates and projections relating to production, costs and revenues; the availability of take away capacity on the electric transmission grid; health, safety and environmental risks; risks of legislative and regulatory changes to, amongst other things, tax, land use, royalty and environmental laws; changes in commodity prices and foreign exchange rates; and risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the development of MEG’s projects and facilities. Although MEG believes that the assumptions supporting such forward-looking information are reasonable, there can be no assurance that such assumptions will be correct. Accordingly, readers are cautioned that the actual results achieved may vary from the forward-looking information provided herein and that the variations may be material. Readers are also cautioned that the foregoing list of assumptions, risks and factors is not exhaustive. For more information regarding forward-looking information see “Risk Factors” and “Regulatory Matters” within MEG’s annual information form dated March 28, 2012 (the “AIF”) along with MEG’s other public disclosure documents. A copy of the AIF and of MEG’s other public disclosure documents is available through the SEDAR website or by contacting MEG’s investor relations department. Guidance regarding capital expenditures may constitute a “financial outlook” as contemplated by National Instrument 51-102 of the Canadian Securities Administrators entitled Continuous Disclosure Obligations. The purpose of such guidance is to forecast the anticipated capital expenditures by MEG in 2013 and such information may not be appropriate for other purposes.
This press release shall not constitute an offer to sell, or the solicitation of an offer to buy, any securities in any jurisdiction. The common shares being offered have not been and will not be registered under the U.S. Securities Act of 1933 and state securities laws.
MEG Energy Corp. is focused on sustainable in situ oil sands development and production in the southern Athabasca region of Alberta, Canada. MEG is actively developing enhanced oil recovery projects that utilize SAGD extraction methods. MEG’s common shares are listed on the Toronto Stock Exchange under the symbol “MEG.”