Annual production targeted to nearly double; planned capital investment sets the foundation for further growth with focus on lower-cost ‘brownfield’ expansion
CALGARY, Dec. 6, 2013 /CNW/ – MEG Energy Corp. released its 2014 capital budget and guidance today. The company’s plans include a capital program of $1.8 billion, including $200 million available on a discretionary basis subject to the timing of current and future projects. MEG has set a 2014 production target of 60,000 to 65,000 barrels per day (bpd), with a related non-energy operating cost target of $8 to $10 per barrel.
- Targeted 2014 annual production volumes nearly double 2013 guidance, supporting MEG’s early 2015 goal of 80,000 bpd driven by the implementation of the RISER 2 initiative and the ramp-up of Christina Lake Phase 2B;
- Investment in a major ‘brownfield’ expansion within Phase 2B, which the company anticipates will raise its overall production to a level of 115,000 to 125,000 bpd by early 2017, resulting in approximately a 45 per cent compounded annual growth over the next three years;
- Investing in technology and infrastructure which will enable the corporation to access the highest-priced markets in the most cost-effective manner.
2014 Operations Guidance
“Strong results from the implementation of RISER in Christina Lake Phase 2, combined with achieving first oil from our recently commissioned Phase 2B, have set the foundation for a significant increase in production and cash flow,” said Bill McCaffrey, President and Chief Executive Officer.
|2014 Budget||2013 Guidance||% Change|
|Production (bpd)||60,000 – 65,000||32,000 – 35,000||+87%|
|Non-energy operating costs (/bbl)||$8.00 – $10.00||$9.00 – $11.00||-11%|
MEG’s production targets from 2014 to 2017 result in a compounded annual growth rate of approximately 45 per cent. As production levels increase, MEG will continue its focus on putting downward pressure on its already industry-leading non-energy operating costs.
“During 2014, we are working to significantly increase our production levels. We have already invested the capital required to reach our production target of 80,000 barrels per day by early 2015. The company is now focusing its capital investment on the next stage of growth, laying the groundwork for a major brownfield expansion of Phase 2B,” McCaffrey said.
2014 Capital Investment
MEG’s 2014 base capital program includes $920 million in growth capital (58%), $445 million focused on marketing initiatives (28%) and $235 million in sustaining and other capital (approximately 14%).
“We believe our capital allocation plans represent the right balance between our key strategies of lower-cost intraphase production growth, greenfield expansion, value-added infrastructure and the necessary sustaining capital to ensure steady and efficient operations,” said McCaffrey.
The capital investment for RISER at Christina Lake Phases 1 and 2 (RISER 2) is now complete, with a resulting increase in production capacity of 60 per cent at a capital intensity of approximately $20,000 per barrel per day. With the demonstrated success of RISER 2, the company is now advancing its RISER 2B program, which will include MEG’s proprietary eMSAGP technology and a major brownfield expansion of MEG’s Phase 2B facilities. This project is effectively a ‘phase within a phase’ that is anticipated to result in ultimate production levels from Phase 2B of 75,000 to 85,000 bpd, an increase of nearly 130% over its initial design.
“Brownfield expansions provide production growth similar to what we would expect from a ‘greenfield’ expansion at about two-thirds of the capital cost, while also helping to accelerate the timing of incremental production,” said McCaffrey. “In addition to lower capital costs and accelerated production, we also anticipate benefits in terms of lower operating costs, reduced greenhouse gas intensities and higher resource recovery rates. With these targeted benefits, our goal will be to optimize existing assets through our RISER 2B initiative, before we launch the next greenfield project.”
In addition to the intermediate growth capital directed to RISER 2B, MEG will allocate $580 million to position itself for longer term growth. This investment includes $275 million towards engineering and long lead-time items for Phase 3A, in order to prepare for the next growth platform in the company’s portfolio once Phase 2B is fully optimized.
MEG is also planning a facility which will remove diluent from a significant portion of the company’s bitumen blend that is to be shipped by rail. The diluent would then be recycled back to the Christina Lake project site. The resulting product would be transported by rail to refining markets at substantially reduced shipping and blending costs. Capital investment of $75 million in 2014 is planned for the project, with completion targeted for late 2015.
On a longer-term strategic basis, MEG has also committed $125 million in 2014 for the construction of a Field Demonstration Pilot project of the company’s proprietary HI-Q™ technology. This technology, which has been successfully demonstrated over a number of years on a smaller scale, is designed to modify MEG’s bitumen production to a HI-Q™ product suitable for shipping by pipeline without diluent.
As previously announced, MEG is also supporting itsmarketing