MEG Energy posts profit as production costs stay at record low

MEG Energy posted a profit in Q1, compared with a loss this time last year.  MEG Energy photo.

By Julie Gordon

CALGARY, Alberta, April 28 (Reuters) – MEG Energy Corp , which operates in Canada’s oilsands, reported a first-quarter profit, compared with a loss a year earlier, as it managed to keep production costs at record lows to help cushion the impact of a slump in oil prices.

The Calgary-based company also announced a strategic hedging program, entering into contracts on some 10 percent of its blend sales through to the third quarter, in an effort to protect its cash position.

On the cost side, MEG has hedged about 25 percent of its remaining condensate feeds for this year and 40 percent in 2017, Chief Executive William McCaffrey told investors on a conference call.

“Today, the objective of this program is to help protect our liquidity against downside risk,” said McCaffrey. “In the longer term, the objective of the program will be to provide cash flow stability to support our capital programs.”

Shares were up 6.74 percent at C$7.28 around midday on the Toronto Stock Exchange.

The prolonged slump in crude prices has forced oil producers, including MEG, to try and preserve cash and reduce debt by selling assets, laying off workers and cutting their dividend as well as capital spending.

McCaffrey noted that talks are progressing on the sale of MEG’s 50 percent stake in the Access pipeline in northern Alberta, adding that more than one party was interested in the asset, but declined to provide further details.

“We’re continuing to work make sure we get the right deal for our shareholders and we just have to be very disciplined about that,” he said.

MEG, whose key operations are in the Athabasca oil sands region of Alberta, said cash flow used in operations, or negative cash flow, rose to C$131 million from C$30 million as realized bitumen prices more than halved.

Bitumen production fell about 7 percent to 76,640 barrels per day (bpd) due to a turnaround a quarter ahead of schedule at MEG’s Christina Lake facilities in northern Alberta.

However, its net operating costs decreased 19 percent to C$8.53 per barrel, in line with the record-low cost in the previous quarter.

That helped the company reported a net profit of C$131 million, or 58 Canadian cents per share, for the three months ended March 31. It had lost C$508 million, or C$2.27 per share, a year earlier.

Revenue fell 37.9 percent to C$290 million. ($1 = C$1.26)

(Reporting by Amrutha Gayathri in Bengaluru; Editing by Gopakumar Warrier, Savio D’Souza and Bernard Orr)