Maintenance work curbs MEG third-quarter productions; full-year targets intact

CALGARY – MEG Energy Corp. said Wednesday its output was reduced during the third-quarter as its Christina Lake oilsands project underwent three weeks of maintenance downtime, but that it is on track to meet its full-year production targets.

The Calgary-based oilsands operator (TSX:MEG) produced an average of 20,945 barrels of bitumen per day between July and September, higher than the 19,339 barrels it churned out during the same period a year ago, when maintenance work was also undertaken.

During the first nine months of 2011, MEG produced an average of 25,450 barrels per day, and remains on track to meet its guidance range of 25,000 to 27,000 barrels.

“This quarter was a very busy one for us, and it was marked by the successful completion of a full plant turnaround at our Christina Lake facilities in late September,” said chief executive officer said Bill McCaffrey.

“And I’m happy to report that the shut down was completed in a safe and efficient manner with costs coming in as planned.”

MEG shares rose more than 7.5 per cent, or $3.21, to $45.81 Wednesday afternoon on the Toronto Stock Exchange.

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McCaffrey made his remarks on a conference call with analysts to discuss the company’s results during the third quarter, in which MEG booked net and operating losses.

McCaffrey likened a plant turnaround to a driver taking his or her car to the mechanic for regular tune-ups. First, the company inspects its systems for possible problems, then cleans them out and replaces any parts to ensure they keep working smoothly.

“We found that our equipment was in good shape, which is a strong indication that our existing operations are being very effective. Basically it tells us that our field facilities’ designs and operations are quite robust,” McCaffrey said.

Regulators require oilsands companies to undergo regular turnarounds. And since MEG has got a number of expansions in the hopper, future downtime will be needed to make tweaks along the way.

But in time, McCaffrey said it’s possible that such shutdowns will become less frequent – so long as MEG has gained enough confidence its various components can go a longer time without being cleaned or replaced.

“It is our goal, as we go forward, to reduce the amount of time and potentially the frequency of the turnarounds, and our guys are actively working on that.”

Also Wednesday, MEG recorded a net lost $115.2 million, or 60 cents per share, in the three months ended Sept. 30, compared to earnings of $21.2 million or 11 cents a year earlier.

MEG said its third-quarter loss reflected an unrealized foreign exchange loss of $101.4 million in the latest quarter, compared to a foreign exchange gain of $28.8 million in the same year-earlier period.

Stripped of the effects of unusual items, MEG reported an operating loss of $5.4 million, or three cents per share, compared to profits of $6.1 million, or three cents per share a year ago.

MEG attributed the operating loss to higher interest costs on its debt, higher staffing levels as it undergoes its Christina Lake expansions and higher costs as a result of the maintenance work.

The company develops oilsands deposits in the southern Athabasca region of Alberta using steam assisted gravity drainage, or SAGD, technology. Its key project is the Christina Lake oilsands development.

SAGD oilsands companies pipe steam underground to melt thick tar-like oilsands deposits. The oil is then collected through a second pipeline and pumped to the surface.

MEG said it expects to spend $1 billion on capital projects this year, with the majority invested in the company’s strategic plan to increase bitumen production capacity to 260,000 daily production.

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