MEG Energy CEO deflects takeover speculation as oilsands company reports Q3 loss

Image: MEG Energy

It's business as usual for oilsands producer MEG Energy Corp., its CEO says, despite speculation it could be a takeover target in the wake of the $3.8-billion buyout of Husky Energy Inc. announced by Cenovus Energy Inc. on Sunday.

“We don't see ourselves being a driver in the consolidation business,'' said CEO Derek Evans on a conference call Tuesday to discuss the Calgary-based company's third-quarter results.

“We're just going to continue to operate our business, focus on reducing our op (operating) costs, our G&A (general and administrative) costs and being sort of the premier low-cost pure-play WCS (Western Canadian Select bitumen-blend oil) producer with a 60-year reserve life.''

Analysts Dennis Fong of CIBC and Phil Skolnick of Eight Capital said in reports they still consider MEG the most logical target if consolidation continues in the oilsands.

Skolnick pointed out, however, that there's no pressure on MEG to do a deal because it is well supplied with cash and its earliest maturing long-term debt doesn't come due until March 2024.

The company posted its third consecutive quarterly net loss of $9 million or three cents per share for the three months ended Sept. 30, compared with a $24 million profit a year earlier.

It lost $80 million in the second quarter and $284 million in the first quarter of this year.

Revenue decreased to $533 million from $958 million in the third quarter of 2019 on lower prices and lower bitumen production as it completed a 75-day maintenance shutdown in August.

MEG's revenue and net loss beat analyst expectations of a loss of 16 cents per share on $490 million of revenue, according to financial markets data firm Refinitiv.

Evans said production has bounced back stronger than expected since August, allowing the company to raise its 2020 average output forecast by 2,500 barrels per day to a midpoint of 81,500 bpd.

The original guidance set last November was 95,500 bpd but that has been affected by a longer maintenance period because of the need to reduce staff on site to avoid spreading the COVID-19 virus, as well as the advancing of some work scheduled to be done next year.

Production so far this year has also trended lower because of winter weather impacts, voluntary production curtailments as world oil prices plunged in the second quarter and capital spending cuts, the company said.

MEG said it has cut operating costs this year by about $50 million, with $22 million due to temporary measures and $28 million from optimizing operation, cutting staff and rationalizing administrative costs.

The company says its realized bitumen price averaged $39.68 per barrel in the third quarter compared with $10.18 per barrel in the second, driven by higher benchmark U.S. oil prices and lower prices for the light oil it blends with its heavy bitumen to allow it to flow in a pipeline.

On the call, Evans said he's optimistic about the price of WCS crude going forward because of positive progress on completing the Enbridge Inc. Line 3 replacement pipeline and the Trans Mountain pipeline expansion, as well as the end of the Alberta government's oil curtailment program as oil storage levels fall.

Alberta enacted the quotas after pipeline capacity failed to keep up with rising production from the oilsands, leading to steep price discounts on oil stranded in the province.

© 2020 The Canadian Press

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