Morningstar | MEG Energy Lowers 2019 Capital Budget Amid Production Cuts; Stock Remains in 3-Star Territory
Alberta’s mandatory production cuts are taking its toll on no-moat MEG Energy’s planned growth. The company announced its 2019 capital budget, which was highlighted by a major decline in capital spending--CAD 200 million for the full year, down substantially from our 2018 full-year estimate of CAD 665 million. Lower capital spending is driven by lower near-term growth. With production cuts and pipeline bottlenecks, MEG took a step back from reaching its production target of 113 thousand barrels per day in 2020. We now think that the company can reach this target in 2021, when pipeline expansions are placed into service.Furthermore, the company announced its 2019 production target of 90-92 mbbl/d, which is in line with our expectations. MEG also announced a nonenergy operating costs target of CAD 4.75-CAD 5.25 per barrel, also in line with our expectations.
We are maintaining our CAD 7 fair value estimate and no-moat rating. Despite our fair value sitting above the stock price, the stock remains in 3-star territory. Because of the company’s weak balance sheet and low production levels compared with peers, we are maintaining our extreme uncertainty rating, which drives our 3-star rating. As such, we recommend that investors remain on the sidelines.
For a deeper look into the Canadian crude market and the investment implications, please refer to our January 2019 Energy Observer Pipeline Expansions Are Canada's Lifelines.
MEG Energy is engaged in a steam assisted gravity drainage oil sands development at its 80 section Christina Lake Regional Project. As of Dec 31 2010, Co. had total proved bitumen reserves of 605.9 gross thousand barrels (470.5 net thousand barrels).
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.