EUR 850.00 For Business Accounts Only

Morningstar | MEG to Survive

Since MEG's beginnings, the company has been focused on oil sands development, owning a 100% working interest in over 900 square miles of oil sands leases in the Athabasca oil regions of northern Alberta, Canada. The company estimates that it holds 3 billion barrels of proved plus probable bitumen reserves and 3.8 billion barrels of contingent reserves. MEG is engaged in situ oil sands development and production from its Christina Lake Project, which produces 90,000 barrels per day. The company’s implementation of its eMSAGP technology positions MEG ahead of its peers in the solvent based technology implementation. To date, the technology has lowered the company’s cost structure, allowing for economic expansion projects. MEG continues to implement the technology to its existing operations, while we don’t expect peers to commercially operate solvent based technology for another five years. Unlike its peers, MEG’s balance sheet is far less stable. In the current environment, leverage continues to creep up as capital spending has been coupled with declining operating cash flow. Capital resources, coupled with recent capital spending cuts should help MEG weather the near-term storm, with long-term concerns remaining. However, we expect the company to increase its debt obligations to fund expansion projects. MEG’s future greenfield oil sands projects could drive significant growth in a better oil price environment. However, these projects aren’t economic with crude prices entrenched at current levels, so the timing of any expansion is highly uncertain. Therefore, we believe that the market is appropriately recognizing the risk associated with MEG's growth prospects, and the stock looks fairly valued.