EUR 850.00 For Business Accounts Only

Morningstar | The U.S. Gulf Coast Benefits MEG Energy

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 2.9 billion barrels of proved plus probable bitumen reserves. MEG is engaged in situ oil sands development and production from its Christina Lake Project, which can produce around 100,000 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. Like peers, the company has felt the impact of widening of the heavy oil discount in 2018, but the company's increase in pipeline commitments to the U.S. Gulf Coast should help stabilize price realizations. Unlike its peers, MEG’s balance sheet is far less stable. In the current environment, leverage sits around 4 times net debt/trailing EBITDA. The company decided to defer its growth projects until it has better market access, which should help improve the balance sheet. MEG’s future greenfield oil sands projects could drive significant growth in a better oil price environment. However, these projects aren’t economic with pipelines operating near full capacity, so the timing of any expansion is highly uncertain. Therefore, we believe that the market is appropriately recognizing the risk associated with MEG's cash flows and growth prospects, and the stock remains in 3-star territory.