UPDATE 2-MEG Energy advances oil sands maintenance as low prices bite

Thu Feb 4, 2016 1:11pm EST
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(Recasts, adds details of maintenance, quotes)

By Nia Williams

CALGARY, Alberta Feb 4 (Reuters) - Canadian oil sands producer MEG Energy Corp is shifting maintenance forward at its 80,000 barrel per day oil sands plant in northern Alberta and also said on Thursday it could allow the reservoir to enter natural decline if weak prices persist.

It is the first time a large oil sands producer has signalled it is considering slowing output as a result of the 70 percent collapse in global crude prices since June 2014.

Speaking on a fourth-quarter earnings call, MEG chief executive Bill McCaffrey stressed the company would only allow the reservoir to decline if it was unable to cover variable cash costs, currently around C$4 ($2.91) a barrel.

"In the event that we did see sustained low oil prices that would not allow us to cover our variable costs we would have the option to defer sustaining and maintenance capital and temporarily let the reservoir enter natural decline," he said.

"This would result in single-digit and slow decline rates, which is quite a bit different from what you see with shale oil."

Calgary-based MEG's 2015 operating costs were C$9.39 a barrel, among the lowest in the oil sands patch. Last month benchmark Canadian heavy crude traded at as little as $13.25 a barrel, from which producers also have to subtract the cost of blending, transportation and royalties.

Oil sands companies have so far been extremely reluctant to talk about the possibility of shutting in production, even though at current prices most are losing money on every barrel, as around 70 to 80 percent of oil sands production costs are fixed.   Continued...