October 28, 2015 / 9:20 AM / in 2 years

MEG Energy posts operating loss, deepens capital spending cuts

CALGARY, Alberta (Reuters) - Canadian oil sands producer MEG Energy Corp reported a quarterly loss but lower operating costs on Wednesday and announced a deeper cut to its 2015 capital spending budget, sending its shares almost 13 percent higher.

The company reduced its 2015 capital program for a second time to C$280 million ($212.49 million) from C$305 million. It originally had planned spending of C$1.2 billion this year.

Calgary-based MEG also said it had laid off 30 percent of its workforce over the past year and is prioritizing efforts to sell part or all of its 50 percent share in Alberta’s Access Pipeline system to help repay debt.

The 345-kilometer (214-mile) Access system includes a 400,000-barrel-per-day pipeline carrying diluted bitumen to Edmonton and a 90,000-bpd line taking diluent from Edmonton to MEG’s Christina Lake operations.

The other half of the system is owned by Devon NEC Corp, a division of U.S.-based Devon Energy Corp.

MEG Chief Executive Bill McCaffrey declined to give an estimate on when the stake in the pipeline would be sold, but said the company was “very, very active” on it.

“It’s definitely the primary focus of the corporation right now,” McCaffrey said in an earnings call.

MEG said average realized bitumen prices fell 52.3 percent to C$31.03 per barrel in the third quarter from a year earlier.

The company lowered cash costs to a breakeven U.S. crude price of $42 a barrel to $45 a barrel, down from $45 to $50 earlier this year. U.S. crude was last trading at $44.97 a barrel.

MEG posted an operating loss of C$87 million, or 39 Canadian cents per share, compared with a profit of C$87 million, or 39 Canadian cents per share, a year earlier.

Analysts on average had expected a loss of 30 Canadian cents per share, according to Thomson Reuters I/B/E/S.

Net operating costs averaged C$9.10 a barrel compared with C$10.31 a barrel in the third quarter of 2014.

“The capex guidance reduction is not due to reduced activity, it’s just down to lower operating costs,” FirstEnergy Capital analyst Mike Dunn said.

The company said it faced higher transportation and interest costs and an increase in depletion and depreciation expenses.

Despite the weak results, MEG’s quarterly production reached a record 82,768 bpd, up 8 percent from a year earlier.

The poor quarterly performance was largely expected after a torrid three months in which the outright price of Canadian heavy crude at one point dropped to just above $20 per barrel - the lowest in at least a decade.

MEG shares were last up 12.9 percent to C$10.83 on the Toronto Stock Exchange.

Additional reporting by Shubhankar Chakravorty; Editing by Gopakumar Warrier and Paul Simao

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