July 16, 2012 / 1:08 PM / 6 years ago

UPDATE 2-MEG Energy to increase production at Alberta project

* Production target boosted to 80,000 bpd by early 2015

* Capital spending budget raised by 28 pct

* Shares rise 5.3 pct on Toronto Stock Exchange (Adds detail and comment)

CALGARY, Alberta, July 16 (Reuters) - Canada’s MEG Energy Corp said on Monday it would boost capital spending by C$380 million ($374 million) this year as it looks to raise output from its existing oil sands operations by a third, sending its shares more than 5 percent higher.

The company said advanced production methods at its thermal oil sands operation and new wells would help raise production to 80,000 barrels a day from its prior 60,000 bpd target by early 2015.

Some of its additional spending will go to accelerating a planned expansion of its oil sands operations. Currently producting from phases one and two at its northern Alberta project site, MEG will add a further 150,000 bpd of output with a third phase. Construction is set to begin next year.

MEG said it would now inject natural gas into its wells to boost pressure, while infill wells will also raise output. The new gas-injection technology will help raise output while lowering the cost of production.

“The additional production is expected to come at a low incremental cost of C$15,000 to C$20,000” per barrel per day, Andrew Potter, an analyst with CIBC World Markets said in a research note.

Overall, MEG expects to spend C$1.75 billion on its operations this year, up from a previous target of C$1.37 billion.

MEG shares were up C$1.88, or 5.3 percent, to C$37.38 by late morning on the Toronto Stock Exchange.

$1=$1.01 Canadian Reporting by Scott Haggett and Sandhya Vijayan

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