MEG Energy reports $48 million loss despite 56% bitumen price increase

CALGARY — A strong rebound in western Canadian oil markets helped deliver the highest realized bitumen prices in four years for oilsands producer MEG Energy Corp. in the first quarter, it said Tuesday.

Revenue rose to $919 million, up 27 per cent from $721 million in the year-earlier quarter, beating analyst expectations of $651 million as reported by Thomson Reuters Eikon.

The discount paid for Western Canadian Select bitumen blend crude compared with U.S. benchmark West Texas Intermediate fell after the Alberta government imposed production quotas in January to free up pipeline space.

“It goes without saying one of the most significant impacts on our strong Q1 results was the dramatic narrowing of the WCS differential from US$39 to US$12 a barrel from Q4 2018 to Q1 2019,” said MEG CEO Derek Evans on a conference call.

He said lower costs for the light petroleum used to dilute the bitumen for transportation also helped boost returns, as realized prices for MEG’s blended bitumen rose 56 per cent versus the fourth quarter of 2018.

The company set a $200-million 2019 budget in January after rival Husky Energy Inc. dropped a hostile takeover bid because it didn’t win the needed two-thirds support from MEG shareholders.

MEG said Tuesday it cut an unspecified number of staff in February to align with lower levels of capital spending and to optimize efficiency.

In an email, vice-president Tara McCool wouldn’t say how many staff were let go but said overall numbers at MEG are down 52 per cent since 2014. Corporate records show MEG had about 700 staff at the end of that year.

A $75-million project to expand MEG’s Christina Lake project capacity to 113,000 barrels per day from 100,000 bpd remains on hold until there is clarity on curtailments and oil export options, said Evans on the call.

MEG bitumen production was 87,100 bpd in the first quarter, down from 93,200 bpd a year earlier, due to the Alberta curtailments.

However, it said sales averaged 89,800 bpd as it shipped stored barrels to take advantage of higher prices, a move analysts said helped MEG beat their expectations for cash flow in the quarter.

MEG intends to ramp up its crude-by-rail shipments to 30,000 bpd by the third quarter despite posting high delivery costs of US$23 per barrel for the 18,650 bpd it moved in the first quarter, Evans said.

Rail costs from Edmonton to the U.S. Gulf Coast are expected to ease to between US$17 and $19 later this year, he said, adding bitumen is winning “premium” pricing there because of falling heavy oil imports from Venezuela and Mexico.

MEG reported 31 per cent of its oil was sold in the Gulf Coast in the first quarter, where it realized a US$3 premium to barrels sold in the Edmonton market, net of rail and pipeline transportation costs.

MEG reported a net loss of $48 million or 16 cents per share in the three months ended March 31, compared with a profit of $141 million or 47 cents in the same period a year ago.

The loss included a net foreign exchange gain of $78 million and a loss on hedging contracts of $230 million.

Its net earnings in the first quarter of 2018 included a $318-million gain on the sale of its half interest in the Access Pipeline in northern Alberta, a net foreign exchange loss of $108 million, and a loss on hedging of $76 million.

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