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MEG Energy cuts capital spending plan again, reports $284M Q1 loss


CALGARY — Shares in oilsands producer MEG Energy Corp. rose by as much as nearly 15 per cent on Tuesday amid strengthening oil prices after it reported it would cut its capital spending plan for a second time in two months.

The Calgary-based company said it now expects its capital spending to total $150 million in 2020, down from an estimate of $200 million in March and $250 million in its original guidance released late last year.

"The current business environment demands swift, decisive actions to enhance MEG's already strong financial liquidity position," said CEO Derek Evans.

"To that end, we are reducing production to minimum levels and advancing the planned plant (maintenance) turnaround, cutting capital by $100 million versus original guidance, and reducing non-energy operating cost and (general and administration) guidance by $20 million and $10 million, respectively."

Salaries are being reduced across the company as of June 1, MEG said, with a 25 per cent cut to Evans' annual base salary and to board member cash compensation. Other executive salaries will be cut 12 to 15 per cent, while all other employees will see a 7.5 per cent base salary rollback.

The value of long-term incentive awards granted in April were reduced by 20 per cent from 2019 values.

MEG reported a net loss of $284 million in the first three months of 2020 compared to a loss of $48 million in the same quarter of 2019, due to lower bitumen prices and non-cash charges.

The results include an impairment charge of $366 million on certain non-core growth properties, an unrealized foreign exchange loss of $267 million, and an inventory impairment charge of $29 million, partly offset by a $429-million unrealized gain on commodity risk management contracts.

Revenue totalled $665 million, down from $919 million in the first quarter of 2019, as MEG's realized price for bitumen averaged $19.45 per barrel, down from $46.86 per barrel in the fourth quarter of 2019.

World oil prices have fallen by as much as 75 per cent since the end of 2019, blamed on declining fuel demand due to measures to control the COVID-19 pandemic.

Bitumen production averaged 91,560 barrels per day in the first quarter, compared to 94,570 bpd in the fourth quarter and 87,100 in the first quarter of 2019.

Production in the first half of 2020 is expected to average about 76,000 bpd.

MEG said it has advanced a planned maintenance shutdown in the first two phases of its three-phase Christina Lake oilsands project to June in response to price weakness, with production volumes to be reduced to about 30,000 bpd.

It said restarting the facilities will depend upon whether prices have recovered when maintenance is completed in August.

MEG shares were up 10 per cent or 30 cents at $3.21 in late-morning trading after going as high as $3.34 earlier in the day.

This report by The Canadian Press was first published May 5, 2020.

Companies in this story (TSX:MEG)

Dan Healing, The Canadian Press

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