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MEG Energy reports third quarter results - 2012 production goals and progress on long-term growth remain firmly on target

MEG Energy reports third quarter results - 2012 production goals and progress 
on long-term growth remain firmly on target 
CALGARY, Oct. 25, 2012 /CNW/ - MEG Energy Corp. (MEG) today reported third 
quarter 2012 operational and financial results. Highlights include: 


    --  Strong operating performance confirmed annual production and
        exit rates will be at the high end of guidance with
        corresponding operating costs at the low end of guidance;
    --  A planned plant turnaround was successfully completed with a
        record four day ramp-up to full production rates;
    --  Steady progress continued on the RISER production-enhancement
        pilot, with more than 100 plant equipment tie-ins completed
        during the turnaround to support MEG's plans for production of
        80,000 bpd by early 2015;
    --  Key facilities were tied-in in preparation for completion of
        the Christina Lake Phase 2B project - the project is scheduled
        for start-up in the second half of 2013 and remains on budget;
    --  Regulatory applications were submitted to develop the
        multi-phase, 120,000 bpd Surmont project;
    --  A US$800 million offering of senior unsecured notes to fund
        MEG's ongoing growth was completed.

"We're very pleased with our results over this past quarter," said Bill 
McCaffrey, MEG President and Chief Executive Officer."We saw the immediate 
benefit of some of our best-ever monthly operating results in July and August, 
with production and operating costs in record territory. We've also made 
strides in laying the groundwork for long-term growth with Christina Lake 
Phase 3 and Surmont. But, just as importantly, we put some key pieces in place 
for our nearer-term growth with the RISER initiative and Christina Lake Phase 
2B."

During MEG's Christina Lake plant turnaround in September, key equipment was 
tied-in to support both the next planned phase of expansion, as well as new 
production from existing facilities.

Financial and Operational Results

Cash flow from operations for the third quarter of 2012 was $24.4 million 
($0.12 per share, diluted) compared to $25.5 million ($0.13 per share, 
diluted) in the third quarter of 2011. Cash flow from operations for the nine 
months ended September 30, 2012 was $156.4 million ($0.79 per share, diluted) 
compared to $183.0 million ($0.93 per share, diluted) for the same period in 
2011. Cash flow from operations was positively impacted by higher production 
and lower operating costs, offset primarily by lower bitumen sales prices.

Net earnings were $47.5 million ($0.24 per share, diluted) for the third 
quarter of 2012 compared to a net loss of $115.2 million ($0.60 per share, 
diluted) in the third quarter of 2011. Operating earnings, which are adjusted 
for items that are not indicative of operating performance, were recorded as a 
loss of $12.9 million ($0.07 per share, diluted) for the third quarter of 2012 
compared to a third quarter 2011 loss of $5.9 million ($0.03 per share, 
diluted). Operating earnings were impacted by lower bitumen prices, offset by 
higher production and lower operating costs.

Excluding the plant turnaround month in September, MEG recorded two months of 
its strongest production volumes to date, with July and August results 
continuing a four month run of production in excess of 30,000 bpd - 20% above 
nominal design capacity.

Over the full third quarter, total production increased 14% to 23,941 barrels 
bpd compared to 20,945 bpd in the third quarter of 2011. Both comparative 
periods were impacted by planned plant turnarounds. Over the first nine months 
of 2012, production averaged 27,592 bpd, an increase of 8% from volumes of 
25,450 bpd in the same period in 2011.

"With strong production levels to-date and a successful turnaround behind us, 
we expect to be near the top end of our annual production guidance of 26,000 
to 28,000 barrels per day," said McCaffrey. "Production exit rates are also 
expected to be at the high end of our guidance of 29,000 to 31,000 bpd."

Non-energy operating costs decreased to $15.23 per barrel in the third quarter 
of 2012 from $17.20 per barrel in the same period of 2011. Non-energy 
operating costs in both comparative quarters were impacted by plant 
turnarounds. On a year-to-date basis, non-energy operating costs decreased to 
$10.11 per barrel for the first nine months of 2012 from $11.03 per barrel in 
the first nine months of 2011.

"With the benefit of high production volumes and plant efficiency 
improvements, non-energy operating costs also remain on track to finish the 
year at the low end of our guidance of $10 to $12 per barrel," said McCaffrey. 
"We expect to continue to be among the lowest cost producers in the industry."

Net operating costs, which include natural gas consumption costs and revenues 
from electricity sales, declined 13% to $10.40 per barrel year-to-date from 
the 2011 average of $11.95 per barrel over the same period.

"Our efforts to drive down operating costs have helped to significantly 
mitigate the effects of the wide differentials earlier in the year," said 
McCaffrey. "As new infrastructure comes on-line to extend our market reach, 
MEG has positioned itself well to leverage the expected narrowing of 
differentials with WTI benchmarks moving closer to Brent pricing and heavy oil 
pricing closing the gap with WTI."

Capital and Growth Strategy

During the third quarter of 2012, MEG achieved three major milestones in its 
long-term growth strategy:
    --  Key facilities were tied-in to existing operations in
        preparation for completion of the Christina Lake Phase 2B
        project. The project, which increases total design capacity by
        140%, is scheduled for start-up in the second half of 2013 and
        remains on budget. With its RISER initiative, which focuses on
        adding interphase production growth, MEG is targeting to
        increase the combined production levels of Phases 1, 2 and 2B
        by an estimated 33% to a total of 80,000 bpd by early 2015.
    --  Regulatory applications were submitted for the multi-phase,
        120,000 bpd Surmont Project in September. Public consultation
        on the project, which began earlier in 2012, is ongoing.
    --  MEG has determined that the optimum platform for future
        developments, beginning with Phase 3A, will be 41,000 bpd (at
        an initial, conservative steam-oil ratio of 2.8). The
        standardized sizing will be used, where applicable, for the
        remainder of MEG's developments at Christina Lake, Surmont and
        the company's growth properties. It is expected to provide
        long-term benefits by optimizing engineering and supply chain
        management, driving tighter cost control and supporting MEG's
        plans to ultimately develop two or more growth phases at a
        time.

"With future Christina Lake and Surmont developments lying on the same 
geological trend, and with our plans to standardize surface facilities, our 
target is to continue to drive forward on future phases with the same strong 
well performance, high plant efficiency, and low capital and operating costs 
that we've seen on Phases 1 and 2," said McCaffrey.

To support the company's growth plans, MEG completed an offering of US$800 
million of senior unsecured notes in July. As at September 30, 2012, MEG's 
capital resources included $1.6 billion of cash and short-term investments and 
an undrawn US$1.0 billion revolving credit facility.

Operational and Financial Highlights

The following table summarizes selected operational and financial information 
of the Corporation for the periods ended:
                                      
                            Three months ended      Nine months ended
                               September 30            September 30
                                2012      2011          2012      2011

Bitumen production - bpd      23,941    20,945        27,592    25,450

Steam to oil ratio               2.5       2.5           2.4       2.5
                                                                      

West Texas Intermediate        92.22     89.76         96.21     95.48
(WTI) US$/bbl

Differential - WTI/Blend %     32.2%     26.7%         31.4%     25.8%
                                                                      

Bitumen realization -          46.49     51.79         47.43     55.02
$/bbl
                                                                      

Net operating costs((1)        15.61     17.12         10.40     11.95
)- $/bbl
                                                                      

Cash operating netback(        27.85     29.92         34.07     38.53
(2)) - $/bbl
                                                                      

Capital cash investment -    399,659   240,492     1,103,598   660,107
$000
                                                                      

Net income (loss) - $000      47,474 (115,196)        71,309  (27,281)

  Per share, diluted            0.24    (0.60)          0.36    (0.14)

Operating earnings (loss)   (12,883)   (5,917)        21,780    51,422
- $000((3))

  Per share, diluted((3))     (0.07)    (0.03)          0.11      0.26

Cash flow from operations     24,442    25,478       156,408   183,019
- $000((3))

  Per share, diluted((3))       0.12      0.13          0.79      0.93
                                                                      

Cash and short-term        1,607,036 1,831,937     1,607,036 1,831,937
investments - $000

Long-term debt - $000      2,461,676 1,791,695     2,461,676 1,791,695
                                                  

((1))Net operating costs include energy and non-energy operating costs, 
reduced by power sales for the period.

((2))Cash operating netbacks are calculated by deducting the related 
royalties and diluents, transportation, operating costs and realized 
gains/losses on financial derivatives from bitumen sales revenues, on a per 
barrel basis.

((3))Please refer to Non-IFRS Financial Measures below.

A full version of MEG's Third Quarter 2012 Report to Shareholders, including 
unaudited financial statements, is available on MEG's website at 
www.megenergy.com and at www.sedar.com. 

A conference call will be held to review the third quarter results and discuss 
MEG's strategy at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) Thursday, 
October 25, 2012. The U.S./Canada toll-free conference call number is 1 
888-231-8191.

Forward-Looking Information

This news release may contain forward-looking information including but not 
limited to: expectations of future production, SORs, light-heavy crude oil 
pricing differentials, operating costs and capital investments; the 
anticipated capital requirements, timing for receipt of regulatory approvals, 
development plans, timing for completion, production capacities and 
performance of the future phases and expansions of the Christina Lake project, 
including the RISER program, the Surmont project and MEG'sother properties 
and facilities; and the anticipated sources of funding for operations and 
capitalinvestments. All such forward-looking information is based on 
management's expectations and assumptions regarding future growth, results of 
operations, production, future capital and other expenditures (including the 
amount, nature and sources of funding thereof), plans for and results of 
drilling activity, environmental matters, business prospects and 
opportunities. By its nature, such forward-looking information involves 
significant known and unknown risks and uncertainties, which could cause 
actual results to differ materially from those anticipated. These risks 
include, but are not limited to: risks and delays in the development of or in 
the production associated with MEG's projects; the securing of adequate 
supplies and access to markets and transportation infrastructure; the 
uncertainty of estimates and projections relating to production, costs and 
revenues; the availability of take away capacity on the electric transmission 
grid; health, safety and environmental risks; risks of legislative and 
regulatory changes to, amongst other things, tax, land use, royalty and 
environmental laws; changes in commodity prices and foreign exchange rates; 
and risks and uncertainties associated with securing and maintaining the 
necessary regulatory approvals and financing to proceed with the development 
of MEG's projects and facilities. Although MEG believes that the assumptions 
supporting such forward-looking information are reasonable, there can be no 
assurance that such assumptions will be correct. Accordingly, readers are 
cautioned that the actual results achieved may vary from the forward-looking 
information provided herein and that the variations may be material. Readers 
are also cautioned that the foregoing list of assumptions, risks and factors 
is not exhaustive. For supplemental information regarding forward-looking 
information generally, see "Risk Factors" and "Regulatory Matters" within 
MEG's annual information form dated March 28, 2012 (the "AIF") along with 
MEG's other public disclosure documents. A copy of the AIF and of MEG's other 
public disclosure documents are available through the SEDAR website 
(www.sedar.com) or by contacting MEG's investor relations department.

Non-IFRS Financial Measures

This news release includes references to financial measures commonly used in 
the crude oil and natural gas industry, such as operating earnings, cash flow 
from operations and cash operating netback. These financial measures are not 
defined by IFRS as issued by the International Accounting Standards Board and 
therefore are referred to as non-IFRS measures. The non-IFRS measures used by 
MEG may not be comparable to similar measures presented by other companies. 
MEG uses these non-IFRS measures to help evaluate its performance. Management 
considers operating earnings and cash operating netback to be important 
measures as they are indicative of profitability relative to current commodity 
prices. Management uses cash flow from operations to measure MEG's ability to 
generate funds to finance capital expenditures and repay debt. These non-IFRS 
measures should not be considered as an alternative to or more meaningful than 
net income (loss) or net cash provided by operating activities, as determined 
in accordance with IFRS, as an indication of MEG's performance. The non-IFRS 
operating earnings and cash operating netback measures are reconciled to net 
income (loss), while cash flow from operations is reconciled to net cash 
provided by operating activities, as determined in accordance with IFRS, under 
the heading "Non-IFRS Measurements" in MEG's Management's Discussion and 
Analysis pertaining to the third quarter of 2012.

MEG Energy Corp. is focused on sustainable in situ oil sands development and 
production in the southern Athabasca oil sands region of Alberta, Canada. MEG 
is actively developing enhanced oil recovery projects that utilize SAGD 
extraction methods. MEG's common shares are listed on the Toronto Stock 
Exchange under the symbol "MEG."







Investors Helen Kelly Director, Investor Relations 403-767-6206 
helen.kelly@megenergy.com

Media Brad Bellows Director, External Communications 403-212-8705 
brad.bellows@megenergy.com

SOURCE: MEG Energy Corp.

To view this news release in HTML formatting, please use the following URL: 
http://www.newswire.ca/en/releases/archive/October2012/25/c9781.html

CO: MEG Energy Corp.
ST: Alberta
NI: OIL ERN CONF 

-0- Oct/25/2012 09:00 GMT


 
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