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MEG Energy Guidance On Track Despite Turnarounds, Wildfires

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MEG Energy Corp. has reported second quarter 2015 operating and financial results.

Highlights:

• Production volumes for the second quarter ahead of plan at 71,376 barrels per day (bpd), which include the impact of major planned plant turnarounds involving Phases 1, 2 and 2B in the quarter;
• strong>MEG's production during the second quarter was impacted by planned major turnaround work at the company's Phase 1, 2 and 2B facilities, as well as unplanned delays to work schedules due to wildfires in northern Alberta. Staff and contractors working on the turnarounds were temporarily evacuated as a precautionary measure, resulting in a delay of approximately one week to turnaround activities. Despite these impacts, second quarter production averaged 71,376 bpd, above the 68,984 bpd recorded for the second quarter of 2014, during which turnaround activities were relatively minor. 
• Strong projected production volumes over the balance of the year, with operations resuming following the turnaround and the continuing application of the company's RISER initiative, are expected to support targeted record annual production of 78,000 to 82,000 bpd.
• Net operating costs for the second quarter averaged $9.43 per barrel compared to $14.49 per barrel for the same period in 2014. The decrease in net operating costs is attributable to a per barrel decrease in energy and non-energy operating costs, partially offset by a decrease in the average power sales price from electricity sold to the market from MEG's cogeneration facilities. Non-energy operating costs decreased to $7.01 per barrel for the three months ended June 30, 2015 compared to $9.64 per barrel for the same period in 2014, which included $1.94 per barrel for annual inspection and maintenance activities at Christina Lake. Non-energy operating costs for 2015 take into account the capitalization of $20.8 million associated with the major turnarounds.
• MEG recognized an operating loss (adjusted for items that are not indicative of operating performance) of $23.0 million for the second quarter of 2015, compared to operating earnings of $111.1 million for the same period in 2014. Operating earnings were impacted by a lower bitumen realization, primarily as a result of the significant decline of U.S. crude oil benchmark pricing, higher transportation costs and an increase in interest expense, partially offset by lower net operating costs and lower royalties.

Financial Liquidity

• As at June 30, 2015, MEG's available capital resources included $438.2 million of cash and cash equivalents and an undrawn US$2.5 billion syndicated revolving credit facility. The corporation also has a US$500 million guaranteed letter of credit facility, under which US$157.3 million of letters of credit have been issued.
• The previous guidance for non-energy operating costs of $8 to $10 per barrel contained an estimate for turnaround costs. These costs of $20.8 million are now being capitalized. As a result, the guidance for full-year 2015 non-energy operating costs is now $7.30 to $9.30 per barrel. There is no change to the annual 2015 capital budget of $305 million.
• During the second quarter, MEG initiated a review of its financial leverage, with the overall objective of better positioning the Corporation to grow in a low price environment. All of MEG’s outstanding long-term debt is covenant lite, with the first maturity not due until 2020. Notwithstanding the above, MEG and its advisors are reviewing deleveraging options available to the Corporation, including how its interest in the Access Pipeline could contribute to this initiative. Any alternative pursued must align with the Corporation’s overall long-term strategy.

Bill McCaffrey, President and CEO said: "The major turnaround work for 2015 is now complete, leaving MEG well-positioned for strong operations through the balance of the year.  Equally important, plant testing of oil and water processing facilities carried out during the turnaround set the stage to enhance our expansion plans. MEG is utilizing these results to develop its future brownfield expansions that are anticipated to occur over the next several years."

"We continue to have a very solid financial foundation. Our efforts since late last year have been focused on how we can build on that foundation to continue to deliver growth in a lower oil price environment."