MEG Energy Corp. reports that independent reserves evaluator GLJ Petroleum Consultants Ltd. (“GLJ") has updated, on June 29, 2012, its evaluation of MEG’s reserves and resources as at December 31, 2011. Highlights of the evaluation, which reflects the impact of Christina Lake Phase 3 regulatory approvals and the initiation of the Surmont regulatory process, include:
Proved reserves of 1.2 billion barrels of bitumen, representing an increase of 70% over the previous evaluation;
An increase in the discounted pre-tax cash flow valuation (PV-10%) for MEG’s proved reserve base to $9.5 billion from the previously reported $6.8 billion.
Combined, proved plus probable reserves increased approximately 20% to a total of 2.6 billion barrels. MEG’s updated reserve estimates rank the company seventh among TSX-listed oil and gas companies in both the proved and probable categories.
“The further commercial definition and de-risking of our resource base at Christina Lake and Surmont solidifies the foundation of our strategy to increase oil sands production capacity to approximately 260,000 barrels per day by the end of this decade,” said Bill McCaffrey, President and Chief Executive Officer.
The increase to MEG’s proved reserves acknowledges regulatory approvals that were granted for the company’s Christina Lake Phase 3 project, which has resulted in probable reserves being reclassified as proved reserves. The increase to MEG’s proved plus probable reserves reflects the initiation of the regulatory application process for MEG’s Surmont project, which has resulted in contingent resources being reclassified as probable reserves. Resources underlying prospective development areas qualify for the more definite proved and probable reserve categories once certain conditions are met that indicate a higher likelihood the resource will be commercially developed. These conditions include density of delineation drilling, regulatory approval status and related capital investment plans.
The report reflects GLJ’s evaluation of a cumulative 51,200 acres at MEG’s Christina Lake leases, identifying 2.1 billion barrels of proved plus probable reserves and an additional 1.0 billion barrels of contingent resources (best estimate). At the company’s Surmont leases, the report identifies 511 million barrels of probable reserves and 352 million barrels of contingent resources (best estimate) over 20,480 acres of evaluated lease holdings.
“What we have identified to date is not only a large reserve base, but also one of very high quality, as illustrated by the consistently strong production and operating cost performance at Christina Lake,” said McCaffrey. “With that combination of quantity and quality, we believe we are very well positioned in our plans to increase production capacity tenfold by 2020, while we continue our efforts to drive down operating costs that are already among the lowest in the industry.”
In the first quarter of 2012, MEG reported net operating costs of $7.95 per barrel. Production, at 28,446 barrels per day (bpd) was 14% over design capacity of 25,000 bpd, all from the company’s Christina Lake project area.
MEG currently has regulatory approval for projects designed to produce 210,000 bpd from its Christina Lake leases. MEG’s Surmont project, which is situated along the same geological trend as Christina Lake, has an anticipated design capacity of 120,000 bpd over multiple phases. MEG began the regulatory process for Surmont earlier in 2012 and plans to file a regulatory application for the project later this year.
MEG Energy Corp. Reserves and Contingent Resources Summary
|Christina Lake||Surmont||Growth Properties||Total|
|Millions of barrels|
|Proved plus probable reserves||2,060||511||Nil||2,571|
|Contingent resources (best estimate)||988||352||1,968||3,308|
|Proved reserves - PV-10%||9,472||Nil||Nil||9,472|
|Proved plus probable reserves PV-10%||13,502||2,211||Nil||15,713|
|Contingent resources (best estimate) PV-10%||2,780||1,848||7,195||11,823|
The updated GLJ report does not include an evaluation of MEG’s 2012 first quarter 155-well delineation drilling program, or the initial production performance of MEG’s first two infill horizontal wells and injection of non-condensable gas. As part of MEG’s standard annual reserve and resource reporting, GLJ is in the process of evaluating these results for the planned December 31, 2012 report.
Forward-Looking Information and Reserves and Resources Disclosure Advisory
This news release may contain forward-looking information including but not limited to estimates of reserves and resources and the present value of revenues associated with such reserves and resources. Statements in this news release relating to reserves and resources involve the implied assessment, based on certain estimates and assumptions, that the described reserves and resources, as the case may be, exist in the quantities predicted or estimated, and can be profitably produced in the future. There is no assurance that the forecast price and cost assumptions contained in the GLJ Report will be realized and variances could be material. Other assumptions and qualifications relating to project schedules, costs and other matters are inherent in these estimates. See "Notice Regarding Forward Looking Information", "Independent Reserves and Resources Evaluation" and "Risk Factors" in MEG’s annual information form dated March 28, 2012 (the "AIF") for further information regarding such assumptions and qualifications. A copy of the AIF and of MEG's other public disclosure documents are available through the SEDAR website (www.sedar.com), on MEG’s website (www.megenergy.com) or by contacting MEG's investor relations department.
This news release contains estimates of reserves for both the Surmont and Christina Lake properties. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. This news release also discloses estimates of MEG's contingent resources and the net present value associated with net revenues associated with the production of such contingent resources. There is no certainty that it will be commercially viable to produce any portion of such contingent resources and the estimated future net revenues do not necessarily represent the fair market value of such contingent resources. Estimates of contingent resources involve additional risks over estimates of reserves and there is no certainty that it will be commercially viable to produce any portion of the contingent resources. All evaluations of future revenue are after the deduction of royalties, development costs, production costs and well abandonment costs but before consideration of indirect costs such as administrative, overhead and other miscellaneous expenses.
Supplemental information regarding GLJ’s updated evaluation is contained in a document entitled “Reserves and Resources Update” linked at the bottom of this page and available on the SEDAR website.
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."
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