MEG Q3 MEG Q3
Hey everyone. I had a chance to take a look at Meg's financials and I figured I would share my thoughts on them. I'm not an accountant, so feel free to correct if I misrepresent something.
On a side note, the EIA report released today was disappointing. I'm really not sure how the US keeps increasing production, seems like every producer is running at 99% to stay afloat. Sooner or later the remaining rigs will decline to a point of no longer being viable.
Meg posted a loss of 428 million or (1.90) per share in Q3, pretty staggering at first glance. That missed estimates by about 25%. It's actually a lot better then it looks. The vast majority of the loss is made up of foreign exchange losses (335.5 mil) and depletion and depreciation (122 mil). Without those two items MEG would have pretty much been in the black (which I think is pretty amazing considering what the pay in loan interest).
The foreign exchange loss is basically due to the CAD losing 7% of it's value, this added 335.5 million cad in Q3 to the 5 billion debt because it was borrowed in US dollars and not hedged. This doesn't really concern me for two reasons. 1) This expense is not recurring unless the CAD drops a further 7% in Q4, which I highly doubt. 2) The loss is not actually realized, so if the CAD recovers before the debt is repaid, the loss will be recovered.
Depletion and depreciation is more less past costs that could not be written off, probably due to CRA rules. This is also of no concern to me.
Neither of the two expenses actually effect cash in the quarter.
I used to feel ATH offered the best value. I now feel MEG offers better value after reviewing the financials. Debt and market cap equals about 7.5 billion. When you consider they produce 83,000 low cost barrels a day with the potential for 200,000 a day, and they have the 1.5 billion ish pipeline interest. I really think the stock offers good value. The company would be quite profitable at $65 WTI, I calculate about $2 a share per year.