Stockwatch Energy - Today - MEG Fellow oil sands producer MEG Energy Corp. (MEG) added 77 cents to $19.04 on 3.9 million shares. It has now added nearly $4 in as many days, buoyed by rising oil prices, with the added benefit of fawning analyst attention. RBC analyst Greg Pardy published a research note yesterday in which he reiterated his "outperform" rating on MEG and his price target of $24.
Mr. Pardy was evidently in a boosterish mood after having a lovely chat with MEG's president and CEO, Derek Evans, and its new chief financial officer, Ryan Kubik. (Mr. Kubik is new to MEG, which he joined in August, but he is not new to the courtly dances performed by analysts and executives. He was previously the CFO and then the CEO of Canadian Oil Sands, which the above Suncor bought for $6.6-billion in 2016.) According to Mr. Pardy, the conversation was "upbeat and pointed towards favourable progress in terms of [MEG's] operating performance, debt reduction and shareholder returns initiatives."
More specifically, the executives are apparently mulling a $400-million to $450-million budget next year, with the goal of either increasing production modestly or keeping it at the current level of 100,000 barrels a day. The existing production is providing a "resounding" amount of cash, according to Mr. Pardy, who estimated this year's free cash flow at $1.4-billion. MEG is using most of this for debt reduction and a bit for share buybacks. As debt goes down, the amount earmarked for buybacks will go up. (MEG does not pay a dividend, and the executives seemingly played coy on whether they plan to change that.)
"Our bullish stance towards MEG reflects its capable leadership team, top-quartile oil sands operations ... balance sheet deleveraging and rising shareholder returns," concluded Mr. Pardy. As noted above, he has a prominent "outperform" rating on the $19 stock and a price target of $24. Less prominent were the fine-print disclosures about the ties between MEG and Mr. Pardy's employer, RBC. The bank is required to disclose that it "makes a market" in MEG's securities and receives compensation for unspecified products or services.