Revised Targets Following MEG Energy Corp. unveiling “a clear and comprehensive” business update, including a longer-term 2025-30 growth outlook of 25,000 barrels per day, RBC Capital Markets analyst Greg Pardy reaffirmed his “constructive” stance, pointing to “its capable leadership team, solid operating performance, strong balance sheet and abundant shareholder returns.”
“The company’s strategic game plan makes sense to us, especially as it relates to driving down its WTI break-even (and presumably GHG emissions per barrel) over time by developing higher quality resource,” he said. “At the same time, we are hopeful that such growth will be delivered at a capital intensity of well under $25,000 per barrel per day. The company also emphasized that it will remain focused on its core assets and sees no need to diversify its portfolio.”
Mr. Pardy was pleased the Calgary-based company emphasized its “high-quality” resource base, including 1.9 billion barrels of proven + probable reserves, and an “aim to develop future pads in the northwest/southeast areas of its Christina Lake lease targeting areas of thicker (circa 35 meters of net pay) and 5 per cent higher average oil saturation of about 80 per cent which should drive a lower average well SOR [steam-oil ratio] of circa 2.5 times.”
“MEG’s 2025-30 investment plan will see its capital investment sit at $635-million in 2025, rising to $650 million in 2026-27 before dropping to sustaining capital levels of circa $450-million (about $10/bbl) in the 2028-30 timeframe,” he said. “Eyeballing the charts from the company’s business update presentation would suggest to us that MEG’s bitumen production is expected to climb to about 110,000 bbl/d in 2026, 115,000 bbl/d in 2027, 125,000 bbl/d in 2028, 120,000 bbl/d in 2029 and finally circa 130,000 bbl/d by 2030.”
After modest trims to his 2025 forecast, Mr. Pardy lowered his target for the Calgary-based company’s shares by $1 from $34. The average target on the Street is $32.53.
“Under our base outlook, MEG is trading at debt- adjusted cash flow multiples of 4.9 times in 2024 (vs. our oil sands weighted peer group avg. of 6.1 times) and 5.4 times in 2025 (vs. our peer group at 6.3 times), and free cash flow yields of 13 per cent in 2024 (vs. our peer group at 10 per cent) and 9 per cent in 2025 (vs. our peer group at 8 per cent),” he said. “We believe that MEG should trade at an average valuation vs. our peer group given its capable leadership team, strong balance sheet, top quartile Christina Lake operations, solid operating momentum and abundant shareholder return.”
Elsewhere, others making target changes include:
* ATB Capital Markers’ Patrick O’Rourke to $35 from $37 with an “outperform” rating
“Overall, we view the event as neutral. MEG provided formal 2025 capital guidance of $635-million that was directly in-line with estimates (ATB estimate $640-million; consensus $640-million), including $435-million of maintenance capital (from $450-million in 2024, roughly flat year-over-year reflecting improved pad/drilling efficiencies and anticipated drilling in better resource quality), $70-million in turnaround costs (reflecting a Q2/25 major turnaround), and $130-million of capital targeted at the Christina Lake growth project that aims to take processing capacity to 135.0 mbbl/d (from 110.0 mbbl/d currently) by 2028,” he said. “The midpoint of the 2025 production guidance range of 95.0-105.0 mbbl/d was modestly below estimates (prior ATBe 103.8 mbbl/d; consensus 104.3 mbbl/d), reflecting an expected Q2/25 major turnaround impact of 8.0 mbbl/d on 2025 FY volumes, with the regulatoryrequired turnaround also providing MEG an opportunity to add tie-ins for the expansion project in advance of extending to four-year turnaround cycles (from three currently), providing an expected NPV10 $175-million in turnaround cost savings over a 10-year period.”
* National Bank’s Travis Wood to $28 from $31 with a “sector perform” rating.
“Although the capital outlay for the next several years was in line with whisper and conference call commentary, we view the aggregate amount of spending as slightly higher than expected relative to the original plan (perhaps 2027 was the bogey), with the production ramp largely as expected,” he said. “Additionally, the implied capital efficiencies of $20-25,000/bbl/d to build out capacity to 135 mbbl/d remains robust, with our production forecast reaching an average of 126 mbbl/d in 2028E (the end of our forecast period) which is in line with the CAGR plan of 5 per cent. Appreciating the company has a continued focus on improving efficiencies through leveraging both operational and development optimizations, we are forecasting higher than budgeted sustaining capital through 2028.”
* Desjardins Securities’ Chris MacCulloch to $30.50 from $31.50 with a “hold” rating.
“While acknowledging the disappointing production guidance on the back of a deeper-than-expected 2Q25 turnaround, we were impressed by the business update, specifically the detailed expansion plan to increase Christina Lake production capacity to 135,000 bbl/d in a capital-efficient manner while maintaining competitive capital returns,” he said.