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Press release from CNW Group

MEG Energy announces plans for new investment to support 30% increase in production

Monday, July 16, 2012

MEG Energy announces plans for new investment to support 30% increase in production07:51 EDT Monday, July 16, 2012CALGARY, July 16, 2012 /CNW/ - MEG Energy Corp. announced today that its Board of Directors has conditionally approved a broad-reaching production enhancement program for the company's in situ oil sands facilities at Christina Lake, Alberta. The program, called RISER, increases the company's production target from Christina Lake Phases 1, 2 and 2B to approximately 80,000 barrels per day (bpd) at the end of 2014 or early 2015 from the previous target of 60,000 bpd. With fixed costs spread over higher production volumes, RISER is also expected to help further reduce non-energy operating costs per barrel once the program is fully implemented.Capital costs for the incremental production growth are expected to be in the $15,000 to $20,000 per barrel per day range. To support its plans for increased production, MEG expects to invest an additional $185 million in 2012."The goal of RISER is to deliver production increases from existing facilities," said Bill McCaffrey, President and Chief Executive Officer. "For 2012, the implementation of these enhancement initiatives will support full year production at the high end of our guidance of 26,000 to 28,000 barrels per day. With broader deployment of the technology, we'll be working on opportunities for 'interphase growth' between major expansion projects of 10 to 15 per cent per year over the next several years."The suite of technologies comprising RISER incorporates infill wells, non-condensable gas (NCG) injection to maintain reservoir pressure, and a variety of related proprietary processes."These are relatively low capital, high return initiatives which not only support increased production with shorter lead times, but should also help drive our operating costs even lower," said McCaffrey. "The RISER concept has been implemented in MEG's Phase 1 area. NCG was introduced into the three existing well pairs and two infill wells were added. Production from the pilot pattern increased to 2,900 barrels per day at a steam-oil ratio of 1.3 in the second quarter of this year, compared with production of 2,300 barrels per day at a steam-oil ratio of 2.7 in the second quarter of 2011.""Achieving low steam oil ratios frees up steam for redeployment into new wells, further supporting higher production levels," McCaffrey added.MEG plans to implement RISER in Phases 1 and 2 prior to the start-up of Phase 3A, currently scheduled for 2016. Over the next two years, MEG plans to drill up to 32 additional infill wells in the Phase 2 area and, subject to regulatory approval, introduce NCG injection on additional SAGD well pairs. Engineering work is underway to assess the extent of facility modifications that may be required, as well as to position future phases to incorporate RISER technology.To support RISER and to advance engineering and procurement for Christina Lake Phase 3A and related infrastructure, MEG plans to increase its 2012 capital budget to a total of $1.75 billion. Of the expanded 2012 capital program, $185 million is related to RISER, including nine new infill wells in the Phase 2 project area, nine additional SAGD well pairs, and engineering and facility modifications to ensure that the central water and oil handling facilities can reliably accommodate increased volumes. Work on the central facilities is to be undertaken during MEG's previously planned maintenance turnaround in September 2012.A further $105 million is to be directed to the advancement of engineering and procurement of long lead items for the Christina Lake Phase 3A project.To accommodate MEG's accelerated production growth, investment is also allocated to advance expansion of the Access Pipeline and related field infrastructure, including an additional 800-bed construction camp and upgraded access roads at Christina Lake.The increased capital investment does not allot any additional funding for Christina Lake Phase 2B, which remains on budget and scheduled for start-up in 2013.Revised 2012 Capital Investment Summary          (C$ millions) PreviousRevisedGrowth  Christina Lake Phase 2B560560Christina Lake Phase 355160Christina Lake enhancement opportunities (RISER)65250Drilling and seismic115115Regulatory1515Commissioning & start-up and other110100   Infrastructure  Access Pipeline90130Stonefell Terminal140140Field infrastructure80120   Sustaining and maintenance8080   Other6080   Total1,3701,750The initiation of the RISER program and the increase in MEG's capital budget is conditional on financing.  A copy of this news release is available on SEDAR (www.sedar.com, on MEG's website www.megenergy.com) or by contacting MEG's investor relations department.Forward-Looking InformationThis news release may contain forward-looking information including but not limited to: expectations of future production, SORs, operating costs and capital investments; the anticipated capital requirements, timing for receipt of regulatory approvals, development plans, timing for completion, production capacities and performance of the future phases and expansions of the Christina Lake project; and the anticipated sources of funding for operations and capital investments. All such forward-looking information is based on management's expectations and assumptions regarding future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities. By its nature, such forward-looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: risks and delays in the development of or in the production associated with MEG's projects; the securing of adequate supplies and access to markets and transportation infrastructure; the uncertainty of estimates and projections relating to production, costs and revenues; the availability of take away capacity on the electric transmission grid; health, safety and environmental risks; risks of legislative and regulatory changes to, amongst other things, tax, land use, royalty and environmental laws; changes in commodity prices and foreign exchange rates; and risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the development of MEG's projects and facilities. Although MEG believes that the assumptions supporting such forward-looking information are reasonable, there can be no assurance that such assumptions will be correct. Accordingly, readers are cautioned that the actual results achieved may vary from the forward-looking information provided herein and that the variations may be material. Readers are also cautioned that the foregoing list of assumptions, risks and factors is not exhaustive. For more information regarding forward-looking information see "Risk Factors" and "Regulatory Matters" within MEG's annual information form dated March 28, 2012 (the "AIF") along with MEG's other public disclosure documents. A copy of the AIF and of MEG's other public disclosure documents is available through the SEDAR website (www.sedar.com) or by contacting MEG's investor relations department. Guidance regarding capital expenditures may constitute a "financial outlook" as contemplated by National Instrument 51-102 of the Canadian Securities Administrators entitled Continuous Disclosure Obligations.  The purpose of such guidance is to forecast the anticipated capital expenditures by MEG in 2012 and such information may not be appropriate for other purposes.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."   For further information: Investors Helen Kelly Director, Investor Relations 403-767-6206 helen.kelly@megenergy.com Media Brad Bellows Director, External Communications 403-212-8705 brad.bellows@megenergy.com