UPDATE 2-MEG Energy posts profit as production costs stay at record low

(Adds details on hedging program, CEO comment from conference
call, share price)
By Julie Gordon
CALGARY, Alberta, April 28 (Reuters) - MEG Energy Corp
MEG.TO , which operates in Canada's oil sands, reported a
first-quarter profit, compared with a loss a year earlier, as it
managed to keep production costs at record lows to help cushion
the impact of a slump in oil prices.
The Calgary-based company also announced a strategic hedging
program, entering into contracts on some 10 percent of its blend
sales through to the third quarter, in an effort to protect its
cash position.
On the cost side, MEG has hedged about 25 percent of its
remaining condensate feeds for this year and 40 percent in 2017,
Chief Executive William McCaffrey told investors on a conference
call.
"Today, the objective of this program is to help protect our
liquidity against downside risk," said McCaffrey. "In the longer
term, the objective of the program will be to provide cash flow
stability to support our capital programs."
Shares were up 6.74 percent at C$7.28 around midday on the
Toronto Stock Exchange.
The prolonged slump in crude prices has forced oil
producers, including MEG, to try and preserve cash and reduce
debt by selling assets, laying off workers and cutting their
dividend as well as capital spending.
McCaffrey noted that talks are progressing on the sale of
MEG's 50 percent stake in the Access pipeline in northern
Alberta, adding that more than one party was interested in the
asset, but declined to provide further details.
"We're continuing to work make sure we get the right deal
for our shareholders and we just have to be very disciplined
about that," he said.
MEG, whose key operations are in the Athabasca oil sands
region of Alberta, said cash flow used in operations, or
negative cash flow, rose to C$131 million from C$30 million as
realized bitumen prices more than halved.
Bitumen production fell about 7 percent to 76,640 barrels
per day (bpd) due to a turnaround a quarter ahead of schedule at
MEG's Christina Lake facilities in northern Alberta.
However, its net operating costs decreased 19 percent to
C$8.53 per barrel, in line with the record-low cost in the
previous quarter.
That helped the company reported a net profit of C$131
million, or 58 Canadian cents per share, for the three months
ended March 31. It had lost C$508 million, or C$2.27 per share,
a year earlier.
Revenue fell 37.9 percent to C$290 million.
($1 = C$1.26)