The ratings on Calgary, Alta.-based MEG Energy Corp. reflect Standard&Poor's Ratings Services' assessment of the company's weak cash flow generation, below-average profitability during the initial phases of its multiyear steam-assisted gravity drainage (SAGD) project development, and discounted realized crude oil prices. In our opinion, the company's large resource base and high recovery rates, good visibility to long-term production growth, and competitive full-cycle cost profile offset these weaknesses. MEG holds a 100% interest in 900 square miles of oil sands leases in the Athabasca region of northern Alberta, and is producing its bitumen resources using SAGD technology. The company's oil sands leases are adjacent to Cenovus Energy Inc.'s (BBB+/Stable/--) Christina Lake leases and Devon Energy Inc.'s (BBB+/Stable/A-2) Jackfish SAGD
