The ratings on Calgary, Alta.-based MEG Energy Corp. reflect Standard&Poor's Ratings Services' assessment of the company's negative free cash flow generation, below-average profitability as the company proceeds with its Phase 2B expansion of its multiyear steam-assisted gravity drainage (SAGD) project development, and lower realized crude oil prices. In our opinion, MEG's large resource base and high recovery rates, good visibility to long-term production growth, and a competitive SAGD full-cycle cost profile offset these weaknesses. The company 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. Its oil sands leases are adjacent to Cenovus Energy Inc.'s (BBB+/Stable/--) Christina Lake leases
