The ratings on Calgary, Alta.-based MEG Energy Corp. reflect Standard&Poor's Ratings Services' assessment of the company's weak-but-improving cash flow generation, below-average profitability (measured by its return on capital employed - ROCE) as the company proceeds with its multi-stage steam-assisted gravity drainage (SAGD) project development, and the company's exposure to discounted 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. In our view, the company's satisfactory business risk profile reflects its currently weak (albeit improving) consolidated profitability, and the discounted crude oil prices associated with its low API gravity bitumen production. As we attribute investment-grade rating characteristics to
