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Six MEG oil trains loaded in January as company skirts jammed pipelines

CALGARY - Unit trains full of MEG Energy Corp's crude have begun departing from a new rail loading facility northeast of Edmonton, as the oilsands producer looks for ways around jammed pipelines to the best-paying markets.

Late last year, MEG hooked up crude from its oilsands operations in northeastern Alberta to an oil-by-rail terminal operated by Canexus Corp. (TSX:CUS), making it the first direct connection of its kind in Canada.

The first unit train — 60,000 barrels of crude across some 100 linked railcars — was loaded in December. Six more followed in January.

How much crude MEG moves by rail in future months will depend on where the best-paying markets are, CEO Bill McCaffrey told a conference call with analysts Thursday.

"Every month, we have discussions with refiners — they want to buy crude, we want to sell crude," he said

Once the company determines where it can get the best price, "that's where we'll point those trains."

MEG declined to disclose how much crude is moving to the attractive U.S. Gulf Coast market.

"We have the ability to send all of it to the Gulf Coast if we want or we can send it in other directions. What we chase is just the best deal."

Companies have been increasingly turning to rail ship their crude, with major pipeline expansions held up by regulatory delays and environmental opposition.

Oilsands giant Suncor Energy Inc. (TSX:SU) said earlier this week its Montreal refinery is receiving about 30,000 barrels of oil per day by rail. Imperial Oil Ltd. (TSX:IMO) and crude shipper Kinder Morgan are building a crude-by-rail oil terminal in Edmonton that would start up next year and have an initial capacity of 100,000 barrels per day.

MEG also recently completed its 900,000-barrel Stonefell storage terminal near Edmonton. When oil markets lag, the terminal gives MEG the option of saving its crude to be sold when prices are better. During the fourth quarter, when pipelines were unable to ship the volumes their customers were requesting, the Stonefell terminal came in handy.

"If this had happened in the past, we would have had to curtail production or sell these barrels at a lower price," said Don Moe, vice-president of supply and marketing.

"With the terminal operation, MEG had the ability to avoid distressed sales and begin to redirect these volumes to higher-priced markets at a later date."

MEG has also been shipping crude along U.S. waterways using barges.

The progress on what MEG calls its "hub and spoke" market access strategy comes at a time of big production growth for the company.

MEG, which has a target of producing 80,000 barrels per day by 2015, said output averaged a record 42,251 barrels per day for the fourth quarter, compared with 32,292 in the same period a year earlier.

In January, with the ramp-up of a new project, production averaged around 55,000 barrels per day.

The company also announced a 13 per cent increase in proved reserves to 1.4 billion barrels and a 10 per cent increase in proved plus probable reserves to 2.9 billion barrels.

Shares in MEG popped nearly four per cent in afternoon trading on the Toronto Stock Exchange to $31.16.

Also Thursday, MEG's posted a fourth-quarter loss of $148.2 million or 67 cents per share, compared with a loss of $18.7 million or nine cents per share a year earlier.

The loss came as the company took a foreign exchange hit on the conversion of its U.S.-dollar denominated debt, due to the strengthening of the U.S. dollar against the loonie.

Revenue totalled $350.3 million, up from $297.6 million in the fourth quarter of 2012.

During the quarter, MEG fetched $38.22 per barrel of bitumen, down from $45.67 a year earlier.

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