MEG Energy's (MEGEF) CEO Bill McCaffrey on Q3 2014 Results - Earnings Call Transcript

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About: Meg Energy Corp. (MEGEF)
by: SA Transcripts

MEG Energy Corp. (OTCPK:MEGEF) Q3 2014 Earnings Conference Call October 29, 2014 9:30 AM ET

Executives

John Rogers - VP, Investor Relations and External Communications

Bill McCaffrey - Chief Executive Officer

Eric Toews - Chief Financial Officer

Helen Kelly - Director, Investor Relations

Analysts

Mark Friesen - RBC Capital Markets

Benny Wong - Morgan Stanley

Menno Hulshof - TD Securities

Phil Skolnick - Canaccord Genuity

Mike Dunn - FirstEnergy

Amy Stepnowski - Hartford

Dan Healing - Calgary Herald

Jeff Lewis - Globe and Mail

Operator

Good morning, ladies and gentlemen. Welcome to the MEG Energy Corp’s Third Quarter Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to John Rogers, VP, Investor Relations and External Communications. Please go ahead, Mr. Rogers.

John Rogers

Great, thanks. Thanks, Melanie and welcome everyone to our third quarter conference call. We have with us today our CEO, Bill McCaffrey, who is phoning in to us from a renote location. And in the room here Eric Toews is with us, as well as Helen Kelly from Investor Relations.

I will remind you that today’s call does contain forward-looking information, please refer to our quarterly reports and other documentations on SEDAR and our Web site for further information.

And with that, I'll turn it over to Bill for his comments on the quarter. Bill?

Bill McCaffrey

Thanks, John, and good morning everyone. To start it off, I believe it's worth contrasting what I would describe as a strong and steady quarter from an operating and cash flow perspective at MEG, as the volatility currently being experienced in the North American capital market.

Within our operations Q3 was a very tough -- very positive and in line with our overall strategy. And for me the highlights for the quarter were as follows. We achieved record average production rates of over 76,000 barrels a day and that's 11% higher than our Q2 rates and more than double our volumes at this time last year. Our non-energy op cost came in well below $8 a barrel and that’s another record for MEG. And despite the slide in the benchmark of the light through oil prices, we realized our third highest quarterly blend sales price on record at $78.60 a barrel.

The producers of heavy oil, a deal of the drop in WTI was offset by a number of factors. These includes weaker Canadian dollars, lower drilling cost and ongoing structural changes in the market, which enabled tighter, light-heavy differentials. Altogether we successfully translated into very strong cash operating netbacks of $48.70 a barrel.

And this is consistent with what we saw in the second quarter and underscores mix trend of lowering operating costs and achieving attractive and more stable pricing for every barrel we produced as we broaden our market access.

Finally, with strong Q3 cash flows of $239 million, the quarter further illustrates the step change occurring in our financial capabilities. As our cash flows grow with continually reducing our needs for external capital to fund our growth.

And I think it's important to note that the Q3 cash flows were attained despite MEG's requirement to provide line fill to the startup of the Access Pipeline expansion that was mentioned in the last quarter. The line fill reduced our sales volume and enhance our cash flows by about $27 million, which would have otherwise put us in record territory.

Let me spend a few months to elaborate on these highlights. Production during the quarter averaged 76,470 barrels per day, reflecting the ramp up of 2B and the continued success of MEG's RISER initiative. With the growing production MEG's Q3 non-energy operating cost fell to a record low of $7.16 a barrel reflecting higher throughput and increased efficiency through our capital plan. In non-turnarounds quarters, we are now beginning to see non-energy op cost at sub $8 per barrel level. Further reinforcing our position as a low cost operator and making MEG quite competitive on a global basis.

During the quarter as a result of the RISER initiative on Phase 1 and 2, we were able to free up steam and redirect it to nine new well pairs that are now in circulation. We expect to convert them into producing wells over the next couple of months. And with October production at approximately 77,500 barrels a day and the new wells coming on production in the near future, we are well on track to meeting our target of 80,000 barrels a day by early 2015.

In Q3, the steam-oil ratio averaged 2.5 on a field basis. In addition it’s particularly exciting to see recovery already approaching 55% of the original oil in place in our initial eMSAGP pilot and that’s just 6.5 years in total life of those wells. Record modeling of the reservoirs suggests that ultimate recovery could exceed 70%. Recovery factors we’re seeing to date and the consistent level of performance through Phase 2 eMSAGP implementation reaffirms our confidence in the technology as we look to apply the RISER concept to our future growth.

Well shifting from the production side, I'd like to give you an update on what we are seeing in the heavy oil market. In Q3 we continued to focus our efforts on marketing initiatives that enhanced the quantum and stability of our cash flow. Notwithstanding the volatility of Brent and WTI in the third quarter, WCS a heavy oil benchmark was relatively strong and stable. The tighter light heavy differentials we're seeing today are a reflection of our industry as a whole doing a great job at broadening market access.

As an example, industry forecast suggest that there will be soon be access to nearly 900,000 barrels a day of crude by rail capacity which will be a threefold increase over the past 12 months to 18 months. To put this into perspective this is similar in magnitude to the addition of another major pipeline. We're also beginning to witness barrels moving offshore. A trend I believe we'll see more of in the coming years. The start up of Flanagan Seaway pipeline system which MEG is an anchor ship of, will also contribute to further strengthening and stability of WCS pricing by ultimately moving 0.5 million barrels a day out of the past two area.

Commencing in the fourth quarter our barrels will be pipeline connected directly from the well head to refiners in the Gulf Coast. MEG has an initial committed capacity of 25,000 barrels a day on the Flanagan Seaway system, ramping up to 100,000 barrels a day overtime with the ramp-up being designed to align with our growing production.

On that note, let’s turn our attention to MEG's Hub and Spoke strategy. With the completion of the access expansion we now have low cost proprietary transportation in place to handle our growing production to our marketing hub near Edmonton well into the future. Looking ahead, the start up of Flanagan and the continued ramp up of Connex's rail loading facility, along with structural changes that are underway, will allow our barrels to increasingly attract pricing plus transportation cost.

As the shipper of the Flanagan seaway pipeline, MEG has begun to supply its share of line-fills in Q4. About two thirds of the line-fill will be offset by the recovery of line-fill from the Access 24 inch pipeline which was formerly used for blend transportation. Our Hub and Spoke strategy will continue to strengthen our pricing as we broaden our market access by our efforts to sell our barrels directly to refiners. As such, we anticipate that the fourth quarter pricing will remain attractive.

With that, I'll turn it over to Eric to talk about our financial position.

Eric Toews

Thanks, Bill. As Bill has mentioned, the fundamental shift in MEG's ability to generate higher and less volatile cash flow continued into the third quarter. The current crude oil market environment is focusing investors on the sustainability and viability of North American oil producer's business models, with a particular focus on a company's ability to maintain its production at various oil prices.

Notwithstanding the fact, the MEG's heavy barrels do not meaningfully compete with lighter oil barrels for refining capacity. We think it's important this morning to mention a few substandard factors related to MEG's ability to continue to build its business over the short medium and longer term.

Firstly, once we hit our near term production target of 80,000 barrels per day, the cost to maintain that level of production is approximately $8 per barrel, or less than $20,000 per flowing barrel. This estimate includes all costs related to drilling, completing and tying in sustaining well repairs, as well as maintenance capital. At this level, sustaining capital amounts to about 20% of the current consensus estimates for MEG's cash flow for 2015, leaving MEG ample flexibility around its 2015 capital program. All of the capital required to reach 80,000 barrels per day has been invested.

Secondly, MEG's current net debt position is $3.5 billion. Net debt 2015 cash flow, again based on current consensus cash flow estimates is approximately three times. We remain comfortable with our capital structure given our execution track record coupled with our large, high-quality, low decline asset base.

As Bill has pointed out, MEG’s Hub and Spoke marketing strategy and the structural changes occurring in North American heavy oil market as a result of the industry’s market diversification initiatives gives us further confidence and the strength of our business model.

Thirdly, all of MEG’s long term debt is covenant-lite being free of financial maintenance covenants with the first maturity in 2020, over five years from now when MEG's production levels are expected to be significantly higher than today. Simply put, as long as we near to commitments to pay our interest we will remain in good standing with our debt holders.

Finally, MEG has in place a $2 billion undrawn credit facility which is also covenant-lite in structure and is not set for renewal until May 2018. The revolver remains undrawn, providing MEG with significant neat term liquidity.

Turning to capital spending, to date MEG has invested just over $900 million of the budgeted 1.8 billion of our total to 2014 capital budget announcement in December 2013. While we are still a quarter away from the end of the year, our expectation is that our full year capital spending in 2014 will come in below the base budget of $1.6 billion. We will provide guidance for the 2015 capital budget this December including any potential carry over from 2014. Our current cash position of approximately $800 million along with cash flow that we anticipate that generate in the fourth quarter and next year we provide meaningful contribution for the funding required for 2015 capital program.

With that, I will turn it over to, back to Bill.

Bill McCaffrey

Thanks, Eric. To sum it up I believe that MEG is well positioned to succeed in volatile commodity price environment. We have strong and growing production. Exceptionally low operating costs and a marketing strategy that enables us to secure stronger pricing for our barrel on a consistent basis. All of this contributes to the strengthening our business which enables us to lower the amount of external funding required to grow. As I look forward to the fourth quarter I expect we will see continued strength in all these fronts.

And with that I'll pass it over to John.

John Rogers

Great, thanks, Bill and Eric, for your remarks on the quarter. Now Melanie open the lines for questions. I do once again like to remind people that if you could speak on a strategic level, Helen and I will be around to help you with your modeling questions after. So we can keep that at a strategic level that would be a most appreciated. So Melanie why don't you, why don't we open up the lines for questions.

Question-and-Answer Session

Operator

Certainly, we will now take questions from the telephone lines. (Operator Instructions) The first question is from Mark Friesen of RBC Capital Markets. Please go ahead.

Mark Friesen - RBC Capital Markets

Thanks. Good morning. Just a few questions from me, first with respect to the line tact that we saw in the numbers in Q3. Was the Access fully contained inside Q3 and will Flanagan be fully contained inside Q4?

Bill McCaffrey

Yes, thanks Mark. Yes, we anticipate, yes and so we started -- we certainly have filled the Access Pipeline and that one is now operational, so that is done. And then we began filling Flanagan over and believe it will also continue into November and right now forecasts are that Flanagan will be operational in December.

Mark Friesen - RBC Capital Markets

Okay. Great. So with the excess capacity now on Access, can we expect to see you moving more third party volumes?

Bill McCaffrey

Well the line is built and right now to manage our volumes, and we can put in additional pump station to increase that capacity if the need arises. Our first priority is doing volumes, but that is something that we'll consider it at fair capacity.

Mark Friesen - RBC Capital Markets

Okay. Looking at Phase 2B, it looks like it’s a matter or maybe even slightly exceeded design capacity at this point. Is it reasonable to expect it to perform in line with the performance of Phase 1 and 2A in terms of state percentage of original design capacity?

Bill McCaffrey

Yes, I think it is Mark. The tests we did in the second quarter confirms that we were capable on the oil side of getting to both 55,000 barrels a day and that’s about 160% of the design which is similar to what we could see on Phase 1 and 2. So we’re already excited by it in terms of what the plant is capable of on the oil side.

Mark Friesen - RBC Capital Markets

Okay. I know that infrastructure has always been a very critical part of the strategy at make, we are seeing the benefits of that with reliability and with the net backs. Having said that, and also kind of balancing that with the market’s view of your debt position, I guess my question here is have you looked that, and might you be interested in the Bruderheim facility which has recently gone up for sale?

Bill McCaffrey

Yes, we are pipeline connected to it. At this stage, we are not participating in that bid that’s out there, but we do pay attention to it.

Mark Friesen - RBC Capital Markets

Okay, good, looking forward to the updated guidance in December. Thanks very much.

Bill McCaffrey

Thanks Mark.

Operator

Thank you. The following question is from Benny Wong of Morgan Stanley. Please go ahead.

Benny Wong - Morgan Stanley

Good morning. Thanks. Could you give us an update on how you guys are thinking about growth plans beyond 2B? And more specifically if commodity prices stay volatile, how does that alter your growth outlook? Would that push out Surmont further out?

Bill McCaffrey

Sure. Benny, what we're doing is, we are doing ground field expansion that we are just in the early stages of design. When we take a look at our capabilities on that, we focused -- our capital programs we focused first obviously on the sustaining and maintenance and that’s really 20% of its street 2015 estimate our cash flow. But then we focus next on our near term production and cash flow growth and in doing that, those are as I said, ground field projects so we do have a lot of flexibility on spending aspect of it, in terms of the size and timing of those in future expansion. So we think that, Surmont is staying on track or what we've talked about before. We are excited by what we see from the test that we did in Q2 on the plants and so we are in the engineering and design part of that. So again, we have, because of very high degree of flexibility optionality, if you want, in terms of that spending program and that’s how we look at it.

Benny Wong - Morgan Stanley

Great, thanks. I guess have you refuse on cost and [indiscernible] recently, I guess what I'm asking is have you seen any indication that cost outlook could be changing or is it too early to tell with the lower crude price environment?

Bill McCaffrey

You are referring to the capital cost?

Benny Wong - Morgan Stanley

Yes, just cost and industry in general.

Bill McCaffrey

You know, when you get prices overall on the world base, that does sometime soften the capital cost aspect of it. But we do have a strong FX here, and so our industry is actually exceptionally healthy. When you look at the world pricing and everything, you see what it's been doing, you see how strong our prices are, it almost business as usual for us really.

Operator

Thank you. The following question is from Menno Hulshof of TD Securities. Please go ahead.

Menno Hulshof - TD Securities

Thanks and good morning. I’ve got a couple of questions on spending levels, so I believe you mentioned that 2015 CapEx slightly comes in below $1.5 billion, I might have misheard that, but I think how much of, how much CapEx would be considered committed capital in the coming year?

Bill McCaffrey

Well, it’s actually 2014 we’re targeting -- originally our budget is 1.8 which included 200 million of discretionary. We’re targeting less than 1.6 at this time. And we haven’t done our budgets for next year yet, but we’ll have those in December then we’ll look at the carryover we have from this year. But in terms of committed capital, always that is going along that program are they sustaining in maintenance capital, which is about 20% of our cash flow estimates that are based on street estimates for the next year. So, the individual projects that were in the early stages is scoping and designing have flexibility if we needed that, but right now we think that our financial position is very strong.

Menno Hulshof - TD Securities

Okay. And then in terms of, it looks like your run rate for the last few quarters has been in that sort of $350 million range. So what is driving the increase to 500 million to 700 million in Q4?

Bill McCaffrey

That’s an estimate right now, but it’s all -- our projects when we do them right, they can be lumpy in nature. In other words, it’s not just a straight line. So in the early stages when you're scoping out of project and assessing and doing the engineering and not as investing is much as when we start ordering equipment. So that’s the kind of thing that can change on quarter-to-quarter basis.

Menno Hulshof - TD Securities

Perfect. Thank you.

Operator

Thank you. The following question is from Phil Skolnick of Canaccord Genuity. Please go ahead.

Phil Skolnick - Canaccord Genuity

Thanks. Couple of questions, first of all what are your current volumes? And second did you say you are currently you’ll have 25,000 barrel a day Flanagan south ramping to 100. What’s the timing to get that 100?

Bill McCaffrey

It’s over a series of years there Phil. The answer to your first question is, yes, a total of 77,500 barrels a day and that’s bitumen. And obviously on the Flanagan system that would be a deal that line up its barrels that would go in this. So we do ramp up the -- what we did is we -- I can't give you all the specifics on it, we lined our because we are an anchor tenant we had the opportunity to custom design the ramp up that we thought make sense based on the growth of our barrels and over time and also the interest that we have in moving barrels into the Gulf Coast area.

Phil Skolnick - Canaccord Genuity

Okay. Well then getting to the Gulf Coast in terms of the tan discount, what do you expect to see in erosion of that?

Bill McCaffrey

I think the actual difference in value of that crude is somewhere between $0.50 and $0.75 a barrel and that moves around a little bit. But really that’s all it ever has been and lot in the past when it was a much higher number in Tag 2 those are largely negotiated position based on availability of market. So I think that as we go down there we will continue to approach my end type crude value with some minor adjustments on it there and maybe a couple of aux and then transportation is key. So when you look at the revenue side of our equation going forward, it really is about I believe in what world crisis for that type crude would be. And then how efficient you can be in terms of transporting it all the way from the well head site to the final destination.

Operator

Thank you. The following question is from Mike Dunn of FirstEnergy. Please go ahead.

Mike Dunn - FirstEnergy

Good morning, everyone. Couple of questions from me. On the [indiscernible] cost they were higher than I had expected in the quarter and I am just wondering if there is, if that is just to timing of purchases or if the Access Pipeline reversal means your drilling costs might be a bit higher until you get the 24-inch line reverse there next year? And I've got another question after that.

Bill McCaffrey

I think it might just be the timing, is actually we are seeing drilling cost come down, they are linked to WTI. So that's one of the things about our business that’s quite interesting and maybe sometime it’s little hard for the market to understand, because there's a lot of natural hedges that occur in our business. So when we look at our pricing, WTI is coming down, we're actually seeing some of the costs like drilling come down, so I would anticipate doing more of that. So extending what you had modeled in your spreadsheet there, it might be just a timing difference on the drilling cost.

Mike Dunn - FirstEnergy

Okay. Thanks, Bill. And second question is on the CapEx versus our estimate you had spent quite a bit less in the, I guess the other marketing initiatives category. I'm just wondering if there has been cautious decision made to slowdown the spending on a daily winter cover unit in the high Q projects? Thanks.

Bill McCaffrey

Yes. We are being careful with those, the projects that we really think are existing projects. And but we were been careful and we just trying to make sure we get the engineering done to a complete level. And we are patience. We are still very interested in those projects. We are just not rushing and forward on a schedule on a very aggressive we are just being very calculated and how we do it.

Mike Dunn - FirstEnergy

Make sense. That’s all from me. Thanks Bill. Thanks, everyone.

Bill McCaffrey

Thank you, Mike.

Operator

Thank you. The following question is from Amy Stepnowski of Hartford.

Amy Stepnowski - Hartford

Hi. You just touched a little bit on it with regards to the natural hedging that you have within your business. But could you just readdress for us your views on hedging, obviously you've spoke to the volatility of oil pricing but just wondering if you can touch on your overall views and strategies there?

Bill McCaffrey

Sure, Amy. I am happy to do that. We are certainly not against hedging but because there are lot of natural hedges that existing in our business. You have to be exceptionally careful which ones to do because you could actually pin one and hurt yourself on other one. So we always look for our opportunities that will make sense there. But again you have to be careful when we take into account all the natural hedges that exist.

Amy Stepnowski - Hartford

So does that mean you will continue, I mean essentially, not hedging, not putting any financial hedges on the commodity side going forward?

Bill McCaffrey

We will always look to see as we see one that we think actually make sense, but we’ll do it within the context of testing all the other natural hedges that exists. So we are not against it, but we do see that in the business, I think it’s a very important point is these natural hedges quite often do act to the hedge that you’d be looking for on a financial basis and yet they allow for upside and you know in my carrier of 32 years I’ve seen these hedges play out over and over again and really protect the business when you might think the prices would be falling.

Operator

Thank you. The following question is from Dan Healing of Calgary Herald. Please go ahead.

Dan Healing - Calgary Herald

Hi guys, I think that’s me. I have couple of questions regarding MEG's relationship with Canexus, you mentioned a few minutes ago that MEG is not interesting in buying currently anyway that NATO facility. I guess it’s really incurred me why there were issues regarding the tying of that link a while ago. And they resulted in them going to court and I guess my other, my final question would be, are there any outstanding legal issues between the company at the moment?

Bill McCaffrey

Sure. First of all our relationship -- we do have a good relationship with Canexus, the legal aspects that we there or have to do with getting legal certainty on the existing agreement. Canexus is selling the facility and we just want to make sure that the legal clarification is there. And so there can be some ongoing clarification in that area.

Dan Healing - Calgary Herald

Okay and why was there an issue with tying in that [indiscernible]

Bill McCaffrey

We can't go into all the details on it, because we are still involved in some legal aspects on it Dan. So I apologize for that.

Dan Healing - Calgary Herald

Okay. And I guess my last question will be, did this affect your use of crude by rail going forward because I guess with tighter differentials there is a less reason to do that. Right?

Bill McCaffrey

Certainly, the traffic differentials right now. But no, we have business as usual at Canexus, we do like that facility, we do want to ship on the facility and we have been shipping on that facility in both September since it started up and in October and we are still seeing incremental value in moving by rail?

Operator

Thank you. The following question is from Mark Friesen of RBC Capital Markets. Please go ahead.

John Rogers

Welcome back Mark.

Mark Friesen - RBC Capital Markets

Thanks John. Sorry, I forget to ask couple of questions there, first go round. The subject of the DRU was touched on, obviously we’re seeing WTI and diluent prices come down, you know contrasting that against relatively is to keep prices for rail transport, is the breakeven economics of being questioned right now with diluent prices and what would that breakeven price be in or how do you kind of look at that decision on the CapEx for the DRU?

Bill McCaffrey

Yeah. I know Mark we are very positive on the DRU. It is a way of, as I mentioned earlier that for crude is really valued at my end type price, plus transportation, the DRU is very pivotal in the sense so they will cut the rail cost by about a third. So it is extremely attractive project. My comments earlier about being prudent and just ensuring you know all the numbers, it’s just that. There is nothing more to it. These are very attractive projects. We do like them and we are moving them forward.

Mark Friesen-RBC Capital Markets

So you’re getting closer into sort of scoping out of size and the timing of that project?

Bill McCaffrey

Yes, we are thinking the size, and this is subject to some change a bit. So we’ve taken the size of the first unit, it’s about a 20,000 barrel a day unit, now [indiscernible] but we are still doing design work on it. But I mentioned in the second quarter that we had application into 60,000 barrels a day in the technology and we will break that up probably in the thirds, and do a first one and move forward from there. But if we do see an interest in the market for this type of product we're going to deliver.

Mark Friesen - RBC Capital Markets

Yeah, okay. That’s very good. You made some comments too Bill about, your views about taking -- seeing opportunities for taking oil offshore, was that kind of a macro kind of comments or is MEG actually planning some markets there?

Bill McCaffrey

Not a macro one, but I mean, MEG does look at that and the way I look at our marketing strategies, we are continually evolving and moving it forward. So we are getting stronger and stronger in our ability to connect to larger number of refiners. We have a lot of interest on an international basis for our crude. And so natural trend overtime is that that still continue to strengthen our connections and transportation methods to North American refineries, but then was also look to broaden that as we go forward.

Mark Friesen - RBC Capital Markets

Okay. In my first go around the questions I asked you about increasing your exposure on the infrastructure side, let me so take an opposite cut to that, now that some of the key infrastructure has been put in place, say might be expansion at access. Would you consider selling that asset by keeping obviously keeping use of that through other means?

Bill McCaffrey

No the access pipeline is really like the centerim motor system of the body, really it’s like its core to everything we do, it provides flexibility and calm by having it in our control. In a lot of ways, it’s looking at the access pipeline as if it’s a gathering system to our sales tank which are at Stonefell. And by having them located in Stonefell area, we often talk about, but it does on marketing end of it. But it also that helps us in the operation land, and we have to able to move barrels back and forth on that systems. This much likely would be your own internal gathering system.

Mark Friesen-RBC Capital Markets

Yes. That’s all I have today. Okay. Thanks very much Bill, I appreciated your perspective.

Bill McCaffrey

No problem. Thanks Mark.

John Rogers

Thanks Mark.

Operator

Thank you. The following question is from [Mona Yi] [indiscernible] Investment. Please go ahead.

Unidentified Analyst

Hi. You talk about these natural hedges that you have. Do you have a sensitivity, kind of number that you can provide for instance for every $1 movement in crude or in the, I guess, the differential what would the impact be on the cash flow?

Bill McCaffrey

It’s a little bit of a forecasting question, which we obviously can’t do. But as a general rule, if you dropped in the barrel of WTI by a dollar you’ll see a quite bit less than half of that effect at bottom-line on our barrel. And that’s because you see a major cost that we have on the diluent side, and diluent is related to later oil pricing and so as later oil comes down, one of our costs, the major cost for coming down in that area. We have power and power and gas are related and so we opt that as well. And with the price of WTI and the exchange rate has very high correlation on that. And we get paid in U.S. dollar and our expenses are in Canadian largely. And so you tend to find quite a softening of the effect of a downturn on it.

Unidentified Analyst

Okay. So the reason why this quarter, the impact is more than that. I'm just talking about the net cash, net back is more than $10, I was just doing a back of envelope kind of calculation where the WTI is down less than 10, so the reason is because of some other factors in play.?

Bill McCaffrey

And I think probably what the best there is to, I'll have you chat with John and Helen, they are making work you through some of those modeling type questions.

Unidentified Analyst

Okay, thanks.

John Rogers

Give us a call after Mona, we'll be happy to help you.

Unidentified Analyst

Okay, cool. Thanks.

Operator

Thank you. The following question is from Jeff Lewis of Globe and Mail. Please go ahead. Please go ahead.

Jeff Lewis - Globe and Mail

Hi, thanks for taking my question. It’s related to Flanagan South and Seaway volumes, as you look to ramp up from 25,000 to 100,000. Are you thinking or have you sought a license from the U.S. commerce department to export those volumes from the U.S. Gulf Coast? Thanks.

Bill McCaffrey

Thanks Jeff. We certainly are looking at those types of things. We are well positioned. If you take the Flanagan/Seaway combination, obviously it lands us in Houston area and obviously you can move to other built areas. So we do obviously evaluate that as one possible area to move offshore. And I think it makes a lot of sense, but that is the possibility.

Jeff Lewis - Globe and Mail

But you don’t have a license currently to do that?

Bill McCaffrey

No. We have not applied that at this stage. But we are evaluating that.

Jeff Lewis - Globe and Mail

Thank you.

Operator

Thank you. (Operator Instructions) Following question is from [indiscernible]. Please go ahead.

Unidentified Analyst

Hi Bill. I’m basically looking for some numbers here actually. In terms of your third quarter how many unit trains did you load, also about the barges?

Bill McCaffrey

Sure, while the third quarter Canexus was down for the majority of it. So I believe we move three or four unit trains in September when it started to come back up. And barges are active. And what we think of barges is that it's similar to rail, as you'll move up those facilities, using those tool and refiners in that Tad 2 area who pay us to keep a barrels in their refinery.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Rogers.

John Rogers

Great, thanks Melanie and thanks to everyone for listening in to our third quarter conference call. Again, Helen and I will be around after the call to help you with any further questions you may have. So once again thanks. And everyone have a good day, okay. Thank you. Good bye.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.