All financial figures
are in Canadian dollars ($ or C$) and all references to barrels are
per barrel of bitumen sales unless otherwise noted
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CALGARY,
AB, Nov. 27, 2023 /CNW/ - MEG Energy
Corp. (TSX:MEG, "MEG" or the "Corporation") today announced its
2024 capital investment plan and operational guidance. Highlights
include:
- Continued emphasis on operations excellence and safety
leadership
- Annual production guidance of 102,000 to 108,000 bbls/d at a
steam oil ratio ("SOR") of approximately 2.3;
- Capital expenditures of $550
million, consisting of $450
million of sustaining capital and $100 million supporting 4% production growth in
2024;
- Non-energy operating costs and general & administrative
("G&A") expense guidance of $5.10
to $5.40/bbl and $1.75 to $1.95/bbl,
respectively; and
- 100% of free cash flow allocated to shareholders once the
US$600 million net debt target is
reached
2024 Guidance
MEG is focused on safe and reliable operations at our
Christina Lake asset. We will
continue to invest in our safety leadership program, for both
employees and contractors, to advance operational excellence. This
focus on operational excellence is underpinned by a comprehensive
Operations Excellence Management System that is expected to drive
increased production, a top tier SOR performance, and a reduced
greenhouse gas ("GHG") emissions intensity.
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2024
Guidance
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Capital
expenditures
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$550 million
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Production
(average)
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102,000 – 108,000
bbls/d
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Non-energy operating
costs
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$5.10 - $5.40 per
bbl
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G&A
expense
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$1.75 - $1.95 per
bbl
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The 105,000 bbls/d mid-point of MEG's 2024 guidance is
approximately a 4% increase from the current 2023 production
estimate. MEG anticipates exiting 2023 near its 110,000 bbls/d
facility capacity, as its latest well pad ramps up and field and
plant operations demonstrate high reliability.
The 2024 annual production estimate incorporates reduced
turnaround activities spread more evenly throughout the year. The
plan also includes the startup of two well pads, with the first pad
on-stream mid-year and the second in the fourth quarter. New pad
activity supports the higher 2024 production estimate and builds
annualized capacity for future growth.
Under a US$75/bbl WTI oil price,
MEG anticipates it will achieve its US$600
million long-term net debt target around the third quarter
of 2024 and conclude its multi-year financial risk reduction
strategy. The improved balance sheet and strong operating
performance provides confidence to:
- Initiate 100% free cash flow returns to shareholders; and
- Commence investment in modest capacity growth
Capacity growth from MEG's long-life reserve base generates
shareholder value. During 2024, we will commence investment in a
new project to add 15,000 bbls/d of new productive capacity to our
existing facility, with an estimated total cost of $300 million over the next three years.
Sustaining capital in 2024 reflects reduced turnaround activity,
increased pad drilling, and investment in field infrastructure to
advance production from high-quality undeveloped areas of our
assets. These activities, combined with our operating strategy,
will continue to enhance MEG's top tier SOR.
MEG's balance sheet and operating performance provide a solid
foundation to fund the 2024 capital program, and no WTI or WTI:WCS
differential hedges have been entered for 2024. MEG retains the
flexibility to adjust capital expenditures in response to changing
market conditions, such as declining oil prices, differentials and
inflationary cost pressures.
2024 Capital Investment Summary
Category
|
|
|
|
|
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2024
Guidance
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Well Pads &
Redevelopment
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|
|
|
|
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$315 million
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Facility & Field
Infrastructure
|
|
|
|
|
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$120 million
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Corporate,
Other
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|
|
|
|
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$15 million
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Total
Sustaining
|
|
|
|
|
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$450
million
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Multi-year
Capacity Growth
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|
|
|
|
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$100 million
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Total
Capital
|
|
|
|
|
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$550
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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MEG's total 2024 capital program is $550
million, with $100 million
allocated towards multi-year capacity growth and $450 million to sustaining activities. The growth
investment commences a project with an estimated total cost of
$300 million which is forecast to
deliver incremental production towards the end of 2026.
Sustaining activities are mainly directed to increased well pad
and redevelopment drilling and investment in pad gathering
infrastructure to access high-quality resource. Remaining capital
largely comprises field and facility infrastructure targeting
sub-surface production optimization, gas and water processing, and
reliability improvements. Budgeted sustaining capital also reflects
a 5% year-over-year impact from inflationary and supply chain
pressures.
Non-Energy Operating Costs and G&A Expense Per
Barrel
Non-energy operating costs per barrel in 2024 are estimated to
rise approximately 5% over 2023, to $5.25/bbl at the mid-point of our 2024 guidance
range, reflecting an increased scope of operations and inflationary
pressures.
The mid-point of the 2024 G&A per barrel guidance is
consistent with our current outlook for 2023, driven by increased
staff costs and support for near-term production growth.
Adjusted Funds Flow ("AFF") Sensitivity
MEG's production is entirely comprised of crude oil and AFF is
highly correlated with crude oil benchmark prices. The following
table provides an annual sensitivity estimate to the most
significant market variables.
Variable
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Range
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2024 AFF
Sensitivity1, 2 (Cdn$)
|
|
|
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WCS Differential
(US$/bbl)
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+/-
US$1.00/bbl
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+/- 47mm
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WTI
(US$/bbl)
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+/-
US$1.00/bbl
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+/- 31mm
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Bitumen Production
(bbls/d)
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+/- 1,000
bbls/d
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+/- 16mm
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Condensate
(US$/bbl)
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+/-
US$1.00/bbl
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+/- 14mm
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Exchange Rate
(C$/US$)
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+/- $0.01
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+/- 10mm
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Non-energy Opex
(C$/bbl)
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+/-
C$0.25/bbl
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+/- 6mm
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AECO Gas3
(C$/GJ)
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+/-
C$0.50/GJ
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+/- 6mm
|
|
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1.
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Each sensitivity is
independent of changes to other variables.
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2.
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Assumes mid-point of
2024 production guidance, US$75.00/bbl WTI, US$16.25/bbl WTI:AWB
Edmonton discount, US$7.75/bbl WTI:AWB Gulf Coast discount,
C$1.35/US$ F/X rate, condensate purchased at 100% of WTI and one
bbl of bitumen per 1.42 bbls of blend sales (1.42 blend
ratio).
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3.
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Assumes 1.4 GJ/bbl of
bitumen, 65% of 160 MW of power generation sold externally and a
25.0 heat rate (every $0.50/GJ change in AECO natural gas price
changes the power price by C$12.50/MWh).
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MEG has capacity to ship 100,000 bbls/d of AWB blend sales, on a
pre-apportionment basis, to the U.S. Gulf Coast market via its
committed capacity on the Flanagan South and Seaway Pipeline
systems ("FSP"). In addition, 20,000 bbls/d of capacity is
contracted on the TMX pipeline system to the Canadian West Coast.
With TMX scheduled to start near the end of the first quarter of
2024, over 80% of MEG's blend sales will have tidewater access,
positioning the company with broader market reach, improved
realized prices, and reduced WCS differential volatility.
MEG had approximately $5.0 billion
of available Canadian tax pools, including $3.4 billion of non-capital losses which are
immediately deductible, at September 30,
2023. Those tax pools will shelter cash taxes until
approximately mid-2027 under a US $75/bbl WTI oil price assumption.
Capital Allocation Strategy
MEG anticipates reaching its US $600
million net debt target around the third quarter of 2024 at
a US$75/bbl WTI oil price, completing
its multi-year financial risk reduction strategy. Capital returns
to shareholders will rise to 100% of free cash flow at that point,
reinforcing our long-term commitment to shareholder capital
returns.
From April 1, 2022 through
November 24, 2023 the corporation has
repurchased and cancelled 35.0 million shares, reducing the
outstanding share count by approximately 11% from year end 2021 and
returning $715 million to
shareholders at a weighted average price of $20.47 per share. Debt repurchases have totaled
US $870 million (approximately
$1.2 billion) over that same
period.
Pathways Alliance
MEG, along with its Pathways Alliance ("Alliance") peers, will
continue to progress pre-work on the proposed foundational carbon
capture and storage ("CCS") project, which will transport CO2 via
pipeline from multiple oil sands facilities to be stored safely and
permanently underground in the Cold
Lake region of Alberta. In
2024 technical teams will advance detailed evaluations of the
proposed carbon storage hub and work with the Government on a
carbon sequestration agreement to support regulatory submissions.
In addition, the Alliance will progress engineering work,
environmental field programs to minimize the project's
environmental disturbance, and consultations with Indigenous and
local communities along the proposed CO2 transportation and storage
network corridor. The Alliance continues to work collaboratively
with both the federal and Alberta
governments on the necessary policy and co-financing frameworks
required to move the project forward. It will be important for
governments to work together with industry to ensure required
support to enable CCS project development.
MEG's 2024 capital budget includes pre-FEED expenditures for
carbon capture and storage facilities at Christina Lake that would capture
post-combustion CO2 emissions for transportation to the proposed
Pathways Alliance CO2 pipeline. The process to capture CO2
emissions from flue gas at MEG's Christina Lake facilities has been selected,
after extensive review, as a key element in the carbon capture
facilities design.
For further details on the Corporation's approach to ESG
matters, please refer to the "Sustainability" section of the
Corporation's website at www.megenergy.com and the most
recently filed AIF on www.sedarplus.ca.
Non-GAAP Measures and Other Financial Measures
Certain financial measures in this news release including
non-energy operating costs (in total, and per bbl), free cash flow,
net debt and adjusted funds flow are non-GAAP financial measures or
ratios, supplementary financial measures or ratios and capital
management measures. These measures are not defined by IFRS and,
therefore, may not be comparable to similar measures provided by
other companies. These non-GAAP and other financial measures should
not be considered in isolation or as an alternative for measures of
performance prepared in accordance with IFRS.
For further details, please refer to Section 14 of the
Corporation's MD&A for the quarter ended September 30, 2023 which is available on the
Corporation's website at www.megenergy.com and is also available on
the SEDAR website at www.sedarplus.ca.
Forward-Looking Information
Certain statements contained in this news release may constitute
forward-looking statements within the meaning of applicable
Canadian securities laws. These statements relate to future events
or MEG's future performance. All statements other than statements
of historical fact may be forward-looking statements. The use of
any of the words "anticipate", "continue", "estimate", "expect",
"may", "will", "project", "should", "believe", "dependent",
"ability", "plan", "intend", "target", "potential" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are often, but not always, identified by
such words. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking statements. In particular, and without limiting the
foregoing, this news release contains forward looking statements
with respect to: the Corporation's 2024 capital investment plan and
operational guidance, including its 2024 annual production
guidance, production growth, steam oil ratio, capital expenditures,
non-energy operating costs and general and administrative expense;
the Corporation's focus on operational excellence and safety
leadership and expectation that this focus will drive increased
production at a top tier SOR performance and reduce GHG emissions
intensity; the Corporation's expectation that it will exit 2023
near its 110,000 bbl/d production capacity; the Corporation's
expectation regarding its 2024 production plan, including reduced
turnaround activities and start of new well pads; the Corporation's
expectation that it will achieve its US$600
million net debt target around the third quarter of 2024;
the Corporation's expectation that its improved balance sheet and
strong operating performance will allow it to initiate 100% free
cash flow returns to shareholders and commence investment in
moderate capacity growth; the Corporation's anticipated investment
in new productive capacity at an estimated cost of $300 million over the next three years; the
Corporation's expectation that 2024 sustaining capital will
continue to enhance its top tier SOR; the Corporation's expectation
that its improved balance sheet and strong operating performance
will fund its 2024 capital program; the Corporation's statements
relating to its capital investment plans, including its expectation
regarding its growth project which is forecast to deliver
incremental production towards the end of 2026; the Corporation's
expectations regarding inflationary and supply chain pressures; the
Corporation's statements regarding estimated 2024 non-energy
operating costs and G&A expenses and its 2023 guidance relating
to non-energy operating costs and G&A expenses; the
Corporation's adjusted funds flow sensitivities; the Corporation's
expectation that TMX will start up near the end of the first
quarter of 2024 and that tidewater access will position the
Corporation with broader market reach, improved realized prices and
reduced WCS differential volatility; the Corporation's statements
regarding its tax pools; the Corporation's statements regarding its
capital allocation strategy; the Corporation's statements regarding
the Pathways Alliance objectives; and the Corporation's statement
regarding its 2024 capital budget and pre-FEED expenditures for
carbon capture and storage facilities at Christina Lake.
Forward-looking information contained in this news release is
based on management's expectations and assumptions regarding, among
other things: future crude oil, bitumen blend, natural gas,
electricity, condensate and other diluent prices, differentials,
the level of apportionment on the Enbridge mainline system, foreign
exchange rates and interest rates; the recoverability of MEG's
reserves and contingent resources; MEG's ability to produce and
market production of bitumen blend successfully to customers;
future growth, results of operations and production levels; future
capital and other expenditures; revenues, expenses and cash flow;
operating costs; reliability; continued liquidity and runway to
sustain operations through a prolonged market downturn; MEG's
ability to reduce or increase production to desired levels,
including without negative impacts to its assets; anticipated
reductions in operating costs as a result of optimization and
scalability of certain operations; anticipated sources of funding
for operations and capital investments; plans for and results of
drilling activity; the regulatory framework governing royalties,
land use, taxes and environmental matters, including federal and
provincial climate change policies, in which MEG conducts and will
conduct its business; the availability of government support to
industry to assist in the achievement of the Corporation's GHG
emissions reduction targets by 2030 and 2050; and business
prospects and opportunities. By its nature, such forward-looking
information involves significant known and unknown risks and
uncertainties, which could cause actual results to differ
materially from those anticipated.
These risks and uncertainties include, but are not limited to,
risks and uncertainties related to: the oil and gas industry, for
example, the securing of adequate access to markets and
transportation infrastructure (including pipelines and rail) and
the commitments therein; the availability of capacity on the
electricity transmission grid; the uncertainty of reserve and
resource estimates; the uncertainty of estimates and projections
relating to production, costs and revenues; health, safety and
environmental risks, including public health crises, such as the
COVID-19 pandemic, and any related actions taken by governments and
businesses; legislative and regulatory changes to, amongst other
things, tax, land use, royalty and environmental laws and
production curtailment; the cost of compliance with current and
future environmental laws, including climate change laws; risks
relating to increased activism and public opposition to fossil
fuels and oil sands; the inability to access government support to
industry to assist in the achievement of its GHG emissions targets
by 2030 and 2050; assumptions regarding and the volatility of
commodity prices, interest rates and foreign exchange rates;
commodity price, interest rate and foreign exchange rate swap
contracts and/or derivative financial instruments that MEG may
enter into from time to time to manage its risk related to such
prices and rates; timing of completion, commissioning, and
start-up, of MEG's turnarounds; the operational risks and delays in
the development, exploration, production, and the capacities and
performance associated with MEG's projects; MEG's ability to reduce
or increase production to desired levels, including without
negative impacts to its assets; MEG's ability to finance capital
expenditures; MEG's ability to maintain sufficient liquidity to
sustain operations through a prolonged market downturn; changes in
credit ratings applicable to MEG or any of its securities; the
potential for a temporary suspension of operations impacted by an
outbreak of COVID-19; actions taken by OPEC+ in relation to supply
management; the impact of the Russian invasion of Ukraine and associated sanctions on commodity
prices; the availability and cost of labour and goods and services
required in the Corporation's operations, including inflationary
pressures; supply chain issues including transportation delays; the
cost and availability of equipment necessary to our operations; and
changes in general economic, market and business conditions.
Although MEG believes that the assumptions used in such
forward-looking information are reasonable, there can be no
assurance that such assumptions will be correct. Accordingly,
readers are cautioned that the actual results achieved may vary
from the forward-looking information provided herein and that the
variations may be material. Readers are also cautioned that the
foregoing list of assumptions, risks and factors is not
exhaustive.
Further information regarding the assumptions and risks inherent
in the making of forward-looking statements can be found in MEG's
most recently filed Annual Information Form ("AIF"), along with
MEG's other public disclosure documents. Copies of the AIF and
MEG's other public disclosure documents are available through the
Company's website at www.megenergy.com/investors and through
the SEDAR website at www.sedarplus.ca.
The forward-looking information included in this news release is
expressly qualified in its entirety by the foregoing cautionary
statements. Unless otherwise stated, the forward-looking
information included in this news release is made as of the date of
this news release and MEG assumes no obligation to update or revise
any forward-looking information to reflect new events or
circumstances, except as required by law.
This news release contains future-oriented financial information
and financial outlook information (collectively, "FOFI") about
MEG's prospective results of operations including, without
limitation, the Corporation's capital expenditures, production,
non-energy operating costs, general and administrative costs and
transportation costs, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set
forth above. Readers are cautioned that the assumptions used in the
preparation of such information, although considered reasonable at
the time of preparation, may prove to be imprecise and, as such,
undue reliance should not be placed on FOFI. MEG's actual results,
performance or achievement could differ materially from those
expressed in, or implied by, these FOFI, or if any of them do so,
what benefits MEG will derive therefrom. MEG has included the FOFI
in order to provide readers with a more complete perspective on
MEG's future operations and such information may not be appropriate
for other purposes. MEG disclaims any intention or obligation to
update or revise any FOFI statements, whether as a result of new
information, future events or otherwise, except as required by
law.
About MEG
MEG is an energy company focused on sustainable in situ thermal
oil production in the southern Athabasca region of Alberta, Canada. MEG is actively developing
innovative enhanced oil recovery projects that utilize
steam‐assisted gravity drainage extraction methods to improve the
responsible economic recovery of oil as well as lower carbon
emissions. MEG transports and sells thermal oil (AWB) to customers
throughout North America and
internationally. MEG is a member of the Pathways Alliance, a group
of Canada's largest oil sands
producers working together to address climate change and achieve
the goal of net zero emissions1 by 2050. MEG's common
shares are listed on the Toronto Stock Exchange under the symbol
"MEG" (TSX: MEG).
For further information, please contact:
Investor Relations
T 403.767.0515
E invest@megenergy.com
Media Relations
T 403.775.1131
E media@megenergy.com
1 Scope 1 and Scope 2
emissions
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SOURCE MEG Energy Corp.