Solid operational and financial results, along with
substantial liquidity, position MEG well for its next stage of
growth
All financial figures in Canadian dollars ($ or C$) unless
otherwise noted
CALGARY, May 10, 2018 /CNW/ - MEG Energy Corp. (TSX:MEG)
today reported first quarter 2018 operating and financial results.
Highlights include:
- Record first quarter production volumes of 93,207 barrels per
day (bpd), reflecting the continued ramp-up of MEG's eMSAGP
growth initiative at Christina Lake Phase 2B;
- First quarter non-energy operating costs of $4.55 per barrel and net operating costs of
$5.98 per barrel;
- The repayment of approximately $1.225
billion of MEG's senior secured term loan from the majority
of the $1.5 billion net cash proceeds
received from the sale of the company's interest in the Access
Pipeline and Stonefell Terminal. The remaining $275 million is allocated towards fully funding
MEG's previously announced 13,000 bpd brownfield expansion at
Christina Lake Phase 2B;
- Total cash capital investment of $148
million, mainly directed towards advancing the company's
objective to reach 113,000 bpd in 2020; and
- Cash and cash equivalents of $675
million. MEG's four-year covenant-lite US$1.4 billion credit facility remains
undrawn.
MEG's growth is proceeding on schedule and on budget, with the
eMSAGP implementation expected to be completed later this year
bringing production to 100,000 bpd by early 2019. The company
anticipates the Phase 2B brownfield
expansion to increase production capacity to approximately 113,000
bpd in 2020. MEG continues to target 2018 average production of
85,000 to 88,000 bpd and 2018 exit production of 95,000 to 100,000
bpd. The 2018 average production guidance takes into account a
planned maintenance turnaround at Christina Lake Phase 2B scheduled for the second quarter.
"Taking into consideration the market dynamics in the first
quarter of 2018, MEG delivered solid operating and financial
results," said Bill McCaffrey, President and Chief Executive
Officer. "We were able to effectively mitigate pipeline
apportionment issues by utilizing the network of storage and rail
facilities we have available to us, and we continue to have good
access to the Gulf Coast via the Flanagan South and Seaway pipeline
systems, which enables us to sell a significant percentage of our
barrels at world prices."
MEG's current contract of 50,000 bpd of transportation capacity
on Flanagan South and Seaway will double to 100,000 bpd in
mid-2020, moving approximately two-thirds of the company's forecast
blend sales volume to the Gulf Coast and world pricing. This
combination of growing pipeline access and continued optionality
around rail advances MEG's strategy of reliable and diversified
access to the broadest possible markets.
Net operating costs per barrel for the first quarter of 2018
were 29% lower than in the first quarter of 2017, while non-energy
operating costs per barrel decreased 13% over the same time period.
The ongoing reduction in net operating costs and non-energy
operating costs in the first quarter of 2018 is primarily a result
of efficiency gains and continued cost management.
Vision 20/20
"The implementation of eMSAGP and the brownfield expansion on
Phase 2B are key components for
achievement of MEG's Vision 20/20," said Bill McCaffrey. "Following the implementation of
these two phases of growth, we will have decreased our overall cash
costs by approximately $3 per barrel
from current levels, improved our balance sheet metrics, and
positioned the company to grow thereafter while generating free
cash flow."
Capital investment during the first quarter of 2018 totalled
$148 million. The majority of the
capital was dedicated towards the drilling of new infills and well
pairs as the implementation of eMSAGP continued on Phase
2B. The brownfield expansion on Phase
2B commenced during the quarter and
is proceeding on schedule. Construction of the eMVAPEX pilot was
also advanced.
"Vision 20/20, once completed, will enable MEG to enter a new
chapter. From a stronger operating and financial foundation, we
will be in an improved position to respond to changing market
conditions," said McCaffrey. "It is with this clear vision in mind
that this is the right time for me to retire. With Management and
the Board fully aligned on this vision, I am confident that MEG has
the internal bench strength and the technical and financial
capabilities to successfully carry out this transition."
Adjusted Funds Flow and Earnings
MEG realized adjusted funds flow from operations of $83 million for the first quarter of 2018
compared to adjusted funds flow from operations of $43 million in the same quarter of 2017. This 93%
increase primarily reflects increased bitumen sales volumes and a
reduction in net interest expense primarily due to realized gains
on the company's interest rate swap contract.
The company recorded a first quarter 2018 operating loss of
$18 million compared to an operating
loss of $79 million for the same
period in 2017. The decrease in the operating loss was primarily
the result of higher bitumen sales volumes. Bitumen sales averaged
91,608 bpd for the first quarter of 2018 compared to 74,703 bpd for
the same time period in 2017.
Operational and Financial Highlights
|
|
|
|
|
|
|
|
|
2018
|
2017
|
2016
|
|
($ millions,
except as indicated)
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
|
Bitumen production -
bbls/d
|
93,207
|
90,228
|
83,008
|
72,448
|
77,245
|
81,780
|
83,404
|
83,127
|
|
|
|
|
|
|
|
|
|
|
Bitumen realization -
$/bbl
|
35.31
|
48.30
|
39.89
|
39.66
|
37.93
|
36.17
|
30.98
|
30.93
|
|
|
|
|
|
|
|
|
|
|
Net operating costs -
$/bbl(1)
|
5.98
|
5.86
|
6.00
|
7.42
|
8.43
|
8.24
|
7.76
|
7.43
|
|
|
|
|
|
|
|
|
|
|
Non-energy operating
costs - $/bbl
|
4.55
|
4.53
|
4.57
|
4.23
|
5.20
|
4.99
|
5.32
|
5.81
|
|
|
|
|
|
|
|
|
|
|
Cash operating
netback - $/bbl(2)
|
20.16
|
33.83
|
26.84
|
22.96
|
22.33
|
21.73
|
16.74
|
16.09
|
|
|
|
|
|
|
|
|
|
|
Adjusted funds flow
from operations(3)
|
83
|
192
|
83
|
55
|
43
|
40
|
23
|
7
|
|
Per share,
diluted(3)
|
0.28
|
0.65
|
0.28
|
0.19
|
0.16
|
0.18
|
0.10
|
0.03
|
|
Operating earnings
(loss)(3)
|
(18)
|
44
|
(43)
|
(36)
|
(79)
|
(72)
|
(88)
|
(98)
|
|
Per share,
diluted(3)
|
(0.06)
|
0.15
|
(0.14)
|
(0.12)
|
(0.29)
|
(0.32)
|
(0.39)
|
(0.43)
|
|
Revenue(4)
|
721
|
755
|
546
|
574
|
560
|
566
|
497
|
513
|
|
Net earnings
(loss)
|
141
|
(1)
|
84
|
104
|
2
|
(305)
|
(109)
|
(146)
|
|
Per share,
basic
|
0.48
|
(0.00)
|
0.29
|
0.36
|
0.01
|
(1.34)
|
(0.48)
|
(0.65)
|
|
Per share,
diluted
|
0.47
|
(0.00)
|
0.28
|
0.35
|
0.01
|
(1.34)
|
(0.48)
|
(0.65)
|
|
|
|
|
|
|
|
|
|
|
Total cash capital
investment
|
148
|
163
|
103
|
158
|
78
|
63
|
19
|
20
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
675
|
464
|
398
|
512
|
549
|
156
|
103
|
153
|
|
Long-term
debt
|
3,543
|
4,637
|
4,636
|
4,813
|
4,945
|
5,053
|
4,910
|
4,871
|
|
|
|
(1)
|
Net operating
costs include energy and non-energy operating costs, reduced by
power revenue.
|
|
(2)
|
Cash operating
netback is calculated by deducting the related diluent expense,
blend purchases, transportation, operating expenses, royalties and
realized commodity risk management gains (losses) from proprietary
blend revenues and power revenues, on a per barrel of bitumen sales
volume basis.
|
|
(3)
|
Adjusted funds
flow from (used in) operations, Operating earnings (loss) and the
related per share amounts do not have standardized meanings
prescribed by IFRS and therefore may not be comparable to similar
measures used by other companies. The non-GAAP measure of adjusted
funds flow from (used in) operations is reconciled to net cash
provided by (used in) operating activities and the non-GAAP measure
of operating earnings (loss) is reconciled to net earnings (loss)
in accordance with IFRS under the heading "NON-GAAP MEASURES" and
discussed further in the "ADVISORY" section.
|
|
(4)
|
The total of
Petroleum revenue, net of royalties and Other revenue as presented
on the Consolidated Statement of Earnings and Comprehensive
Income.
|
ADVISORY
Basis of Presentation
MEG prepares its financial statements in accordance with
International Financial Reporting Standards ("IFRS") and presents
financial results in Canadian dollars ($ or C$), which is the
Corporation's functional currency.
Non-GAAP Measures
Certain financial measures in this news release including: net
marketing activity, funds flow from (used in) operations, adjusted
funds flow from (used in) operations, operating earnings (loss),
operating cash flow and total debt are non-GAAP measures. These
terms are not defined by IFRS and, therefore, may not be comparable
to similar measures provided by other companies. These non-GAAP
financial measures should not be considered in isolation or as an
alternative for measures of performance prepared in accordance with
IFRS.
Funds Flow From (Used in) Operations and Adjusted Funds Flow
From (Used in) Operations
Funds flow from (used in) operations and adjusted funds flow
from (used in) operations are non-GAAP measures utilized by the
Corporation to analyze operating performance and liquidity. Funds
flow from (used in) operations excludes the net change in non-cash
operating working capital while the IFRS measurement "net cash
provided by (used in) operating activities" includes these items.
Adjusted funds flow from (used in) operations excludes the net
change in non-cash operating working capital, realized gain on
foreign exchange derivatives not considered part of ordinary
continuing operating results, payments on onerous contracts and
decommissioning expenditures, while the IFRS measurement "net cash
provided by (used in) operating activities" includes these items.
Funds flow from (used in) operations and adjusted funds flow from
(used in) operations are not intended to represent net cash
provided by (used in) operating activities calculated in accordance
with IFRS. Funds flow from (used in) operations and adjusted funds
flow from (used in) operations are reconciled to net cash provided
by (used in) operating activities in the table below.
|
|
Three months ended
March 31
|
|
($000)
|
2018
|
2017
|
|
Net cash provided by
(used in) operating activities
|
$
|
118,026
|
$
|
45,806
|
|
|
Net change in
non-cash operating working capital items
|
(8,136)
|
(8,187)
|
|
Funds flow from (used
in) operations
|
109,890
|
37,619
|
|
Adjustments:
|
|
|
|
|
Realized gain on
foreign exchange derivatives(1)
|
(35,362)
|
-
|
|
|
Payments on onerous
contracts
|
6,008
|
4,134
|
|
|
Decommissioning
expenditures
|
2,621
|
1,422
|
|
Adjusted funds flow
from (used in) operations
|
$
|
83,157
|
$
|
43,175
|
|
|
|
(1)
|
A gain related to
the settlement of forward currency contracts to manage the foreign
exchange risk on those Canadian dollar denominated proceeds related
to the sale of assets designated for U.S. dollar denominated
long-term debt repayment.
|
Operating Earnings (Loss)
Operating earnings (loss) is a non-GAAP measure which the
Corporation uses as a performance measure to provide comparability
of financial performance between periods by excluding non-operating
items. Operating earnings (loss) is defined as net earnings (loss)
as reported, excluding unrealized foreign exchange gains and
losses, unrealized gains and losses on derivative financial
instruments, unrealized gains and losses on commodity risk
management, realized gains and losses on foreign exchange
derivatives, gain on asset dispositions, onerous contracts expense,
and the respective deferred tax impact on these adjustments.
Operating earnings (loss) is reconciled to "Net earnings (loss)",
the nearest IFRS measure.
|
|
Three months ended
March 31
|
|
($000)
|
2018
|
2017
|
|
Net earnings
(loss)
|
$
|
140,573
|
$
|
1,588
|
|
Adjustments:
|
|
|
|
Unrealized loss
(gain) on foreign exchange(1)
|
141,298
|
(36,707)
|
|
Unrealized loss
(gain) on derivative financial liabilities(2)
|
2,976
|
(2,241)
|
|
Unrealized loss
(gain) on commodity risk management(3)
|
58,032
|
(59,599)
|
|
Realized foreign
exchange loss (gain) on foreign exchange
derivatives(4)
|
(35,362)
|
-
|
|
Gain on asset
dispositions(5)
|
(318,398)
|
-
|
|
Onerous contracts
expense
|
644
|
2,375
|
|
Deferred tax expense
(recovery) relating to these adjustments
|
(7,778)
|
15,230
|
|
Operating earnings
(loss)
|
$
|
(18,015)
|
$
|
(79,354)
|
|
|
|
(1)
|
Unrealized net
foreign exchange gains and losses result from the translation of
U.S. dollar denominated long-term debt and cash and cash
equivalents using period-end exchange rates.
|
|
(2)
|
Unrealized gains
and losses on derivative financial liabilities result from the
interest rate floor on the Corporation's long-term debt and
interest rate swaps entered into to effectively fix a portion of
its variable rate long-term debt.
|
|
(3)
|
Unrealized gains
or losses on commodity risk management contracts represent the
change in the mark-to-market position of the unsettled commodity
risk management contracts during the period.
|
|
(4)
|
A gain related to
the settlement of forward currency contracts to manage the foreign
exchange risk on those Canadian dollar denominated proceeds related
to the sale of assets designated for U.S. dollar denominated
long-term debt repayment.
|
|
(5)
|
A gain related to
the sale of the Corporation's 50% interest in the Access
Pipeline.
|
Forward-Looking Information
This document may contain forward-looking information including
but not limited to: expectations of future production, revenues,
expenses, cash flow, operating costs, steam-oil ratios, pricing
differentials, reliability, profitability and capital investments;
estimates of reserves and resources; anticipated reductions in
operating costs as a result of optimization and scalability of
certain operations; and anticipated sources of funding for
operations and capital investments. Such forward-looking
information is based on management's expectations and assumptions
regarding future growth, results of operations, production, future
capital and other expenditures, plans for and results of drilling
activity, environmental matters, 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 include, but are not limited to: risks associated with
the oil and gas industry, for example, results securing access to
markets and transportation infrastructure; availability of capacity
on the electricity transmission grid; uncertainty of reserve and
resource estimates; uncertainty associated with estimates and
projections relating to production, costs and revenues; health,
safety and environmental risks; risks of legislative and regulatory
changes to, amongst other things, tax, land use, royalty and
environmental laws; assumptions regarding and the volatility of
commodity prices, interest rates and foreign exchange rates, and,
risks and uncertainties related to 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; risks and
uncertainties associated with securing and maintaining the
necessary regulatory approvals and financing to proceed with MEG's
future phases and the expansion and/or operation of MEG's projects;
risks and uncertainties related to the timing of completion,
commissioning, and start-up, of MEG's future phases, expansions and
projects; the operational risks and delays in the development,
exploration, production, and the capacities and performance
associated with MEG's projects; and uncertainties arising in
connection with any future disposition of assets.
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.sedar.com.
The forward-looking information included in this document is
expressly qualified in its entirety by the foregoing cautionary
statements. Unless otherwise stated, the forward-looking
information included in this document is made as of the date of
this document and MEG assumes no obligation to update or revise any
forward-looking information to reflect new events or circumstances,
except as required by law.
A full version of MEG's First Quarter Report to Shareholders,
including unaudited financial statements, is available at
www.megenergy.com/investors and at www.sedar.com.
A conference call will be held to review the operating and
financial results at 9 a.m. Mountain
Time (11 a.m. Eastern Time) on
Thursday, May 10, 2018. The North
American toll-free conference call number is 1-888-231-8191. The
international conference call number is 647-427-7450.
A recording of the call will be available from 12 noon
Mountain Time (2 p.m. Eastern
Time) on May 10, 2018 until 9:59 p.m.
Mountain Time (11:59 p.m. Eastern
Time) on June 7, 2018. To access the recording, dial
toll-free 1-855-859-2056 or local 403-451-9481 and enter the pass
code 3184979.
MEG Energy Corp. is focused on sustainable in situ oil sands
development and production in the southern Athabasca oil sands region of Alberta, Canada. MEG is actively developing
enhanced oil recovery projects that utilize SAGD extraction
methods. MEG's common shares are listed on the Toronto Stock
Exchange under the symbol "MEG".
For further information, please contact:
Investors
Helen Kelly
Director, Investor Relations
403-767-6206
helen.kelly@megenergy.com
Media
Davis Sheremata
Senior Advisor, External Communications
587-233-8311
davis.sheremata@megenergy.com
SOURCE MEG Energy Corp.