All financial figures are in Canadian dollars ($ or C$) and all
references to barrels are per barrel of bitumen unless otherwise
noted
CALGARY, AB, May 3, 2021 /CNW/ - MEG Energy Corp. (TSX:
MEG) ("MEG" or the "Corporation") reported its first quarter of
2021 operational and financial results.
MEG continues to proactively respond to the safety challenges
associated with the COVID–19 pandemic and remains committed to
ensuring the health and safety of all of its personnel and the safe
and reliable operation of the Christina
Lake facility.
"MEG's first quarter was strong from both a financial and
operational perspective" said Derek
Evans, President and Chief Executive Officer. "We continue
to benefit from both the strength in global oil market dynamics as
well as the structural improvement in heavy oil differentials.
Operationally, better than expected Christina Lake reservoir performance post the
75-day turnaround in 2020 has given us the confidence to tighten
our production guidance and sets us up well for the balance of
2021."
First quarter financial and operating highlights include:
- Adjusted funds flow of $127
million ($0.41 per share),
impacted by a realized commodity price risk management loss in the
quarter of $69 million ($0.22 per share);
- Quarterly production volumes of 90,842 barrels per day (bbls/d)
at a steam–oil ratio (SOR) of 2.37. Annual average production
guidance has been revised to 88,000 – 90,000 bbls/d as production
has continued to outpace expectations post the major turnaround in
2020;
- Net operating costs of $5.25 per
barrel, including non–energy operating costs of $4.05 per barrel. Power revenue offset energy
operating costs by 72%, resulting in a net impact of $1.20 per barrel;
- Successfully refinanced in the quarter US$600 million of existing indebtedness at a
coupon of 5.875% due February 2029,
which pushed out the earliest outstanding long term debt maturity
to 2025; and
- Total capital investment of $70
million in the quarter was directed to sustaining and
maintenance capital, resulting in $57
million of free cash flow in the quarter.
Blend Sales Pricing and North American Market Access
MEG realized an average AWB blend sales price of US$48.39 per barrel during the first quarter of
2021 compared to US$35.11 per barrel
in the fourth quarter of 2020. The increase in average AWB blend
sales price quarter over quarter was primarily a result of the
average WTI price increasing by US$15.18 per barrel, partially offset by the
average WTI:AWB differential at Edmonton widening by US$3.66 per barrel. MEG sold 38% of its sales
volumes to the U.S. Gulf Coast ("USGC") in the first quarter of
2021 compared to 48% in the fourth quarter of 2020. The decrease in
sales volume to the USGC in the first quarter of 2021 is a result
of the Enbridge mainline apportionment increasing from 22% in the
fourth quarter of 2020 to 48% in the first quarter of 2021.
Transportation and storage costs averaged US$6.13 per barrel of AWB blend sales in the
first quarter of 2021 compared to US$7.59 per barrel of AWB blend sales in the
fourth quarter of 2020. The decrease in transportation and storage
costs is primarily due to less volumes shipped to the USGC and no
FOB rail sales.
Operational Performance
Bitumen production averaged 90,842 bbls/d in the first quarter
of 2021, consistent with average bitumen production of 91,030
bbls/d in the fourth quarter of 2020.
Non–energy operating costs averaged $4.05 per barrel of bitumen sales in the first
quarter of 2021 compared to $4.70 per
barrel in the fourth quarter of 2020. Energy operating costs, net
of power revenue, averaged $1.20 per
barrel in the first quarter of 2021 compared to $2.28 per barrel in the fourth quarter of 2020.
MEG benefited from strong power prices on power sales from its
cogeneration facilities whereby power revenue offset energy
operating costs by 72% during the first quarter of 2021.
General & administrative expense ("G&A") was
$14 million, or $1.77 per barrel of production, in the first
quarter of 2021 compared to $14
million, or $1.65 per barrel
of production, in the fourth quarter of 2020. The difference in per
barrel G&A cost was due to lower production in the first
quarter of 2021 compared to the fourth quarter of 2020.
Adjusted Funds Flow and Net Loss
MEG's bitumen realization averaged $52.34 per barrel in the first quarter of 2021
compared to $38.64 per barrel in the
fourth quarter of 2020. The increase in average bitumen realization
was due to the higher WTI price quarter over quarter.
Offsetting the increase in bitumen realization during the first
quarter of 2021, compared to the fourth quarter of 2020, was a
realized commodity risk management loss of $8.80 per barrel in the first quarter of 2021
compared to a realized commodity risk management gain of
$1.31 per barrel in the fourth
quarter of 2020. This reflects stronger WTI settlement prices
compared to WTI fixed price contracts in place.
The Corporation's cash operating netback averaged $26.03 per barrel in the first quarter of 2021
compared to $18.66 per barrel in the
fourth quarter of 2020. The increased cash operating netback drove
the increase in the Corporation's adjusted funds flow from
$84 million in the fourth quarter of
2020 to $127 million in the first
quarter of 2021.
The Corporation recognized a net loss of $17 million in the first quarter of 2021 compared
to net earnings of $16 million in the
fourth quarter of 2020. This change was primarily the result of a
decreased unrealized gain on foreign exchange partially offset by
the increased cash operating netback.
Capital Expenditures
MEG invested $70 million in the
first quarter of 2021 compared to $40
million in the fourth quarter of 2020, which was primarily
directed towards sustaining and maintenance activities.
Financial Liquidity
In February 2021, the Corporation
successfully closed a private offering of US$600 million in aggregate principal amount of
5.875% senior unsecured notes due February
2029. The net proceeds of the offering plus cash-on-hand
were used to fully redeem the remaining US$600 million of the 7.0% senior unsecured notes
due March 2024. Post this
refinancing, MEG maintains a 4-year runway until its next debt
maturity represented by the remaining US$496
million of 6.50% second lien notes due January 2025.
MEG generated $57 million of free
cash flow in the first quarter of 2021 and exited the quarter with
$54 million of cash on hand.
The Corporation's $800 million
modified covenant-lite revolver, in place until July 2024, remains undrawn.
COVID-19 Global Pandemic
The Corporation continues to proactively respond to the safety
challenges associated with COVID–19 and remains committed to
ensuring the health and safety of all its personnel and business
partners, and the safe and reliable operation of the Christina Lake facility. The screening
procedures and protocols implemented by the Corporation's COVID–19
task force during the first quarter of 2020 continue to be enhanced
to ensure continued safe and reliable operations. Flexibility and
adaptability continue to be integral to the Corporation's response
to the pandemic. The Corporation continues to monitor the
developing COVID-19 situation to determine what, if any, additional
measures might need to be taken to ensure that the health and
safety of its people remain a top priority.
Outlook
Based on better than expected production performance in the
first quarter, MEG is revising its full year 2021 average
production from 86,000 – 90,000 bbls/d to 88,000 – 90,000
bbls/d.
Due to increased apportionment on the Enbridge mainline, MEG is
revising downward its expected sales into the U.S. Gulf coast via
Flanagan South and Seaway Pipeline
systems ("FSP") from approximately two-thirds of its full year 2021
AWB blend sales volumes to approximately 50%. As a result,
MEG is revising downward its estimate of full year 2021 total
transportation costs from US$7.75 to
US$8.25 per barrel of AWB blend sales
to US$6.75 to US$7.25 per barrel of AWB blend sales.
|
Summary of 2021
Guidance
|
2021 Revised
Guidance
|
2021 Original
Guidance
|
Bitumen production -
annual average
|
88,000 - 90,000
bbls/d
|
86,000 - 90,000
bbls/d
|
Non-energy operating
costs
|
$4.60 - $5.00 per
bbl
|
$4.60 - $5.00 per
bbl
|
G&A
expense
|
$1.70 - $1.80 per
bbl
|
$1.70 - $1.80 per
bbl
|
Capital
expenditures
|
$260
million
|
$260
million
|
2021 Commodity Price Risk Management
For the last nine months of 2021, MEG has entered into benchmark
WTI fixed price hedges and enhanced WTI fixed price hedges with
sold put options for approximately 37% of forecast bitumen
production at an average price of US$46.20 per barrel. MEG has also hedged
approximately 25% of its forecast Edmonton WTI:WCS differential
exposure at an average differential of US$12.82 per barrel. MEG has also hedged
approximately 40% of its expected 2021 condensate requirements at a
landed-at-Edmonton price of 97% of
WTI, approximately 35% of expected 2021 natural gas
requirements at an average price of C$2.62 per GJ and fixed the sales price on
approximately 25% of expected 2021 power available for sale at an
average price of C$62.80 per
MWh. The table below reflects MEG's 2021 hedge positions.
|
|
|
Forecast
Period
|
|
Q2
2021
|
Q3
2021
|
Q4
2021
|
WTI
Hedges
|
|
|
|
WTI Fixed Price
Hedges
|
|
|
|
Volume
(bbls/d)
|
13,000
|
—
|
—
|
Weighted average fixed
WTI price (US$/bbl)
|
$
|
46.31
|
$
|
—
|
$
|
—
|
Enhanced WTI Fixed
Price Hedges with Sold Put Options(1)
|
|
|
|
Volume
(bbls/d)
|
29,000
|
29,000
|
29,000
|
Weighted average fixed
WTI price (US$/bbl) / Put option strike price (US$/bbl)
|
$ 46.18 /
$38.79
|
$ 46.18 /
$38.79
|
$ 46.18 /
$38.79
|
|
|
|
|
WTI:WCS
Differential Hedges
|
|
|
|
Volume(2)
(bbls/d)
|
43,000
|
10,000
|
—
|
Weighted average fixed
WTI:WCS differential (US$/bbl)
|
$
|
(13.24)
|
$
|
(11.05)
|
$
|
—
|
|
|
|
|
Condensate
Hedges
|
|
|
|
Volume(3)
(bbls/d)
|
18,211
|
14,028
|
14,028
|
Weighted average % of
WTI landed in Edmonton (%)(4)
|
97 %
|
97 %
|
97 %
|
|
|
|
|
Natural Gas
Hedges
|
|
|
|
Volume(5)
(GJ/d)
|
42,500
|
42,500
|
42,500
|
Weighted average fixed
AECO price (C$/GJ)
|
$
|
2.61
|
$
|
2.61
|
$
|
2.61
|
|
|
|
|
Power
Hedges
|
|
|
|
Quantity(6)
(MW)
|
35
|
35
|
35
|
Weighted average fixed
price (C$/MWh)
|
$
|
62.75
|
$
|
62.75
|
$
|
62.75
|
(1)
|
If in any month
the average WTI settlement price is US$38.79 per barrel (the sold
put option) or better, MEG will receive US$46.18 per barrel (the
fixed price swap) on each barrel hedged in that month. If in any
month the average WTI settlement price is less than US$38.79 per
barrel, MEG will receive the month average WTI settlement price in
that month plus US$7.39 per barrel (the swap spread) on each barrel
hedged in that month.
|
(2)
|
Includes 15,000
bbls/d of physical forward blend sales in Q2 at fixed WTI:AWB
differentials.
|
(3)
|
Includes
approximately 4,500 bbls/d of physical forward condensate purchases
for Q2 to Q4 (average).
|
(4)
|
The average % of
WTI landed in Edmonton includes estimated net transportation costs
to Edmonton.
|
(5)
|
Includes 5,000
GJ/d of physical forward natural gas purchases for the Q2 to Q4 at
a fixed AECO price.
|
(6)
|
Represents
physical forward power sales at a fixed power price.
|
Conference Call
A conference call will be held to review MEG's first quarter of
2021 operating and financial results at 6:30
a.m. Mountain Time (8:30 a.m. Eastern
Time) on Tuesday, May
4th, 2021. To participate, please dial the North
American toll-free number 1-888-390-0546, or the international call
number 1-416-764-8688.
A recording of the call will be available by 12 noon Mountain Time (2 p.m.
Eastern Time) on the same day at
www.megenergy.com/investors/presentations-and-events.
Operational and Financial Highlights
|
|
|
|
|
2021
|
2020
|
2019
|
($millions, except
as indicated)
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Bitumen production -
bbls/d
|
90,842
|
91,030
|
71,516
|
75,687
|
91,557
|
94,566
|
93,278
|
97,288
|
|
|
|
|
|
|
|
|
|
Steam-oil
ratio
|
2.37
|
2.31
|
2.36
|
2.32
|
2.31
|
2.27
|
2.26
|
2.16
|
|
|
|
|
|
|
|
|
|
Bitumen sales -
bbls/d
|
87,298
|
95,731
|
67,569
|
70,397
|
97,214
|
94,347
|
94,992
|
95,120
|
|
|
|
|
|
|
|
|
|
Bitumen realization -
$/bbl
|
52.34
|
38.64
|
39.68
|
10.18
|
19.45
|
46.86
|
53.37
|
62.23
|
|
|
|
|
|
|
|
|
|
Net operating costs -
$/bbl(1)
|
5.25
|
6.98
|
6.05
|
6.14
|
5.51
|
5.87
|
4.30
|
4.66
|
|
|
|
|
|
|
|
|
|
Non-energy operating
costs - $/bbl
|
4.05
|
4.70
|
3.96
|
4.09
|
4.57
|
4.49
|
4.22
|
4.53
|
|
|
|
|
|
|
|
|
|
Cash operating
netback - $/bbl(2)
|
26.03
|
18.66
|
16.58
|
25.84
|
16.83
|
28.33
|
32.44
|
37.88
|
|
|
|
|
|
|
|
|
|
General &
administrative expense - $/bbl(3)
|
1.77
|
1.65
|
1.50
|
1.29
|
1.96
|
2.25
|
1.66
|
1.81
|
|
|
|
|
|
|
|
|
|
Adjusted funds
flow(4)
|
127
|
84
|
26
|
89
|
76
|
155
|
191
|
227
|
Per share,
diluted
|
0.41
|
0.27
|
0.09
|
0.29
|
0.25
|
0.51
|
0.63
|
0.75
|
|
|
|
|
|
|
|
|
|
Revenue
|
914
|
786
|
533
|
307
|
665
|
992
|
958
|
1,062
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
(17)
|
16
|
(9)
|
(80)
|
(284)
|
26
|
24
|
(64)
|
Per share,
diluted
|
(0.06)
|
0.05
|
(0.03)
|
(0.26)
|
(0.95)
|
0.09
|
0.08
|
(0.21)
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
70
|
40
|
36
|
20
|
54
|
72
|
40
|
32
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
54
|
114
|
49
|
120
|
62
|
206
|
154
|
399
|
Long-term debt -
C$
|
2,852
|
2,912
|
3,030
|
3,096
|
3,212
|
3,123
|
3,257
|
3,582
|
Long-term debt -
US$
|
2,268
|
2,283
|
2,274
|
2,274
|
2,275
|
2,409
|
2,459
|
2,737
|
(1)
|
Net operating
costs include energy and non-energy operating costs, reduced by
power revenue.
|
(2)
|
Cash operating
netback is a non-GAAP measure and does not have a standardized
meaning prescribed by IFRS and therefore may not be
comparable to similar measures used by other companies. Refer to
the "NON-GAAP MEASURES" section of this Press
Release.
|
(3)
|
General and
administrative expense ("G&A") per barrel is based on bitumen
production volumes.
|
(4)
|
Refer to Note 17
of the March 31, 2021 interim consolidated financial statements for
further details.
|
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$), which is the
Corporation's functional currency.
Non-GAAP Measures
Certain financial measures in this news release including free
cash flow and cash operating netback are non-GAAP measures. These
terms are not defined by IFRS and, therefore, may not be comparable
to similar measures provided by other companies. These non-GAAP
financial measures should not be considered in isolation or as an
alternative for measures of performance prepared in accordance with
IFRS.
Free Cash Flow
Free cash flow is presented to assist management and investors
in analyzing performance by the Corporation as a measure of
financial liquidity and the capacity of the business to repay debt.
Free cash flow is calculated as adjusted funds flow less capital
expenditures.
|
|
|
Three months ended
March 31
|
($millions)
|
2021
|
2020
|
Net cash provided by
(used in) operating activities
|
$
|
12
|
$
|
99
|
Net change in non-cash
operating working capital items
|
109
|
(30)
|
Funds flow from
operations
|
121
|
69
|
Adjustments:
|
|
|
Payments on onerous
contracts
|
6
|
—
|
Contract
cancellation
|
—
|
7
|
Adjusted funds
flow
|
$
|
127
|
$
|
76
|
Capital
expenditures
|
(70)
|
(54)
|
Free cash
flow
|
$
|
57
|
$
|
22
|
Cash Operating Netback
Cash operating netback is a non-GAAP measure widely used in the
oil and gas industry as a supplemental measure of a company's
efficiency and its ability to fund future capital expenditures. The
Corporation's cash operating netback is calculated by deducting the
related cost of diluent, blend purchases, transportation and
storage, third-party curtailment credits, operating expenses,
royalties and realized commodity risk management gains or losses
from blend sales and power revenue. The per barrel calculation of
cash operating netback is based on bitumen sales volume.
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", "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 press release contains forward looking statements
with respect to: the Corporation's actions to ensuring the health
and safety of its personnel and safe and reliable operations of the
Christina Lake facility; the
performance of the Corporation's reservoir performance post the
2020 75-day turnaround; all statements relating to the
Corporation's full year 2021 guidance, including full year 2021
production; non-energy operating costs, general and
administrative expenses and capital expenditures; the Corporation's
expectations regarding full year 2021 sales into the USGC; the
Corporation's expectations regarding full 2021 total transportation
costs; and all statements relating to the Corporation's 2021 hedge
book.
Forward-looking information contained in this press 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 the timing and
level of government production curtailment and federal and
provincial climate change policies, in which MEG conducts and will
conduct its business; the impact of MEG's response to the COVID-19
global pandemic; 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; 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 sustaining
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; MEG's response to the COVID-19 global pandemic; the
severity and duration of the COVID-19 pandemic; the potential for a
temporary suspension of operations impacted by an outbreak of
COVID-19; 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.sedar.com.
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 hedging program, capital
expenditures, production, operating costs and general and
administrative 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.
MEG's 2020 Annual Management's Discussion and Analysis ("MD&A")
and 2020 Annual Consolidated Financial Statements are available at
www.megenergy.com/investors and at www.sedar.com.
About MEG
MEG is an energy company focused on sustainable in situ thermal
oil production in the southern Athabasca oil region of Alberta, Canada. MEG is actively developing
innovative enhanced oil recovery projects that utilize
steam-assisted gravity drainage ("SAGD") extraction methods to
improve the responsible economic recovery of oil as well as lower
carbon emissions. MEG transports and sells its thermal oil (AWB) to
customers throughout North America
and internationally.
Learn more at: www.megenergy.com
For further information, please contact:
Investor Relations
T 587.293.6045
E invest@megenergy.com
Media Relations
T 403.775.1131
E media@megenergy.com
SOURCE MEG Energy Corp.