All financial figures
are in Canadian dollars ($ or C$) and all references to barrels are
per barrel of bitumen unless otherwise noted. The Corporation's
Non-GAAP and Other Financial Measures are detailed in the Advisory
section of this news release. They include: cash operating netback,
bitumen realization net of transportation and storage expense,
operating expenses net of power revenue, energy operating costs net
of power revenue, non-energy operating costs, energy operating
costs, adjusted funds flow, free cash flow and net debt.
|
CALGARY,
AB, Feb. 29, 2024 /CNW/ - MEG Energy Corp.
(TSX:MEG) ("MEG" or the "Corporation") reported its full year 2023
operational and financial results.
"I am extremely proud of MEG's safety, operating, and financial
performance in 2023", said Derek
Evans, President and Chief Executive Officer. "Annual
production grew by 6%, averaging over 100,000 barrels per day for
the first time and exiting the year at approximately 110,000
barrels per day. MEG's financial performance was also strong
generating nearly $1 billion of free
cash flow for debt repayment and share buybacks. At current prices
MEG is well positioned to achieve US$600
million net debt in the third quarter of 2024, after which
100% of free cash flow will be returned to shareholders."
Highlights include:
- Annual free cash flow ("FCF") of $953
million used to repay $437
million of debt and return $446
million of capital to shareholders through the repurchase
and cancellation of 19.0 million shares at a weighted average price
of $23.54 per share. FCF of
$254 million in the fourth quarter
was used to repay $173 million of
debt and repurchase 8.7 million shares at a weighted average price
of $25.29 per share, returning
$219 million to shareholders;
- The Corporation exited 2023 with net debt of US$730 million ($1.0
billion);
- Annual bitumen production of 101,425 barrels per day ("bbls/d")
at a 2.27 steam-oil ratio ("SOR"), representing a 6% increase in
production and a 4% decrease in SOR from 2022. Fourth quarter
bitumen production averaged 109,112 bbls/d at a 2.28 SOR;
- Annual funds flow from operating activities ("FFO") and
adjusted funds flow ("AFF") of $1,476
million and $1,402 million, or
$5.13 and $4.87 per share, respectively. FFO and AFF
totaled $358 million, or $1.27 per share, during the fourth quarter;
- Annual capital expenditures of $449
million and fourth quarter capital expenditures of
$104 million were focused on
sustaining and maintenance activities;
- Operating expenses net of power revenue declined 25% in 2023 to
$5.96 per barrel, including
$5.01 per barrel of non-energy
operating costs and $0.95 per barrel
of energy operating costs net of power revenue. Fourth quarter 2023
operating expenses net of power revenue rose 5% from the comparable
2022 quarter to $6.10 per barrel,
including $4.64 per barrel of
non-energy operating costs and $1.46
per barrel of energy operating costs net of power revenue; and
- Intended renewal of the Corporation's normal course issuer bid
("NCIB") for a one-year period upon its expiration on March 9, 2024, which will allow the repurchase of
an additional 10% of MEG's public float1.
__________
|
1 As defined
by the Toronto Stock Exchange
|
|
Three months ended
December 31
|
Year ended December
31
|
($millions, except
as indicated)
|
2023
|
2022
|
2023
|
2022
|
Operational
results:
|
|
|
|
|
|
|
|
|
|
Bitumen production -
bbls/d
|
109,112
|
110,805
|
101,425
|
95,338
|
Steam-oil
ratio
|
2.28
|
2.22
|
2.27
|
2.36
|
Bitumen sales -
bbls/d
|
112,634
|
113,582
|
101,086
|
95,691
|
|
|
|
|
|
Benchmark
pricing:
|
|
|
|
|
|
|
|
|
|
WTI -
US$/bbl
|
78.32
|
82.65
|
77.62
|
94.23
|
Differential - WTI:AWB
- Edmonton - US$/bbl
|
(23.79)
|
(29.14)
|
(20.79)
|
(20.64)
|
AWB - Edmonton -
US$/bbl
|
54.53
|
53.51
|
56.83
|
73.59
|
|
|
|
|
|
Differential - WTI:AWB
- USGC - US$/bbl
|
(7.43)
|
(16.35)
|
(8.72)
|
(9.62)
|
AWB - USGC -
US$/bbl
|
70.89
|
66.30
|
68.90
|
84.61
|
|
|
|
|
|
Financial
results:
|
|
|
|
|
|
|
|
|
|
Bitumen realization
after net transportation
and
storage expense(1) - $/bbl
|
63.52
|
54.75
|
62.46
|
76.66
|
|
|
|
|
|
Non-energy operating
costs(2) - $/bbl
|
4.64
|
4.34
|
5.01
|
4.73
|
Energy operating costs
net of power
revenue(1) - $/bbl
|
1.46
|
1.49
|
0.95
|
3.18
|
Operating expenses net
of power revenue -
$/bbl
|
6.10
|
5.83
|
5.96
|
7.91
|
|
|
|
|
|
Cash operating
netback(1) - $/bbl
|
38.65
|
43.89
|
43.36
|
62.61
|
|
|
|
|
|
General &
administrative expense -
$/bbl of bitumen production
|
1.89
|
1.62
|
1.86
|
1.78
|
|
|
|
|
|
Funds flow from
operating activities
|
358
|
383
|
1,476
|
1,882
|
Per
share, diluted
|
1.27
|
1.28
|
5.13
|
6.09
|
Adjusted funds
flow(3)
|
358
|
401
|
1,402
|
1,934
|
Per share,
diluted(3)
|
1.27
|
1.34
|
4.87
|
6.26
|
Capital
expenditures
|
104
|
106
|
449
|
376
|
Free cash
flow(3)
|
254
|
295
|
953
|
1,558
|
|
|
|
|
|
Debt repayments -
US$
|
128
|
150
|
322
|
1,016
|
Share repurchases -
C$
|
219
|
196
|
446
|
382
|
|
|
|
|
|
Revenues
|
1,444
|
1,445
|
5,653
|
6,118
|
|
|
|
|
|
Net earnings
|
103
|
159
|
569
|
902
|
Per share,
diluted
|
0.37
|
0.53
|
1.98
|
2.92
|
|
|
|
|
|
Long-term debt,
including current portion
|
1,124
|
1,581
|
1,124
|
1,581
|
Net debt -
US$(3)
|
730
|
1,026
|
730
|
1,026
|
(1)
|
Non-GAAP financial
measure - please refer to the Advisory section of this news
release.
|
(2)
|
Supplementary
financial measure - please refer to the Advisory section of this
news release.
|
(3)
|
Capital management
measure - please refer to the Advisory section of this news
release.
|
Fourth Quarter Results
FCF of $254 million was used to
repay US$128 million ($173 million) of debt and repurchase 8.7 million
shares, returning $219 million to
shareholders.
Average bitumen production of 109,112 bbls/d was similar to
110,805 bbls/d in the fourth quarter of 2022 reflecting stable
operations and no significant maintenance activity in both
periods.
AFF decreased to $358 million, or
$1.27 per share, from $401 million in the fourth quarter of 2022,
reflecting a 12% decline in the cash operating netback.
The lower cash operating netback reflects increased royalty
expense, the result of reaching payout status in the second quarter
of 2023, partially offset by a higher bitumen realization due to
narrower WTI:AWB differentials and lower diluent expense.
Annual Financial Results
AFF decreased to $1,402 million,
or $4.87 per share, in 2023 from
$1,934 million, or $6.26 per share, in 2022 driven by a lower cash
operating netback partially offset by lower interest expense. The
31% decline in the cash operating netback for 2023 reflects a lower
bitumen realization after net transportation and storage expense
and higher royalties, the result of reaching payout status.
Bitumen realization after net transportation and storage expense
decreased to $62.46 per barrel in
2023, from $76.66 per barrel in 2022,
primarily driven by a lower average WTI benchmark price partially
offset by the realized price improvement from MEG's strategic
market access and marketing optimization activities.
The Corporation sold 66% of blend sales volumes in the U.S. Gulf
Coast during both 2023 and 2022 and average heavy oil apportionment
on the Enbridge mainline system was 9% and 5%, respectively, in
those years.
FCF totaled $953 million in 2023,
compared to $1,558 million in 2022,
reflecting lower AFF and higher capital spending.
Annual capital expenditures of $449
million were in line with guidance and rose from
$376 million in 2022 due to increased
scope, inflation and timing of field development and maintenance
work. Spending in both years focused on sustaining and maintenance
activities.
Net earnings declined to $569
million in 2023 from $902
million in 2022 primarily driven by a lower cash operating
netback, higher depletion and depreciation expense and an onerous
contract expense. These were partially offset by an unrealized
foreign exchange gain on long-term debt and reduced interest and
income tax expenses.
Annual Operating Results
Annual bitumen production in 2023 rose 6% to 101,425 bbls/d at a
2.27 SOR from 95,338 bbls/d at a 2.36 SOR in 2022. The production
increase and improved SOR reflects a continued focus on short-cycle
redevelopment programs, enhanced completion designs, optimized well
spacing and targeted facility enhancements. Production was impacted
by major planned turnaround activities at the Christina Lake
Facility in both years.
Non‐energy operating costs averaged $5.01 per barrel of bitumen sales in 2023, in
line with guidance and representing a 6% increase from 2022 despite
inflationary pressures on the cost of services, treating chemicals
and staff.
Energy operating costs net of power revenue decreased to
$0.95 per barrel in 2023 from
$3.18 per barrel in 2022 as weaker
natural gas prices more than offset reduced power revenue. Revenue
from the sale of excess power generated by the Corporation's
cogeneration facilities offset 76% and 56% of energy operating
costs in 2023 and 2022, respectively.
Annual Debt Repayment and Share Repurchases
The $953 million of 2023 FCF was
used to repay debt, return capital to shareholders and fund working
capital requirements. The Corporation repaid US$322 million (approximately $437 million) of outstanding 7.125% senior
unsecured notes at a weighted average price of 101.7% and returned
$446 million to shareholders through
the repurchase and cancellation of 19.0 million shares at a
weighted average price of $23.54 per
share, approximately 7% of MEG's December
31, 2022 issued and outstanding shares.
Capital Allocation Strategy
Approximately 50% of FCF was allocated to debt repayment in 2023
with the remainder applied to share repurchases. 100% of FCF will
be returned to shareholders when the Corporation reaches its
US$600 million net debt target, which
is anticipated to occur in the third quarter of 2024 assuming a
US$75 per barrel WTI price. The
Corporation exited 2023 with net debt of US$730 million (approximately $1.0 billion).
The Corporation intends to renew the current NCIB for a one-year
period upon its expiration on March 9,
2024, which will allow the repurchase of an additional 10%
of MEG's public float.
Sustainability and Pathways Update
The Corporation published its third ESG report in September 2023, which discusses its foundational
commitments of Business Model Resilience and Governance and the
Corporation's priority ESG topics: Health and Safety; Climate
Change and GHG Emissions; Water Management; Energy Security; Energy
Affordability; and Indigenous Relations. The ESG report illustrates
progress in several areas, including the establishment of a new
mid-term absolute GHG emissions (Scope 1 and Scope 2) reduction
target of 0.63 megatonnes per year by year-end 2030 (which
represents approximately 30% of the Corporation's 2019 GHG
emissions); $72 million spent on
goods and services provided by Indigenous businesses in 2022 (a 30%
increase over 2021); the launch of the Corporation's Diversity,
Equity and Inclusion education and awareness campaign focused on
ensuring that every team member is valued, respected and heard to
enhance decision making, innovation, employee engagement and the
Corporation's long-term success; and the continued advancement of
the Corporation's safety management programs and systems to ensure
safe, sustainable and reliable operations.
MEG, along with its Pathways Alliance peers, continues 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. The
Pathways Alliance continues to advance detailed evaluations of the
proposed carbon storage hub and is working to obtain a carbon
sequestration agreement from the Alberta Government in the first
half of 2024 to support regulatory submissions. In addition, the
Pathways Alliance continues to advance 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 Pathways 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. The federal government has proposed an
investment tax credit ("ITC") for CCS projects for all sectors
across Canada and introduced
implementing legislation for the CCS ITC in November 2023. In addition, the Alberta
Government announced an Alberta Carbon Capture Incentive Program
("ACCIP") which aims to help hard-to-abate industries by providing
a grant of 12% for new eligible CCS capital costs. The Pathways
Alliance is evaluating these proposals and will continue to work
with the federal and Alberta Governments to secure the required
financial support and regulatory certainty to enable the CCS
project to proceed.
Additional information regarding the Corporation's ESG actions,
including the Corporation's 2023 ESG Report, is available in the
"Sustainability" section of the Corporation's website at
www.megenergy.com. The Corporation's ESG Report and contents of
MEG's website are expressly not incorporated by reference in this
news release.
2024 Guidance
Summary of 2024
Guidance
|
|
|
Bitumen production -
annual average
|
|
102,000 to 108,000
bbls/d
|
Capital
expenditures
|
|
$550 million
|
Non-energy operating
costs
|
|
$5.10 to $5.40 per
bbl
|
G&A
expense
|
|
$1.75 to $1.95 per
bbl
|
The 2024 annual production estimate incorporates reduced
turnaround activities spread 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 2024 production estimate and builds well
capacity for future growth.
The Corporation's 2024 capital expenditure program will allocate
$450 million to sustaining activities
and $100 million towards multi-year
productive capacity growth. The growth investment reflects the
commencement of a three-year project with an estimated total cost
of approximately $300 million
forecasted to deliver incremental productive capacity around the
end of 2026.
The Corporation's balance sheet and operating performance
provide a solid foundation to fund the 2024 capital expenditure
program. As a result, no WTI or WTI:WCS differential risk
management contracts have been entered into for 2024.
Adjusted Funds Flow Sensitivity
MEG's production is comprised entirely of crude oil and AFF is
highly correlated with crude oil benchmark prices and light-heavy
oil differentials. The following table provides an annual
sensitivity estimate to the most significant market variables.
Variable
|
Range
|
2024 AFF
Sensitivity(1)(2) - C$mm
|
WCS Differential
(US$/bbl)
|
+/-
US$1.00/bbl
|
+/- C$47mm
|
WTI
(US$/bbl)
|
+/-
US$1.00/bbl
|
+/- C$31mm
|
Bitumen Production
(bbls/d)
|
+/- 1,000
bbls/d
|
+/- C$16mm
|
Condensate
(US$/bbl)
|
+/-
US$1.00/bbl
|
+/- C$14mm
|
Exchange Rate
(C$/US$)
|
+/- $0.01
|
+/- C$10mm
|
Non-Energy Opex
(C$/bbl)
|
+/-
C$0.25/bbl
|
+/- C$6mm
|
AECO Gas(3)
(C$/GJ)
|
+/-
C$0.50/GJ
|
+/- C$6mm
|
(1)
|
Each sensitivity is
independent of changes to other variables.
|
(2)
|
Assumes mid point of
2024 production guidance, US$75.00/bbl WTI, US$16.25/bbl WTI:WCS
Edmonton discount, US$1.50/bbl WCS: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).
|
(3)
|
Assumes 1.4 GJ/bbl
of bitumen, 65% of 160 MW of power generation sold externally and a
25.0 GJ/MWh heat rate.
|
Conference Call
A conference call will be held to review MEG's 2023 annual
operating and financial results at 6:30 a.m.
Mountain Time (8:30 a.m. Eastern
Time) on March 1, 2024. 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 p.m. Mountain Time (2
p.m. Eastern Time) on the same day at
https://www.megenergy.com/investors/presentations-events/.
ADVISORY
Basis of Presentation
MEG prepares its financial statements in accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board ("IFRS Accounting
Standards") and presents financial results in Canadian dollars ($
or C$), which is the Corporation's functional currency.
Non-GAAP and Other Financial Measures
Certain financial measures in this news release are non-GAAP
financial measures or ratios, supplementary financial measures 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.
Adjusted Funds Flow and Free Cash Flow
Adjusted funds flow and free cash flow are capital management
measures and are defined in the Corporation's consolidated
financial statements. Adjusted funds flow and free cash flow are
presented to assist management and investors in analyzing operating
performance and cash flow generating ability. Funds flow from
operating activities is an IFRS measure in the Corporation's
consolidated statement of cash flow. Adjusted funds flow is
calculated as funds flow from operating activities excluding items
not considered part of ordinary continuing operating results. By
excluding non-recurring adjustments, the adjusted funds flow
measure provides a meaningful metric for management and investors
by establishing a clear link between the Corporation's cash flows
and cash operating netback. 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 and return capital to shareholders. Free
cash flow is calculated as adjusted funds flow less capital
expenditures.
In the second quarter of 2022, an adjustment was made to the
presentation of adjusted funds flow and free cash flow. In
April 2020, the Corporation issued
cash-settled RSUs under its long-term incentive ("LTI") plan when
the share price was at a historic low of $1.57 per share. Concurrent with the issuance,
the Corporation entered equity price risk management contracts to
manage share price volatility in the subsequent three-year period,
effectively reducing share price appreciation cash flow risk. The
increase in the Corporation's share price from April 2020 to June 30,
2022 resulted in the recognition of a significant
cash-settled stock-based compensation expense, which was previously
included as a component of adjusted funds flow and free cash flow.
The actual cash impact of the 2020 cash-settled RSUs, however, was
subject to equity price risk management contracts, so the cash
impact over the term of these RSUs was reduced and the change in
value did not provide a valuable indication of operating
performance.
Therefore, the financial statement impacts of the April 2020 cash-settled stock-based compensation
and the equity price risk management contracts were excluded from
adjusted funds flow and free cash flow. All prior periods presented
have been adjusted to reflect this change in presentation.
The following table reconciles FFO to AFF to FCF:
|
Three months ended
December 31
|
Year ended December
31
|
($millions)
|
2023
|
2022
|
2023
|
2022
|
Funds flow from
operating activities
|
$
358
|
$
383
|
$
1,476
|
$
1,882
|
Adjustments:
|
|
|
|
|
Impact of cash-settled
SBC units subject to equity price risk management
|
—
|
18
|
13
|
98
|
Realized equity price
risk management gain
|
—
|
—
|
(87)
|
(46)
|
Adjusted funds
flow
|
358
|
401
|
1,402
|
1,934
|
Capital
expenditures
|
(104)
|
(106)
|
(449)
|
(376)
|
Free cash
flow
|
$
254
|
$
295
|
$
953
|
$
1,558
|
Net Debt
Net debt is a capital management measure and is defined in the
Corporation's consolidated financial statements. Net debt is an
important measure used by management to analyze leverage and
liquidity. Net debt is calculated as long-term debt plus current
portion of long-term debt less cash and cash equivalents.
The following table reconciles the Corporation's current and
long-term debt to net debt:
As at
|
December 31,
2023
|
December 31,
2022
|
Long-term
debt
|
$
1,124
|
$
1,578
|
Current portion of
long-term debt
|
—
|
3
|
Cash and cash
equivalents
|
(160)
|
(192)
|
Net debt -
C$
|
$
964
|
$
1,389
|
Net debt -
US$
|
$
730
|
$
1,026
|
Cash Operating Netback
Cash operating netback is a non-GAAP financial measure, or ratio
when expressed on a per barrel basis. Its terms are not defined by
IFRS and, therefore, may not be comparable to similar measures
provided by other companies. This non-GAAP financial measure should
not be considered in isolation or as an alternative for measures of
performance prepared in accordance with IFRS.
Cash operating netback is a financial measure widely used in the
oil and gas industry as a supplemental measure of a company's
efficiency and its ability to generate cash flow for debt
repayment, capital expenditures, or other uses. The per barrel
calculation of cash operating netback is based on bitumen sales
volumes.
Revenues is an IFRS measure in the Corporation's consolidated
statement of earnings and comprehensive income which is the most
directly comparable primary financial statement measure to cash
operating netback. A reconciliation from revenues to cash operating
netback has been provided below:
|
Three months ended
December 31
|
Year ended December
31
|
($millions)
|
2023
|
2022
|
2023
|
2022
|
Revenues
|
$
1,444
|
$
1,445
|
$
5,653
|
$
6,118
|
Diluent
expense
|
(471)
|
(505)
|
(1,691)
|
(1,848)
|
Transportation and
storage expense
|
(148)
|
(151)
|
(600)
|
(538)
|
Purchased
product
|
(334)
|
(216)
|
(1,400)
|
(1,135)
|
Operating
expenses
|
(82)
|
(115)
|
(334)
|
(420)
|
Realized gain (loss) on
commodity risk management
|
(9)
|
1
|
(28)
|
10
|
Cash operating
netback
|
$
400
|
$
459
|
$
1,600
|
$
2,187
|
Blend Sales and Bitumen Realization
Blend sales and bitumen realization are non-GAAP financial
measures, or ratios when expressed on a per barrel basis, and are
used as a measure of the Corporation's marketing strategy by
isolating petroleum revenue and costs associated with its produced
and purchased products and excludes royalties. Their 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. Blend
sales per barrel is based on blend sales volumes and bitumen
realization per barrel is based on bitumen sales volumes.
Revenues is an IFRS measure in the Corporation's consolidated
statement of earnings and comprehensive income, which is the most
directly comparable primary financial statement measure to blend
sales and bitumen realization. A reconciliation from revenues to
blend sales and bitumen realization has been provided below:
|
Three months ended
December 31
|
Year ended December
31
|
|
2023
|
2022
|
2023
|
2022
|
($millions, except
as indicated)
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
Revenues
|
$
1,444
|
|
$
1,445
|
|
$
5,653
|
|
$
6,118
|
|
Power and
transportation revenue
|
(19)
|
|
(55)
|
|
(117)
|
|
(148)
|
|
Royalties
|
186
|
|
54
|
|
456
|
|
225
|
|
Petroleum
revenue
|
1,611
|
|
1,444
|
|
5,992
|
|
6,195
|
|
Purchased
product
|
(334)
|
|
(216)
|
|
(1,400)
|
|
(1,135)
|
|
Blend sales
|
1,277
|
$
87.33
|
1,228
|
$
83.28
|
4,592
|
$
87.94
|
5,060
|
$ 102.02
|
Diluent
expense
|
(471)
|
(9.58)
|
(505)
|
(14.12)
|
(1,691)
|
(9.30)
|
(1,848)
|
(10.07)
|
Bitumen
realization
|
$ 806
|
$
77.75
|
$ 723
|
$
69.16
|
$
2,901
|
$
78.64
|
$
3,212
|
$
91.95
|
Net Transportation and Storage Expense
Net transportation and storage expense is a non-GAAP financial
measure, or ratio when expressed on a per barrel basis. Its terms
are not defined by IFRS and, therefore may not be comparable to
similar measures provided by other companies. This non-GAAP
financial measure should not be considered in isolation or as an
alternative for measures of performance prepared in accordance with
IFRS. Per barrel amounts are based on bitumen sales volumes.
It is used as a measure of the Corporation's marketing strategy
by focusing on maximizing the realized AWB sales price after
transportation and storage expense by utilizing its network of
pipeline and storage facilities to optimize market access.
Transportation and storage expense is an IFRS measure in the
Corporation's consolidated statements of earnings and comprehensive
income.
Power and transportation revenue is an IFRS measure in the
Corporation's consolidated statement of earnings and comprehensive
income, which is the most directly comparable primary financial
statement measure to transportation revenue. A reconciliation from
power and transportation revenue to transportation revenue has been
provided below.
|
Three months ended
December 31
|
Year ended December
31
|
|
2023
|
2022
|
2023
|
2022
|
($millions, except
as indicated)
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
Transportation and
storage expense
|
$
(148)
|
$
(14.23)
|
$
(151)
|
$
(14.48)
|
$
(600)
|
$
(16.27)
|
$
(538)
|
$
(15.41)
|
|
|
|
|
|
|
|
|
|
Power and
transportation revenue
|
$
19
|
|
$ 55
|
|
$
117
|
|
$
148
|
|
Less power
revenue
|
(19)
|
|
(54)
|
|
(114)
|
|
(144)
|
|
Transportation
revenue
|
$
—
|
$
—
|
$
1
|
$
0.07
|
$
3
|
$
0.09
|
$
4
|
$
0.12
|
|
|
|
|
|
|
|
|
|
Net transportation and
storage expense
|
$
(148)
|
$
(14.23)
|
$
(150)
|
$
(14.41)
|
$
(597)
|
$
(16.18)
|
$
(534)
|
$
(15.29)
|
Bitumen Realization after Net Transportation and Storage
Expense
Bitumen realization after net transportation and storage expense
is a non-GAAP financial measure, or ratio when expressed on a per
barrel basis. Its terms are not defined by IFRS and, therefore may
not be comparable to similar measures provided by other companies.
This non-GAAP financial measure should not be considered in
isolation or as an alternative for measures of performance prepared
in accordance with IFRS. Per barrel amounts are based on bitumen
sales volumes.
It is used as a measure of the Corporation's marketing strategy
by focusing on maximizing the realized AWB sales price after net
transportation and storage expense by utilizing its network of
pipeline and storage facilities to optimize market access.
|
Three months
ended
December
31
|
Year ended
December 31
|
|
2023
|
2022
|
2023
|
2022
|
($millions, except
as indicated)
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
Bitumen
realization(1)
|
$
806
|
$
77.75
|
$
723
|
$ 69.16
|
$
2,901
|
$
78.64
|
$ 3,212
|
$ 91.95
|
Net transportation and
storage expense(1)
|
(148)
|
(14.23)
|
(150)
|
(14.41)
|
(597)
|
(16.18)
|
(534)
|
(15.29)
|
Bitumen realization
after net
transportation and storage
expense
|
$
658
|
$
63.52
|
$
573
|
$ 54.75
|
$
2,304
|
$
62.46
|
$ 2,678
|
$ 76.66
|
(1)
|
Non-GAAP financial
measure as defined in this section.
|
Operating Expenses net of Power Revenue and Energy Operating
Costs net of Power Revenue
Operating expenses net of power revenue and Energy operating
costs net of power revenue are both non-GAAP financial measures, or
ratios when expressed on a per barrel basis. Their 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. Per
barrel amounts are based on bitumen sales volumes.
Operating expenses net of power revenue is used as a measure of
the Corporation's cost to operate its facilities at the
Christina Lake project after
factoring in the benefits from selling excess power to offset
energy costs.
Energy operating costs net of power revenue is used to measure
the performance of the Corporation's cogeneration facilities to
offset energy operating costs.
Non-energy operating costs and energy operating costs are
supplementary financial measures as they represent portions of
operating expenses. Non-energy operating costs comprise
production-related operating activities and energy operating costs
reflect the cost of natural gas used as fuel to generate steam and
power. Per barrel amounts are based on bitumen sales volumes.
Operating expenses is an IFRS measure in the Corporation's
consolidated statement of earnings and comprehensive income. Power
and transportation revenue is an IFRS measure in the Corporation's
consolidated statement of earnings and comprehensive income which
is the most directly comparable primary financial statement measure
to power revenue. A reconciliation from power and transportation
revenue to power revenue has been provided below.
|
Three months ended
December 31
|
Year ended December
31
|
|
2023
|
2022
|
2023
|
2022
|
($millions, except
as indicated)
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
|
$/bbl
|
Non-energy operating
costs
|
$ (48)
|
$
(4.64)
|
$ (45)
|
$
(4.34)
|
$
(185)
|
$
(5.01)
|
$
(165)
|
$
(4.73)
|
Energy operating
costs
|
(34)
|
(3.25)
|
(70)
|
(6.71)
|
(149)
|
(4.03)
|
(255)
|
(7.29)
|
Operating
expenses
|
$ (82)
|
$
(7.89)
|
$
(115)
|
$
(11.05)
|
$
(334)
|
$
(9.04)
|
$
(420)
|
$
(12.02)
|
|
|
|
|
|
|
|
|
|
Power and
transportation revenue
|
$
19
|
|
$ 55
|
|
$
117
|
|
$
148
|
|
Less transportation
revenue
|
—
|
|
(1)
|
|
(3)
|
|
(4)
|
|
Power
revenue
|
$
19
|
$
1.79
|
$ 54
|
$
5.22
|
$
114
|
$
3.08
|
$
144
|
$
4.11
|
|
|
|
|
|
|
|
|
|
Operating expenses net
of power revenue
|
$ (63)
|
$
(6.10)
|
$ (61)
|
$
(5.83)
|
$
(220)
|
$
(5.96)
|
$
(276)
|
$
(7.91)
|
|
|
|
|
|
|
|
|
|
Energy operating costs
net of power
revenue
|
$ (15)
|
$
(1.46)
|
$ (16)
|
$
(1.49)
|
$ (35)
|
$
(0.95)
|
$
(111)
|
$
(3.18)
|
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 future prospects; the
Corporation's statement that increased production and improved SOR
reflects a continued focus on short-cycle redevelopment programs,
enhanced completion designs, optimized well spacing and targeted
facility enhancements; the Corporation's expectation of reaching
its US$600 million debt target in the
third quarter of 2024; the Corporation's expectation of returning
100% of free cash flow to shareholders upon reaching its
US$600 million target; the
Corporation's intention to renew its share buyback program; the
Corporation's statements regarding its ESG goals and targets,
including its mid-term absolute GHG emissions2 target;
the Corporation's expectations regarding the Pathways Alliance
projects and government support of these projects; all statements
relating to the Corporation's 2024 guidance, including its
statements regarding 2024 production estimates and its statements
regarding the allocation of its 2024 capital program; the
Corporation's expectation that its balance sheet and operating
performance provide a solid foundation to fund the 2024 capital
program; and the Corporation's adjusted funds flow sensitivity
estimates.
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 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
emissions2 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
emissions2 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; 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.
__________
|
2
Scope 1 and Scope 2
|
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 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 emissions3 by 2050. MEG's common
shares are listed on the Toronto Stock Exchange under the symbol
"MEG" (TSX: MEG).
Learn more at: www.megenergy.com
__________
|
3
Scope 1 and Scope 2 emissions
|
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
SOURCE MEG Energy Corp.