Company anticipates production increases from highly
economic eMSAGP growth to commence in third quarter, driving a
reduction of $4-$5 per barrel in
overall cash costs when fully ramped-up in early 2019
All financial figures in Canadian dollars ($ or C$) unless
otherwise noted
CALGARY, July 27, 2017 /CNW/ - MEG Energy Corp. (TSX:MEG)
today reported second quarter 2017 operating and financial results.
Highlights include:
- Quarterly production volumes of 72,448 barrels per day (bpd),
while completing planned maintenance activities;
- Net operating costs of $7.42 per
barrel supported by unadjusted record low quarterly non-energy
operating costs of $4.23 per
barrel;
- Total cash capital investment of $158
million, primarily directed towards the eMSAGP growth
initiative at Christina Lake Phase 2B which is proceeding on
schedule and ahead of budget;
- Strong liquidity contributing to cash and cash equivalents of
$512 million as of June 30, 2017. The company's US$1.4 billion, four-year covenant-lite revolving
credit facility remains undrawn; and,
- A reduction in per barrel non-energy operating cost guidance
from a range of $5.75 - $6.75 per
barrel to $5.00 - $5.50 per barrel to
reflect ongoing efficiency gains and a continued focus on cost
management, while re-affirming annual production guidance of 80,000
to 82,000 bpd, year-end exit production guidance of 86,000 to
89,000 bpd, and 2017 capital budget guidance of $590 million.
MEG's second quarter 2017 production averaged 72,448 bpd,
compared to 77,245 bpd for the first quarter of the year.
Production for the second quarter was at the upper end of the
forecast provided by the company in its first quarter 2017
disclosure which took into account 37 days of planned maintenance.
The company remains on track to meet its 2017 average production
guidance of 80,000 to 82,000 bpd.
"We had three corporate objectives for 2017 as we work to
accomplish our long-term vision of continuing to strengthen our
financial position while economically growing production. These
objectives were completion of the comprehensive refinancing of the
company's balance sheet, the active pursuit of our highly economic
growth plan, and our continued focus on the further reduction of
our corporate cash costs," said Bill
McCaffrey, President and Chief Executive Officer. "With the
successful refinancing of MEG's balance sheet in January 2017 and our annual turnaround activities
behind us, our focus is now on the implementation of our highly
economic Phase 2B eMSAGP growth project. Our proprietary reservoir
technology which we are deploying has done more than just improve
the efficiencies of our business, it has fundamentally changed the
way we grow, allowing us to further lower our breakeven costs."
To date, eMSAGP has been deployed at MEG's Phase 1 and 2 wells,
which represent about 25% of the company's production, and has been
very successful. The Phase 2B eMSAGP project now being undertaken
involves the implementation of MEG's proprietary reservoir
enhancement technology to the remaining 75% of the company's
production not currently under eMSAGP production. The
implementation of eMSAGP has significantly improved reservoir
efficiency and allowed for redeployment of steam, enabling the
company to place additional wells into production. Since employing
eMSAGP, the company's overall steam-oil ratio (SOR) has been
reduced to 2.3, and on an eMSAGP-only basis is averaging an
industry-leading range of 1.0 to 1.25.
"Given our low sustaining capital requirements and strong cash
position, we remain confident that we are on track to complete the
highly economic Phase 2B eMSAGP project while meaningfully lowering
our corporate cash costs," said Bill. "We expect the current growth
phase of 20,000 bpd production from eMSAGP to reduce our cash costs
by approximately $4 to $5 per barrel
when fully on stream in early 2019, meaningfully improving the
ongoing sustainability of our business."
For the second quarter of 2017, net operating costs were
$7.42 per barrel, compared to
$8.43 per barrel in the previous
quarter. Non-energy operating costs were $4.23 per barrel compared to $5.20 per barrel for the first quarter of this
year. These per barrel numbers are inclusive of a $0.66 per barrel, or $4.5
million, property tax reduction related to a one-time
municipal reassessment of MEG's Christina
Lake facility. MEG's second quarter non-energy operating per
barrel costs were a record low even excluding the reassessment,
reflecting the positive results from operational efficiency gains
and a continued focus on cost management.
As a result of ongoing operating cost management, including
lower operations staffing and associated camp and site services
costs, and continued efficiency gains over the first half of 2017,
annual non-energy operating costs for 2017 are now targeted to be
in the range of $5.00 - $5.50 per
barrel, approximately 16% lower than the original guidance of
$5.75 - $6.75 per barrel at its
mid-point.
MEG realized adjusted funds flow from operations of $55 million for the second quarter of 2017
compared to adjusted funds flow from operations of $7 million for the same period in 2016. The
increase in adjusted funds flow from operations was primarily due
to an increase in bitumen realization driven by the increase in
average crude oil benchmark pricing and narrower differentials. The
company recorded a second quarter 2017 operating loss of
$36 million compared to an operating
loss of $79 million for the first
quarter of this year.
Capital Investment and Financial Liquidity
Total cash capital investment during the second quarter of 2017
was $158 million, compared to
$78 million for the first quarter of
2017. Capital investment in 2017 is primarily directed towards the
company's eMSAGP production growth initiative at Christina Lake
Phase 2B, which is proceeding on schedule and ahead of budget. The
company expects production to increase in the third quarter,
supporting year-end exit production guidance of 86,000 to 89,000
bpd.
In the second quarter of 2017, costs from the major planned
turnaround of $37 million were
incurred and will be depreciated on a straight-line basis over the
period to the next major planned turnaround.
MEG's 2017 capital budget guidance remains at $590 million, of which approximately 55% is
directed towards the Phase 2B eMSAGP growth initiative, 35% towards
sustaining and turnaround costs, and the remainder towards
supporting marketing, corporate and other initiatives. The company
expects to fund the remainder of its 2017 capital program with a
portion of the $512 million of cash
on hand at June 30, 2017.
MEG has entered into a series of hedges designed to protect its
capital program against downward oil price movements and mitigate
volatility in cash flow. MEG has hedges in place for approximately
half of its blend sales at an average floor price of US$50 WTI per barrel and for approximately 40% of
its condensate purchases for the rest of 2017. MEG's four-year
covenant-lite US$1.4 billion credit
facility also remains undrawn.
The company is taking steps to address its financial
leverage. In January 2017, MEG
successfully completed a refinancing which pushed the first
maturity of any of the Corporation's outstanding long-term debt
obligations to 2023. The ongoing implementation of the eMSAGP
growth project will grow production and associated cash flow while
further de-risking the business through a reduction in its overall
cash costs of $4 to $5 per barrel. In
addition, taking into account the company's debt maturity profile
and the ongoing commodity price environment, MEG continues to
consider its options to reduce its overall amount of debt.
Operational and Financial Highlights
|
Six months
ended
June 30
|
2017
|
2016
|
2015
|
($ millions,
except as indicated)
|
2017
|
2016
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Bitumen production -
bbls/d
|
74,833
|
79,883
|
72,448
|
77,245
|
81,780
|
83,404
|
83,127
|
76,640
|
83,514
|
82,768
|
Bitumen realization -
$/bbl
|
38.80
|
21.56
|
39.66
|
37.93
|
36.17
|
30.98
|
30.93
|
11.43
|
23.17
|
31.03
|
|
|
|
|
|
|
|
|
|
|
|
Net operating costs -
$/bbl(1)
|
7.92
|
7.97
|
7.42
|
8.43
|
8.24
|
7.76
|
7.43
|
8.53
|
8.52
|
9.10
|
|
|
|
|
|
|
|
|
|
|
|
Non-energy operating
costs - $/bbl
|
4.71
|
6.12
|
4.23
|
5.20
|
4.99
|
5.32
|
5.81
|
6.45
|
5.66
|
5.98
|
|
|
|
|
|
|
|
|
|
|
|
Cash operating
netback - $/bbl(2)
|
22.66
|
6.57
|
22.96
|
22.33
|
21.73
|
16.74
|
16.09
|
(3.71)
|
9.05
|
16.41
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted funds flow
from (used in)
|
|
|
|
|
|
|
|
|
|
|
|
operations(3)
|
98
|
(124)
|
55
|
43
|
40
|
23
|
7
|
(131)
|
(44)
|
24
|
|
Per share,
diluted(3)
|
0.35
|
(0.55)
|
0.19
|
0.16
|
0.18
|
0.10
|
0.03
|
(0.58)
|
(0.20)
|
0.11
|
Operating earnings
(loss)(3)
|
(115)
|
(295)
|
(36)
|
(79)
|
(72)
|
(88)
|
(98)
|
(197)
|
(140)
|
(87)
|
|
Per share,
diluted(3)
|
(0.40)
|
(1.31)
|
(0.12)
|
(0.29)
|
(0.32)
|
(0.39)
|
(0.43)
|
(0.88)
|
(0.62)
|
(0.39)
|
Revenue(4)
|
1,134
|
804
|
574
|
560
|
566
|
497
|
513
|
290
|
445
|
460
|
Net earnings
(loss)(5)
|
106
|
(15)
|
104
|
2
|
(305)
|
(109)
|
(146)
|
131
|
(297)
|
(428)
|
|
Per share,
basic
|
0.37
|
(0.07)
|
0.36
|
0.01
|
(1.34)
|
(0.48)
|
(0.65)
|
0.58
|
(1.32)
|
(1.90)
|
|
Per share,
diluted
|
0.37
|
(0.07)
|
0.35
|
0.01
|
(1.34)
|
(0.48)
|
(0.65)
|
0.58
|
(1.32)
|
(1.90)
|
|
|
|
|
|
|
|
|
|
|
|
Total cash capital
investment(6)
|
236
|
55
|
158
|
78
|
63
|
19
|
20
|
35
|
54
|
32
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
512
|
153
|
512
|
549
|
156
|
103
|
153
|
125
|
408
|
351
|
Long-term
debt
|
4,813
|
4,871
|
4,813
|
4,945
|
5,053
|
4,910
|
4,871
|
4,859
|
5,190
|
5,024
|
(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,
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. For the three and six months
ended June 30, 2017 and June 30, 2016, 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 Interim Consolidated Statement of Earnings and Comprehensive
Income.
|
(5)
|
Includes a net
unrealized foreign exchange gain of $128.0 million and
$164.7 million on the Corporation's U.S. dollar denominated debt
and U.S. dollar denominated cash and cash equivalents for the three
and six months ended June 30, 2017, respectively. The net loss for
the three and six months ended, June 30, 2016 includes a net
unrealized foreign exchange loss of $13.8 million and a net
unrealized foreign exchange gain of $306.5 million,
respectively.
|
(6)
|
Defined as total
capital investment excluding dispositions, capitalized interest,
capitalized cash-settled stock-based compensation and non-cash
items.
|
ADVISORY
Basis of Presentation
MEG prepares its financial statements in accordance with
International Financial Reporting Standards ("IFRS") and presents
financial results in Canadian dollars ($ 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, net change in other
liabilities, 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
June 30
|
Six months ended
June 30
|
($000)
|
2017
|
2016
|
2017
|
2016
|
Net cash provided by
(used in) operating activities
|
$
|
63,612
|
$
|
64,587
|
$
|
109,418
|
$
|
(156,084)
|
|
|
Net change in
non-cash operating working capital items
|
(14,024)
|
(56,923)
|
(22,211)
|
30,917
|
Funds flow from (used
in) operations
|
49,588
|
7,664
|
87,207
|
(125,167)
|
|
Adjustments:
|
|
|
|
|
|
|
Net change in other
liabilities
|
-
|
(1,451)
|
-
|
(1,451)
|
|
|
Payments on onerous
contracts
|
5,468
|
717
|
9,602
|
1,346
|
|
|
Decommissioning
expenditures
|
39
|
34
|
1,461
|
996
|
Adjusted funds flow
from (used in) operations
|
$
|
55,095
|
$
|
6,964
|
$
|
98,270
|
$
|
(124,276)
|
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, 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, in
the table below.
|
Three months ended
June 30
|
Six months ended
June 30
|
($000)
|
2017
|
2016
|
2017
|
2016
|
Net earnings
(loss)
|
$
|
104,282
|
$
|
(146,165)
|
$
|
105,870
|
$
|
(15,336)
|
Adjustments:
|
|
|
|
|
|
Unrealized net loss
(gain) on foreign exchange(1)
|
(127,961)
|
13,789
|
(164,668)
|
(306,492)
|
|
Unrealized loss
(gain) on derivative financial liabilities(2)
|
(1,615)
|
516
|
(3,856)
|
6,005
|
|
Unrealized loss
(gain) on commodity risk management(3)
|
(17,224)
|
37,434
|
(76,823)
|
20,471
|
|
Onerous contracts
expense(4)
|
3,333
|
9,055
|
5,708
|
13,426
|
|
Deferred tax expense
(recovery) relating to these
|
|
|
|
|
|
|
adjustments
|
3,529
|
(12,523)
|
18,761
|
(13,254)
|
Operating earnings
(loss)
|
$
|
(35,656)
|
$
|
(97,894)
|
$
|
(115,008)
|
$
|
(295,180)
|
(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)
|
Onerous contracts
expense primarily includes changes in estimated future cash flow
sublease recoveries related to the onerous office lease provision
for the Corporation's office building lease
contracts.
|
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
SEDAR website which is available 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 Second Quarter 2017 Report to
Shareholders, including unaudited financial statements, is
available at www.megenergy.com/investors and
at www.sedar.com.
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.