Strong cash position at year end 2017,
driven by the seventh consecutive year of record-low non-energy
operating costs, supports highly-economic growth to 100,000 bpd by
early 2019
All financial figures in Canadian dollars ($ or
C$) unless otherwise noted
CALGARY, Feb. 8, 2018 /CNW/ - MEG Energy Corp. (TSX:MEG)
today reported fourth quarter and full-year 2017 operating and
financial results. Highlights include:
- Record fourth quarter production volumes of 90,228 barrels per
day (bpd) contributing to annual production of 80,774 bpd, within
guidance for the year. Exit production volumes of 93,674 bpd, which
are significantly above the company's exit guidance, reflect
the continued ramp-up of MEG's eMSAGP growth initiative at
Christina Lake Phase 2B;
- Fourth quarter non-energy operating costs of $4.53 per barrel contributing to record-low
annual non-energy operating costs of $4.62 per barrel, which are well below the low
end of the company's guidance;
- Record-low annual net operating costs of $6.84 per barrel;
- Total cash capital investment for 2017 of $503 million, 15% lower than MEG's original
budget of $590 million and lower than
the company's $510 million revised
capital guidance; and
- Year-end cash and cash equivalents of $464 million, which along with expected funds
flow will enable MEG to fully fund its 2018 capital program of
$510 million.
MEG is positioned to complete the implementation of the eMSAGP
growth initiative at Christina Lake Phase 2B in 2018, which is expected to enable
production to continue to ramp up to reach 95,000 to 100,000 bpd by
the end of the year.
"The transformation of MEG's business over the last two years
has been remarkable. Our eMSAGP technology is enabling us to
increase our production and decrease our costs, all at a very
attractive capital efficiency," said Bill McCaffrey, President
and Chief Executive Officer. "Through the application of eMSAGP on
our Phase 2B assets, we expect to
increase our production by 25% to 100,000 bpd while continuing to
drive our non-energy operating costs down."
Record–Low Costs
MEG set records for the full year of 2017 in both per barrel net
operating costs and non-energy operating costs, which totaled
$6.84 per barrel and $4.62 per barrel respectively. Net operating
costs per barrel for full year 2017 were 14% less than in 2016,
while non-energy operating costs per barrel decreased 18% in 2017
compared to the previous year. The continued reduction in net
operating costs and non-energy operating costs in 2017 were
primarily due to efficiency gains and continued cost
management.
MEG posted fourth quarter non-energy operating costs of
$4.53 per barrel, a result of higher
sales volumes. Non-energy operating costs for 2017 averaged
$4.62 per barrel, below the low end
of the $4.75 - $5.00 per barrel revised guidance provided in
MEG's third quarter 2017 disclosure, and a 55% reduction since
2011.
Net operating costs for the fourth quarter of 2017 averaged
$5.86 per barrel compared to
$8.24 per barrel for the same period
in 2016. This 29% reduction is comprised of a per barrel decrease
in both non-energy and energy operating costs, offset by a decrease
in per barrel power revenue.
Strong Fourth Quarter Sales
Sales volumes in the fourth quarter of 2017 were approximately
4,300 bpd higher than fourth quarter production volumes, primarily
as a result of volumes sold at the U.S. Gulf Coast that were in
transit over the third quarter of 2017.
MEG benefitted from increases in its realized sales price during
the fourth quarter. The WTI:WCS differential average narrowed to
US$12.26 per barrel, or 22.1%,
for the fourth quarter of 2017, compared to US$14.32 per barrel, or 29.1% for the same period
in 2016 due to higher demand for Canadian heavy oil from U.S. Gulf
Coast refineries. The WTI:WCS differential averaged US$11.98 per barrel, or 23.5%, for 2017 compared
to US$13.84 per barrel, or 31.9%, for
2016.
Adjusted Funds Flow and Earnings
MEG realized adjusted funds flow from operations of $192 million for the fourth quarter of 2017
compared to adjusted funds flow from operations of $40 million in the same quarter of 2016. The
increase was primarily due to an increase in bitumen realization
and a reduction in net operating costs, partially offset by an
increase in transportation. The increase in bitumen realization is
a result of the quarter-over-quarter increase in average crude oil
benchmark pricing and blend sales volumes.
The company recorded fourth quarter 2017 operating earnings of
$44 million compared to an operating
loss of $72 million for the same
period in 2016. MEG recognized an operating loss of $114 million for 2017 compared to an operating
loss of $455 million for 2016. The
decrease in the operating loss for full year and fourth quarter
2017 was primarily due to higher bitumen realization as a result of
the increase in average crude oil benchmark pricing and lower
operating costs.
MEG's long-term debt is entirely denominated in U.S. dollars.
Primarily as a result of the increase in the value of the Canadian
dollar relative to the U.S. dollar, long-term debt as presented on
the company's Consolidated Balance Sheet decreased to C$4.64 billion at December
31, 2017 from C$5.05 billion
at December 31, 2016.
MEG's four-year covenant-lite US$1.4
billion credit facility remains undrawn.
Highly-Economic Growth Progressing in 2018
"In 2018, our focus is on the successful completion of the Phase
2B eMSAGP program and our growth
plans beyond 100,000 bpd," said McCaffrey. "We continue to be
encouraged by the results we are getting from the eMVAPEX
technology, and we also have further opportunities around the
application of eMSAGP and brownfield expansions. Our low-cost
continuous growth approach is providing the way for MEG into the
future."
Operational and Financial Highlights
|
|
|
|
|
Year ended
December 31
|
2017
|
2016
|
($ millions,
except as indicated)
|
2017
|
2016
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Bitumen production -
bbls/d
|
80,774
|
81,245
|
90,228
|
83,008
|
72,448
|
77,245
|
81,780
|
83,404
|
83,127
|
76,640
|
|
|
|
|
|
|
|
|
|
|
|
Bitumen realization -
$/bbl
|
41.89
|
27.79
|
48.30
|
39.89
|
39.66
|
37.93
|
36.17
|
30.98
|
30.93
|
11.43
|
|
|
|
|
|
|
|
|
|
|
|
Net operating costs -
$/bbl(1)
|
6.84
|
7.99
|
5.86
|
6.00
|
7.42
|
8.43
|
8.24
|
7.76
|
7.43
|
8.53
|
|
|
|
|
|
|
|
|
|
|
|
Non-energy operating
costs - $/bbl
|
4.62
|
5.62
|
4.53
|
4.57
|
4.23
|
5.20
|
4.99
|
5.32
|
5.81
|
6.45
|
|
|
|
|
|
|
|
|
|
|
|
Cash operating
netback - $/bbl(2)
|
27.00
|
13.13
|
33.83
|
26.84
|
22.96
|
22.33
|
21.73
|
16.74
|
16.09
|
(3.71)
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted funds flow
from (used in) operations(3)
|
374
|
(62)
|
192
|
83
|
55
|
43
|
40
|
23
|
7
|
(131)
|
|
Per share,
diluted(3)
|
1.29
|
(0.27)
|
0.65
|
0.28
|
0.19
|
0.16
|
0.18
|
0.10
|
0.03
|
(0.58)
|
Operating earnings
(loss)(3)
|
(114)
|
(455)
|
44
|
(43)
|
(36)
|
(79)
|
(72)
|
(88)
|
(98)
|
(197)
|
|
Per share,
diluted(3)
|
(0.39)
|
(2.01)
|
0.15
|
(0.14)
|
(0.12)
|
(0.29)
|
(0.32)
|
(0.39)
|
(0.43)
|
(0.88)
|
Revenue(4)
|
2,435
|
1,866
|
755
|
546
|
574
|
560
|
566
|
497
|
513
|
290
|
Net earnings
(loss)
|
188
|
(429)
|
(1)
|
84
|
104
|
2
|
(305)
|
(109)
|
(146)
|
131
|
|
Per share,
basic
|
0.65
|
(1.90)
|
(0.00)
|
0.29
|
0.36
|
0.01
|
(1.34)
|
(0.48)
|
(0.65)
|
0.58
|
|
Per share,
diluted
|
0.65
|
(1.90)
|
(0.00)
|
0.28
|
0.35
|
0.01
|
(1.34)
|
(0.48)
|
(0.65)
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
Total cash capital
investment
|
503
|
137
|
163
|
103
|
158
|
78
|
63
|
19
|
20
|
35
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
464
|
156
|
464
|
398
|
512
|
549
|
156
|
103
|
153
|
125
|
Long-term
debt
|
4,637
|
5,053
|
4,637
|
4,636
|
4,813
|
4,945
|
5,053
|
4,910
|
4,871
|
4,859
|
|
|
(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 months and years
ended December 31, 2017 and December 31, 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.
|
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 and charges not
incurred in the normal course of operations, 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
December 31
|
Year
ended
December
31
|
($000)
|
2017
|
2016
|
2017
|
2016
|
Net cash provided by
(used in) operating activities
|
$
|
200,538
|
$
|
82,621
|
$
|
317,935
|
$
|
(94,074)
|
|
Net change in
non-cash operating working capital items
|
(4,405)
|
(43,636)
|
24,517
|
25,061
|
Funds flow from (used
in) operations
|
196,133
|
38,985
|
342,452
|
(69,013)
|
|
Adjustments:
|
|
|
|
|
|
|
Contract cancellation
expense
|
-
|
-
|
18,765
|
-
|
|
|
Net change in other
liabilities
|
(9,389)
|
(718)
|
(9,389)
|
-
|
|
|
Payments on onerous
contracts
|
4,878
|
1,505
|
19,569
|
6,116
|
|
|
Decommissioning
expenditures
|
556
|
195
|
2,403
|
1,290
|
Adjusted funds flow
from (used in) operations
|
$
|
192,178
|
$
|
39,967
|
$
|
373,800
|
$
|
(61,607)
|
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, impairment charge, contract cancellation expense,
onerous contracts expense, debt extinguishment expense, insurance
proceeds 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
December 31
|
Year
ended
December
31
|
($000)
|
2017
|
2016
|
2017
|
2016
|
Net earnings
(loss)
|
$
|
(1,295)
|
$
|
(304,758)
|
$
|
188,460
|
$
|
(428,726)
|
Adjustments:
|
|
|
|
|
|
Unrealized net loss
(gain) on foreign exchange(1)
|
6,972
|
119,610
|
(338,144)
|
(148,153)
|
|
Unrealized loss
(gain) on derivative financial liabilities(2)
|
(8,833)
|
(7,146)
|
(16,179)
|
(12,508)
|
|
Unrealized loss
(gain) on commodity risk management(3)
|
57,689
|
42,049
|
38,336
|
30,313
|
|
Impairment
charge(4)
|
-
|
80,072
|
-
|
80,072
|
|
Contract cancellation
expense(5)
|
-
|
-
|
18,765
|
-
|
|
Onerous contracts
expense(6)
|
5,149
|
16,383
|
10,830
|
47,866
|
|
Debt extinguishment
expense(7)
|
-
|
28,845
|
-
|
28,845
|
|
Insurance
proceeds
|
-
|
(4,391)
|
(183)
|
(4,391)
|
|
Deferred tax expense
(recovery) relating to these adjustments
|
(15,627)
|
(42,653)
|
(15,409)
|
(48,416)
|
Operating earnings
(loss)
|
$
|
44,055
|
$
|
(71,989)
|
$
|
(113,524)
|
$
|
(455,098)
|
|
|
(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)
|
During the fourth
quarter of 2016, the Corporation recognized an impairment charge of
$80.1 million relating to an investment in the right to participate
in the Northern Gateway pipeline.
|
(5)
|
During the third
quarter of 2017, the Corporation recognized a contract cancellation
expense of $18.8 million relating to the termination of a long-term
transportation contract.
|
(6)
|
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.
|
(7)
|
At December 31,
2016, the Corporation recognized $28.8 million of debt
extinguishment expense associated with the planned redemption of
the 6.5% Senior Unsecured Notes on March 15, 2017, under the
comprehensive refinancing plan completed on January 27,
2017.
|
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 Fourth Quarter 2017 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 11:30 a.m. Mountain
Time (1:30 p.m. Eastern Time)
on Thursday, February 8, 2017. The
North American toll-free conference call number is 1-888-231-8191.
The international conference call number is 647-427-7450.
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.