All financial figures
are in Canadian dollars ($ or C$) and all references to barrels are
per barrel of bitumen sales unless otherwise noted
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CALGARY,
AB, Nov. 28, 2022 /CNW/ - MEG Energy Corp.
(TSX: MEG) ("MEG" or the "Corporation") today announced its 2023
capital investment plan and operational guidance. Highlights
include:
- Annual production guidance of 100,000 to 105,000 bbls/d
including a planned Q2 turnaround which will impact full year
production by approximately 6,000 bbls/d;
- Capital investments of $450
million;
- Non-energy operating costs and general & administrative
("G&A") expense guidance of $4.75
to $5.05/bbl and $1.70 to $1.90/bbl,
respectively;
- Effective Crown Royalty payments increasing to 20-25% of
realized plant gate bitumen revenue as our Christina Lake project achieves royalty
payout;
- Free cash flow to be split equally between debt reduction and
share buybacks as MEG executes its financial strategy and advances
toward its US$600 million net debt
target; and
- Continued emphasis on operations excellence and safety
leadership development
2023 Guidance
MEG's production estimate represents an 8% increase from the top
end of our revised 2022 production guidance. Record
production of 102,000 bbls/d in the third quarter of 2022 and
greater than 110,000 bbls/d in October were achieved, and the 2023
estimate reflects sustained field and plant reliability throughout
the year. The annual production estimate also incorporates a
second quarter turnaround in our Phase 1 & 2 facilities, which
will impact the full year by approximately 6,000 bbls/d, as well as
other maintenance activities.
MEG has capacity to ship 100,000 bbls/d of AWB blend sales, on a
pre-apportionment basis, to the U.S. Gulf Coast market via its
committed capacity on the Flanagan South and Seaway Pipeline
systems ("FSP"). In addition, 20,000 bbls/d of capacity is
contracted on the TMX pipeline system to the Canadian west
coast. TMX is scheduled to come into service in the fourth
quarter of 2023, which will further broaden MEG's market access and
position the company to optimize realized prices.
MEG's improved balance sheet and strong operating performance,
together with the current oil price environment, provide a solid
foundation to fund the 2023 capital program. As a result, no
WTI or WTI:WCS differential hedges have been entered for 2023.
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2023 Guidance
(1)
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Capital
investment
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$450 million
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Production
(average)
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100,000 – 105,000
bbls/d
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Non-energy operating
costs
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$4.75 - $5.05 per
bbl
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G&A
expense
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$1.70 - $1.90 per
bbl
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(1)
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2023 guidance
includes the impact of the scheduled second quarter turnaround
which is expected to impact annual production by approximately
6,000 bbls/d.
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2023 Capital Investment Summary
Category
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2023
Guidance
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Well Pads &
Redevelopment
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|
|
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|
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$235 million
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Facility & Field
Infrastructure
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$140 million
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Turnaround
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$55 million
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Corporate,
Other
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$20 million
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Total
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$450
million
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MEG is focused on the delivery of safe and reliable operations
from our Christina Lake asset.
We will continue to invest in our safety development program,
for both employees and contractors, and to advance operational
excellence.
The corporation's continued focus on operational excellence is
driving increased production at industry leading steam oil ratios
("SOR") with reduced green-house gas ("GHG") intensity. This
is being accomplished with enhanced completion designs, optimized
inter-well spacing, short-cycle high return redevelopment projects
and steam allocation techniques that are lowering field SOR ratios
and associated GHG intensity.
Approximately 52%, or $235
million, of the program is allocated towards new well pads,
gathering systems, and redevelopment drilling which will generate
short-cycle production, improve resource recovery and reduce
capital intensity.
An additional $140 million is
directed toward facility and field infrastructure.
Investments in areas, such as high-pressure steam deployment, gas
and water processing, reliability improvements, well work, and
sulphur recovery will enhance facility utilization.
Turnaround activities, planned for the second quarter of 2023,
comprise $55 million.
Budgeted 2023 capital costs reflect an estimated 7%
year-over-year impact from inflationary and supply chain
pressures.
Adjusted Funds Flow ("AFF") Sensitivity
MEG's production is entirely comprised of crude oil and AFF is
highly correlated with crude oil benchmark prices. The
following table provides an annual sensitivity estimate to the most
significant market variables.
Variable
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Range
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2023 AFF
Sensitivity1, 2 (C$mm)
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WCS Differential
(US$/bbl)
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+/-
US$1.00/bbl
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+/-
C$45mm
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WTI
(US$/bbl)
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+/-
US$1.00/bbl
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+/-
C$28mm
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Condensate
(US$/bbl)
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+/-
US$1.00/bbl
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+/-
C$14mm
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Bitumen Production
(bbls/d)
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+/- 1,000
bbls/d
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+/-
C$13mm
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Exchange Rate
(C$/US$)
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+/- $0.01
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+/-
C$9mm
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Non-energy Opex
(C$/bbl)
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+/-
C$0.25/bbl
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+/-
C$6mm
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AECO Gas3
(C$/GJ)
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+/-
C$0.50/GJ
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+/-
C$2mm
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1. Each sensitivity is
independent of changes to other variables.
2. Assumes mid point of 2023 production guidance, US$80/bbl WTI,
US$23/bbl WTI:AWB Edmonton discount, C$1.32/US$ F/X rate,
condensate purchased at 100% of WTI and one bbl of bitumen per 1.44
bbls of blend sales (1.44 blend ratio).
3. Assumes 1.3 GJ/bbl of bitumen, 70% of 150 MW of power generation
sold externally and a 30.0 heat rate (every $0.50/GJ change in AECO
natural gas price changes the power price by
C$15.00/MWh).
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Capital Allocation Strategy
MEG is applying free cash flow to ongoing debt reduction and
share buybacks. Year-to-date the corporation has returned
$304 million to shareholders by
buying 16.3 million shares and has repurchased US$ 966 million (approximately $1,257 million) of debt.
The Corporation reached US$1.2
billion of net debt as at September
30, 2022 and has increased the percentage of free cash flow
allocated to share buybacks to 50% with the remainder applied to
further debt reduction. This allocation will remain in place
until net debt reaches US$600
million, which is expected to occur beyond 2023 at current
oil prices. Once the net debt floor of US$ 600 million is reached 100% of free cash flow
will be returned to shareholders.
Pathways Alliance
MEG and its Pathways Alliance ("Alliance") partners are making
significant progress in advancing the early work required to build
one of the world's largest carbon capture and storage ("CCS")
facilities. The goals of this unique alliance and project are
to support Canada in meeting its
climate commitments, position Canada as the preferred global supplier of
crude oil and to achieve net zero GHG emissions from oil sands
operations by 2050.
Stakeholder engagement and engineering work to develop the
project is already underway. The Alliance has progressed
engagement with more than 20 Indigenous communities along the
proposed CO2 storage corridor, completed pre-engineering
for the CO2 pipeline and is conducting field programs to
support regulatory applications and engineering studies related to
the CO2 capture facilities. On October 4, 2022 the Alliance was one of 19 CCS
proposals chosen to proceed to the next stage of evaluation by the
Alberta government. The
Alliance partners have identified $24.1
billion of investments in CCS and other emissions projects
as part of the first phase of its goal to reduce emissions by 22
million tonnes per year by 2030 and reach net zero emissions from
the oil sands by 2050.
Alliance work also continues with the Federal and Alberta governments on the appropriate
co-investment mechanisms, in addition to the planned Federal
Investment Tax Credit, required to get major CCS projects off the
drawing board and into the field.
Non-GAAP Measures
Certain financial measures in this news release including free
cash flow 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 is a non-GAAP measure 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, fund capital expenditures and return
capital to shareholders. Free cash flow is calculated as adjusted
funds flow less capital expenditures. Adjusted funds flow is
defined in Note 19 of the third quarter 2021 Financial
Statements.
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", "dependent",
"ability", "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 news release contains forward looking statements
with respect to: the Corporation's 2023 capital investment plan and
operational guidance, including its 2023 capital budget, production
guidance and non-energy operating costs, general and administrative
expense and effective Crown Royalty guidance; the Corporation's
expectation that sustained field and plant reliability will
continue in 2023; the Corporation's expectations that the planned
turnaround in the second quarter of 2023 will impact full year
production by approximately 6,000 bbls/d; the Corporation's
statement that TMX is scheduled to come into service in the fourth
quarter of 2023; the Corporation's expectation that its improved
balance sheet, strong operating performance and current oil prices
will fund its 2023 capital program; the Corporation's ability to
delivery safe and reliable operations and to advance operational
excellence; the Corporation's statements relating to its capital
investment plans, including its expectation that continued focus on
operation excellence will drive increased production at leading
steam oil ratios with reduced green-house gas intensity; the
Corporation's expectations regarding inflationary and supply chain
pressures; the Corporation's adjusted funds flow sensitivities; the
Corporation's statements regarding 2022 and 2023 free cash flow;
the Corporation's statements regarding its net debt level and
continued debt reduction plans, including its intention to increase
the percentage of free cash flow allocated to share buybacks to 50%
with the balance applied to further debt reduction until it reaches
its net debt target of US$600
million; and the Corporation's emission reduction goals and
ambitions for the Corporation and through the Pathways
Alliance.
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 net zero GHG emissions by
2050; 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 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, including
vaccine rollouts; the potential for a temporary suspension of
operations impacted by an outbreak of COVID-19; 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; 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 capital expenditures, production,
operating costs, general and administrative costs and hedging
program, 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.
About MEG
MEG is an energy company focused on sustainable in situ
thermal oil production in the southern Athabasca 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
production to refiners throughout North
America and internationally. MEG's common shares are listed
on the Toronto Stock Exchange under the symbol "MEG".
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.