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, May 1, 2023 /CNW/ - MEG Energy Corp. (TSX:
MEG) ("MEG" or the "Corporation") reported its first quarter 2023
operational and financial results.
"In Q1 our Christina Lake
operations delivered strong bitumen production at an industry
leading steam-oil ratio and with an operating cost structure that
was positively impacted by low natural gas and higher power
prices", said Derek Evans, President
and Chief Executive Officer. "These strong operating results
enabled our ongoing commitment to debt reduction with $117 million of debt repaid in the quarter as
well as share buybacks of $103
million. All of this was achieved with our focus on health,
safety and the environment that ensures nobody gets hurt,
eliminates serious incidents and delivers operational
excellence."
Highlights include:
- Bitumen production of 106,840 barrels per day ("bbls/d") at a
2.25 steam-oil ratio ("SOR");
- Adjusted funds flow ("AFF") of $274
million, or $0.94 per share,
and $348 million of funds flow from
operating activities ("FFO");
- Free cash flow ("FCF") of $161
million, after $113 million of
capital expenditures;
- Debt repayment of US$86 million
(approximately C$117 million). Net
debt declined to US$1.0 billion
(approximately C$1.4 billion) at the
end of the first quarter of 2023;
- MEG returned $103 million to
shareholders through the buyback and cancellation of 4.9 million
shares at a weighted average price of $20.88 per share;
- Operating expenses net of power revenue of $6.13 per barrel. Power revenue offset 76% of
energy operating costs, resulting in energy operating costs net of
power revenue of $1.36 per barrel and
non-energy operating costs of $4.77
per barrel;
- On March 8, 2023, the Toronto
Stock Exchange ("TSX") approved the renewal of the Corporation's
normal course issuer bid ("NCIB or Bid"). Pursuant to the Bid, MEG
will purchase for cancellation, from time to time, as it considers
advisable, up to a maximum of 28,596,214 common shares of the
Corporation. The Bid became effective on March 10, 2023 and will terminate on March 9, 2024 or such earlier time as the Bid is
completed or terminated at the option of MEG; and
- On April 14, 2023, S&P Global
Ratings raised the Corporation's long-term issuer credit rating to
BB- and a stable outlook from B+ and affirmed the issue-level
rating on the Corporation's senior unsecured notes at BB-.
|
2023
|
2022
|
2021
|
($millions, except
as indicated)
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Bitumen production -
bbls/d
|
106,840
|
110,805
|
101,983
|
67,256
|
101,128
|
100,698
|
91,506
|
91,803
|
|
|
|
|
|
|
|
|
|
Steam-oil
ratio
|
2.25
|
2.22
|
2.39
|
2.46
|
2.43
|
2.42
|
2.56
|
2.39
|
|
|
|
|
|
|
|
|
|
Bitumen sales -
bbls/d
|
106,480
|
113,582
|
95,759
|
73,091
|
100,186
|
98,894
|
92,251
|
89,980
|
|
|
|
|
|
|
|
|
|
Bitumen realization
after net transportation and storage
expense(1) -
$/bbl
|
43.40
|
54.75
|
74.75
|
103.29
|
84.31
|
59.67
|
54.88
|
49.18
|
|
|
|
|
|
|
|
|
|
Operating expenses -
$/bbl
|
10.34
|
11.05
|
10.61
|
16.05
|
11.54
|
10.78
|
9.23
|
8.11
|
Operating expenses net
of power
revenue(1) -
$/bbl
|
6.13
|
5.83
|
5.45
|
12.97
|
8.98
|
8.20
|
7.17
|
5.54
|
|
|
|
|
|
|
|
|
|
Non-energy operating
costs(2) - $/bbl
|
4.77
|
4.34
|
4.49
|
5.65
|
4.74
|
4.56
|
4.46
|
3.84
|
|
|
|
|
|
|
|
|
|
Cash operating
netback(1) - $/bbl
|
34.32
|
43.89
|
62.63
|
81.75
|
70.21
|
37.87
|
37.31
|
31.30
|
|
|
|
|
|
|
|
|
|
General &
administrative expense -
$/bbl of bitumen production
volumes
|
1.94
|
1.62
|
1.72
|
2.37
|
1.61
|
1.58
|
1.72
|
1.56
|
|
|
|
|
|
|
|
|
|
Funds flow from
operating activities
|
348
|
383
|
501
|
412
|
587
|
260
|
212
|
160
|
Per share,
diluted
|
1.19
|
1.28
|
1.63
|
1.31
|
1.87
|
0.83
|
0.68
|
0.51
|
Adjusted funds
flow(3)
|
274
|
401
|
496
|
478
|
559
|
274
|
243
|
184
|
Per share,
diluted(3)
|
0.94
|
1.34
|
1.61
|
1.52
|
1.78
|
0.88
|
0.78
|
0.59
|
Free cash
flow(3)
|
161
|
295
|
418
|
374
|
471
|
168
|
159
|
113
|
|
|
|
|
|
|
|
|
|
Revenues
|
1,480
|
1,445
|
1,571
|
1,571
|
1,531
|
1,307
|
1,091
|
1,009
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss)
|
81
|
159
|
156
|
225
|
362
|
177
|
54
|
68
|
Per share,
diluted
|
0.28
|
0.53
|
0.51
|
0.72
|
1.15
|
0.57
|
0.17
|
0.22
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
113
|
106
|
78
|
104
|
88
|
106
|
84
|
71
|
|
|
|
|
|
|
|
|
|
Long-term debt,
including current portion
|
1,466
|
1,581
|
1,803
|
2,026
|
2,440
|
2,762
|
2,769
|
2,820
|
Net debt(3)
- C$
|
1,381
|
1,389
|
1,634
|
1,782
|
2,150
|
2,401
|
2,559
|
2,661
|
Net debt(3)
- US$
|
1,020
|
1,026
|
1,193
|
1,384
|
1,722
|
1,897
|
2,007
|
2,145
|
(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.
|
Financial Results
AFF and FFO in the first quarter of 2023 declined to
$274 million and $348 million, respectively, from $559 million and $587
million in the same period of 2022, mainly reflecting a 48%
decrease in cash operating netback. Higher 2023 bitumen sales
volumes were more than offset by lower realized prices relative to
the first quarter of 2022.
Cash operating netback per barrel in 2023 declined 51% from the
first quarter of 2022, to $34.32.
Bitumen realization after net transportation and storage expense
decreased to $43.40 per barrel in the
first three months of 2023, mainly reflecting a lower WTI benchmark
price, wider WTI:AWB differentials partially offset by a weaker
Canadian dollar. The impact of lower bitumen realization after net
transportation and storage expense on cash operating netback per
barrel was partially offset by reduced royalties and operating
expenses net of power revenues.
The Corporation sold 56% and 58% of its blend sales volumes in
the USGC market during the first quarter of 2023 and 2022,
respectively. Average heavy oil apportionment on the Enbridge
mainline system was 12% and 10% in those periods.
FCF was $161 million in the first
quarter of 2023, compared to $471
million in the same period of 2022, driven by the lower AFF
and an increase in capital spending to $113
million from $88 million.
Higher 2023 capital expenditures reflect increased drilling
activity.
Net earnings were $81 million and
$362 million in the first quarter of
2023 and 2022, respectively. The 2023 decline mainly reflects a
lower cash operating netback partially offset by reduced income tax
expense.
Operating Results
Bitumen production rose approximately 6% in the first quarter of
2023 to 106,840 bbls/d, from 101,128 bbls/d in the same period of
2022. Higher 2023 production was delivered at a 2.25 SOR, a 7%
reduction from 2.43 in the first quarter of 2022. The elevated
production performance was driven by a focus on optimized well
spacing, enhanced completion designs, a capital efficient well
redevelopment program and targeted facility enhancements.
Non–energy operating costs of $4.77 per barrel of bitumen sales in the first
quarter of 2023 were consistent with $4.74 per barrel during the same period of
2022.
Energy operating costs net of power revenue decreased to
$1.36 per barrel in the first quarter
of 2023, from $4.24 per barrel in the
comparable period of 2022 reflecting a 78% increase in realized
power prices and weaker AECO natural gas prices. Power revenue
offset 76% and 38% of energy operating costs in the first quarters
of 2023 and 2022, respectively.
General and administrative expense in the first quarter of 2023
rose to $18 million, or $1.94
per barrel of production, from $14 million, or $1.61 per barrel, in the comparable period of
2022 reflecting increased staff costs.
Debt Repurchases and Share Buybacks
The $161 million of first quarter 2023 FCF, and a portion
of available cash, were used for debt repurchases and share
buybacks. The Corporation repurchased US$86
million (approximately $117
million) of outstanding 7.125% senior unsecured notes at a
weighted average price of 102.2%. Share buybacks totaled
$103 million through the repurchase
and cancellation of 4.9 million shares at a weighted average price
of $20.88 per share.
Capital Allocation Strategy
Approximately 50% of 2023 FCF is being allocated to debt
reduction with the remainder applied to share buybacks. This
allocation will remain until US$600
million of net debt is achieved. The Corporation exited the
first quarter of 2023 with net debt of US$1.0 billion.
Sustainability and Pathways Update
MEG, along with its Pathways Alliance ("Alliance") peers, is
progressing pre-work on the proposed foundational carbon capture
and storage project, which will transport CO2 via
pipeline from multiple oil sands facilities to be stored safely and
permanently in the Cold Lake
region of Alberta.
On March 28, 2023 the Canadian
federal government announced measures in its 2023 budget to provide
greater policy certainty to support and incentivize investment in
clean technologies, including carbon capture, utilization and
storage ("CCUS") projects, that are critical to meeting
Canada's emissions reduction
goals. The government indicated a clearer legislative timeline for
the previously announced Investment Tax Credit ("ITC") for CCUS. In
addition, the federal government committed that contracts for
difference would be implemented by the Canada Growth Fund to
backstop the future price of, for example, carbon or hydrogen,
providing price and revenue predictability that helps to de-risk
major projects that reduce Canada's emissions. The Public Sector Pension
Investment Board ("PSP Investments") will be mandated to manage the
assets of the Canada Growth Fund to allow them to start investing
this year. The federal government also committed to consulting on
the development of a broad-based approach to carbon contracts for
difference that aim to make carbon pricing more predictable and to
complement individualized contracts for difference offered by the
Canada Growth Fund.
For further details on the Corporation's approach to ESG
matters, please refer to the Corporation's 2021 ESG Report and its
2022 ESG Performance Data Supplement available in the
"Sustainability" section of the Corporation's website at
www.megenergy.com and the most recently filed AIF on
www.sedar.com.
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
|
2023 AFF
Sensitivity(1)(2) - C$mm
|
WCS Differential
(US$/bbl)
|
+/-
US$1.00/bbl
|
+/- C$45mm
|
WTI
(US$/bbl)
|
+/-
US$1.00/bbl
|
+/- C$28mm
|
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$9mm
|
Non-Energy Opex
(C$/bbl)
|
+/-
C$0.25/bbl
|
+/- C$6mm
|
AECO Gas(3)
(C$/GJ)
|
+/-
C$0.50/GJ
|
+/- C$2mm
|
(1)
|
Each sensitivity is
independent of changes to other variables.
|
(2)
|
Assumes mid point of
2023 production guidance, US$80.00/bbl WTI, US$18.50/bbl WTI:AWB
Edmonton discount, US$9.00/bbl WTI:AWB Gulf Coast 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 GJ/MWh heat rate.
|
Conference Call
A conference call will be held to review MEG's first quarter
2023 operating and financial results at 6:00
a.m. Mountain Time (8:00 a.m. Eastern
Time) on May 2, 2023. 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 ("IFRS") 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
AFF and FCF are capital management measures and are defined in
the Corporation's consolidated financial statements. AFF and FCF
are presented to assist management and investors in analyzing
operating performance and cash flow generating ability. FFO is an
IFRS measure in the Corporation's consolidated statement of cash
flow. AFF is calculated as FFO excluding items not considered part
of ordinary continuing operating results. By excluding
non-recurring adjustments, the AFF measure provides a meaningful
metric for management and investors by establishing a clear link
between the Corporation's cash flows and cash operating netback.
FCF 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. FCF is calculated as AFF less capital
expenditures.
In the second quarter of 2022, an adjustment was made to the
presentation of AFF and FCF. 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 $1.57 per share.
Concurrent with the issuance, the Corporation entered equity price
risk management contracts to manage share price volatility in the
subsequent three-year period, effectively reducing share price
appreciation cash flow risk. The increase in the Corporation's
share price from April 2020 to
June 30, 2022 resulted in the
recognition of a significant cash-settled stock-based compensation
expense, which was previously included as a component of AFF and
FCF. The actual cash impact of the 2020 cash-settled RSUs, however,
is subject to equity price risk management contracts, so the cash
impact over the term of these RSUs has been reduced and the change
in value does not provide a valuable indication of operating
performance.
Therefore, the financial statement impacts of the April 2020 cash-settled stock-based compensation
and the equity price risk management contracts have been excluded
from AFF and FCF. All prior periods presented have been adjusted to
reflect this change in presentation. The adjustments to prior
periods are as follows:
|
2022
|
2021
|
2020
|
($millions, except
as indicated)
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Adjusted funds flow, as
previously presented
|
$ 587
|
$ 266
|
$ 239
|
$ 166
|
$ 127
|
$ 84
|
$ 26
|
$ 89
|
Adjustments:
|
|
|
|
|
|
|
|
|
Impact of
cash-settled SBC units subject to equity price
risk
management
|
18
|
8
|
4
|
18
|
5
|
4
|
—
|
2
|
Realized
equity price risk management gain
|
(46)
|
—
|
—
|
—
|
(8)
|
—
|
—
|
—
|
Adjusted funds flow,
current presentation
|
$ 559
|
$ 274
|
$ 243
|
$ 184
|
$ 124
|
$ 88
|
$ 26
|
$ 91
|
|
|
|
|
|
|
|
|
|
Free cash flow, as
previously presented
|
$ 499
|
$ 160
|
$ 155
|
$ 95
|
$ 57
|
$ 44
|
$
(9)
|
$ 69
|
Adjustments:
|
|
|
|
|
|
|
|
|
Impact of
cash-settled SBC units subject to equity
price risk
management
|
18
|
8
|
4
|
18
|
5
|
4
|
—
|
2
|
Realized
equity price risk management gain
|
(46)
|
—
|
—
|
—
|
(8)
|
—
|
—
|
—
|
Free cash flow, current
presentation
|
$ 471
|
$ 168
|
$ 159
|
$ 113
|
$ 54
|
$ 48
|
$
(9)
|
$ 71
|
The following table reconciles FFO to AFF to FCF:
|
|
Three months ended
March 31
|
($millions)
|
|
|
2023
|
2022
|
Funds flow from
operating activities
|
|
|
$
348
|
$
587
|
Adjustments:
|
|
|
|
|
Impact of cash-settled
SBC units subject to equity price risk management
|
|
|
13
|
18
|
Realized equity price
risk management gain
|
|
|
(87)
|
(46)
|
Adjusted funds
flow
|
|
|
274
|
559
|
Capital
expenditures
|
|
|
(113)
|
(88)
|
Free cash
flow
|
|
|
$
161
|
$
471
|
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
|
March 31,
2023
|
December 31,
2022
|
Long-term
debt
|
$
1,466
|
$
1,578
|
Current portion of
long-term debt
|
—
|
3
|
Cash and cash
equivalents
|
(85)
|
(192)
|
Net debt -
C$
|
$
1,381
|
$
1,389
|
Net debt -
US$
|
$
1,020
|
$
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 (loss) and comprehensive income (loss) 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
March 31
|
($millions)
|
|
|
2023
|
2022
|
Revenues
|
|
|
$
1,480
|
$
1,531
|
Diluent
expense
|
|
|
(498)
|
(517)
|
Transportation and
storage expense
|
|
|
(143)
|
(118)
|
Purchased
product
|
|
|
(414)
|
(160)
|
Operating
expenses
|
|
|
(99)
|
(104)
|
Realized gain (loss) on
commodity risk management
|
|
|
2
|
1
|
Cash operating
netback
|
|
|
$
328
|
$
633
|
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 (loss) and comprehensive income (loss), 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
March 31
|
|
|
|
2023
|
2022
|
($millions, except
as indicated)
|
|
|
|
|
|
$/bbl
|
|
$/bbl
|
Revenues
|
|
|
|
|
$
1,480
|
|
$
1,531
|
|
Other
revenue
|
|
|
|
|
(41)
|
|
(24)
|
|
Royalties
|
|
|
|
|
31
|
|
47
|
|
Petroleum
revenue
|
|
|
|
|
1,470
|
|
1,554
|
|
Purchased
product
|
|
|
|
|
(414)
|
|
(160)
|
|
Blend sales
|
|
|
|
|
1,056
|
$
76.07
|
1,394
|
$ 105.79
|
Diluent
expense
|
|
|
|
|
(498)
|
(17.89)
|
(517)
|
(8.51)
|
Bitumen
realization
|
|
|
|
|
$ 558
|
$
58.18
|
$ 877
|
$
97.28
|
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 (loss) and
comprehensive income (loss).
Other revenue is an IFRS measure in the Corporation's
consolidated statement of earnings (loss) and comprehensive income
(loss), which is the most directly comparable primary financial
statement measure to transportation revenue. A reconciliation from
other revenue to transportation revenue has been provided
below.
|
|
Three months ended
March 31
|
|
|
|
2023
|
2022
|
($millions, except
as indicated)
|
|
|
|
|
|
$/bbl
|
|
$/bbl
|
Transportation and
storage expense
|
|
|
$
(143)
|
$
(14.88)
|
$ (118)
|
$
(13.12)
|
|
|
|
|
|
|
|
|
|
Other
revenue
|
|
|
|
|
$
41
|
|
$
24
|
|
Less power
revenue
|
|
|
|
|
(40)
|
|
(23)
|
|
Transportation
revenue
|
|
|
|
|
$
1
|
$
0.10
|
$
1
|
$ 0.15
|
|
|
|
|
|
|
|
|
|
Net transportation and
storage expense
|
|
|
$
(142)
|
$
(14.78)
|
$ (117)
|
$
(12.97)
|
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
March 31
|
|
|
|
2023
|
2022
|
($millions, except
as indicated)
|
|
|
|
|
|
$/bbl
|
|
$/bbl
|
Bitumen
realization(1)
|
|
|
|
|
$
558
|
$
58.18
|
$ 877
|
$
97.28
|
Net transportation and
storage expense(1)
|
|
|
(142)
|
(14.78)
|
(117)
|
(12.97)
|
Bitumen realization
after net transportation and storage expense
|
|
$
416
|
$
43.40
|
$ 760
|
$
84.31
|
(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 (loss) and comprehensive income
(loss). Other revenue is an IFRS measure in the Corporation's
consolidated statement of earnings (loss) and comprehensive income
(loss) which is the most directly comparable primary financial
statement measure to power revenue. A reconciliation from other
revenue to power revenue has been provided below.
|
|
Three months ended
March 31
|
|
|
|
2023
|
2022
|
($millions, except
as indicated)
|
|
|
|
|
|
$/bbl
|
|
$/bbl
|
Non-energy operating
costs
|
|
|
|
|
$ (46)
|
$
(4.77)
|
$ (43)
|
$
(4.74)
|
Energy operating
costs
|
|
|
|
|
(53)
|
(5.57)
|
(61)
|
(6.80)
|
Operating
expenses
|
|
|
|
|
$ (99)
|
$
(10.34)
|
$
(104)
|
$
(11.54)
|
|
|
|
|
|
|
|
|
|
Other
revenue
|
|
|
|
|
$
41
|
|
$ 24
|
|
Less transportation
revenue
|
|
|
|
|
(1)
|
|
(1)
|
|
Power
revenue
|
|
|
|
|
$
40
|
$
4.21
|
$ 23
|
$
2.56
|
|
|
|
|
|
|
|
|
|
Operating expenses net
of power revenue
|
|
|
|
|
$ (59)
|
$
(6.13)
|
$ (81)
|
$
(8.98)
|
|
|
|
|
|
|
|
|
|
Energy operating costs
net of power revenue
|
|
|
|
$ (13)
|
$
(1.36)
|
$ (38)
|
$
(4.24)
|
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 industry leading steam oil
ratios and cost structure; the Corporation's commitment to cost
reduction and focus on safety and commitment to "nobody gets hurt";
the Corporation's focus on optimized well spacing, enhanced
completion designs, a capital efficient well redevelopment program,
and targeted facility enhancements; the Corporation's expectation
of allocating 50% of free cash flow to share buybacks with the
remaining cash flow applied to ongoing debt reduction until it
reaches its net debt floor of US$600
million; the Corporation's ESG mid-term and long-term
targets and actions the Corporation is undertaking to achieve these
targets; and the Corporation's expectations regarding the Pathways
Alliance projects and government support of these projects.
Forward-looking information contained in this press release is
based on management's expectations and assumptions regarding, among
other things: future crude oil, bitumen blend, natural gas,
electricity, condensate and other diluent prices, differentials,
the level of apportionment on the Enbridge Mainline system, foreign
exchange rates and interest rates; the recoverability of MEG's
reserves and contingent resources; MEG's ability to produce and
market production of bitumen blend successfully to customers;
future growth, results of operations and production levels; future
capital and other expenditures; revenues, expenses and cash flow;
operating costs; reliability; continued liquidity and runway to
sustain operations through a prolonged market downturn; MEG's
ability to reduce or increase production to desired levels,
including without negative impacts to its assets; anticipated
reductions in operating costs as a result of optimization and
scalability of certain operations; anticipated sources of funding
for operations and capital investments; plans for and results of
drilling activity; the regulatory framework governing royalties,
land use, taxes and environmental matters, including the timing and
level of government production curtailment and federal and
provincial climate change policies, in which MEG conducts and will
conduct its business; the 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 (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 net zero GHG emissions by
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; the severity and duration of ongoing
consequences of the COVID-19 pandemic; 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.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,
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.
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's common shares are listed on the Toronto
Stock Exchange under the symbol "MEG" (TSX: MEG).
Learn more at: www.megenergy.com
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.