Record cash flow for the quarter driven by increased production and strong price realizations
CALGARY, ALBERTA--(Marketwired - July 30, 2014) - MEG Energy Corp. (TSX:MEG) today reported second quarter 2014 operational and financial results. Highlights include:
- Record cash flow from operations of $261.7 million;
- Record quarterly production of 68,984 barrels per day (bpd), nearly 18 per cent higher than the first quarter and 115 per cent higher than the second quarter of 2013, all while factoring in the impact of planned maintenance on Phases 1 and 2;
- Christina Lake Phase 2B reaching design capacity seven months after first oil production;
- 2014 production guidance increased eight per cent to 65,000 to 70,000 bpd, reflecting strong operational performance;
- Completion of the Phase 1 and 2 plant turnaround, with inspections and maintenance confirming assets are in good operating condition.
"Exceptional operating performance and higher realized pricing drove record cash flow in the quarter," said Bill McCaffrey, MEG President and Chief Executive Officer. "This step change in our cash flow represents the beginning of a new chapter for MEG. Internal cash flow is now poised to be the major contributor to our future capital funding plans, with this past quarter being an important milestone."
Cash flow from operations in the second quarter of 2014 reached a record $261.7 million ($1.16 per share, diluted) compared to $79.2 million ($0.35 per share, diluted) for the same period of 2013. The increase in cash flow from operations was primarily due to higher production volumes and increased netbacks per barrel.
MEG's production during the second quarter of 2014 increased nearly 115 per cent to 68,984 bpd compared to second quarter 2013 production of 32,144 bpd. For the first six months of 2014, production approximately doubled to 63,842 bpd compared to 32,337 bpd in the first half of 2013. Quarterly and year-to-date production volumes in both comparative periods were impacted by planned maintenance.
"Phase 2B reached planned production volumes seven months after first oil, just prior to the Phase 1 and 2 plant turnaround," said McCaffrey. "We are looking to a strong second half and have raised our production guidance to 65,000 to 70,000 barrels per day for the year."
Second quarter 2014 non-energy operating costs were $9.64 per barrel, down from $10.00 per barrel in the second quarter of 2013, including costs for planned maintenance. Net operating costs were $14.49 per barrel for the second quarter of 2014 compared to $8.85 per barrel in the second quarter of 2013. This reflects lower non-energy operating costs offset by increased natural gas costs and lower electricity sales revenues from the company's cogeneration facilities. MEG's steam-oil ratio declined to 2.4 in the second quarter of 2014 from 2.5 in the first quarter, reflecting the performance of RISER in Phases 1 and 2 as well as the ramp-up of Phase 2B.
Average bitumen price realizations increased approximately 17% in the second quarter of 2014 compared to the previous quarter and were approximately 35% higher than price realizations in the second quarter of 2013. Continued logistics enhancements, including increased crude-by-rail transportation, pipelines connecting the U.S. mid-continent to the U.S. Gulf Coast and refinery modifications in the U.S. Midwest contributed to improved pricing. The anticipated completion of the Flanagan-Seaway pipeline system in the second half of 2014 is expected to further enhance transportation logistics and pricing.
Operating earnings, which are adjusted for items that are not indicative of operating performance, were $111.1 million ($0.49 per share, diluted) in the second quarter of 2014 compared to $13.6 million ($0.06 per share, diluted) in the same period of 2013, reflecting the same factors that impacted cash flow from operations.
Net income was $249.0 million ($1.11 per share, diluted) in the second quarter of 2014, compared to a net loss of $62.3 million ($0.28 per share, diluted) in the second quarter of 2013.
Operational and Financial Highlights
The following table summarizes selected operational and financial information for the three and six months ended June 30. Dollar values are in Canadian dollars unless otherwise noted.
|Three months ended June 30||Six months ended June 30|
|Bitumen production - bbls/d||68,984||32,144||63,842||32,337|
|Bitumen sales - bbls/d||70,849||32,175||64,504||32,284|
|Steam to oil ratio (SOR)||2.4||2.3||2.4||2.4|
|West Texas Intermediate (WTI) US$/bbl||102.99||94.22||100.84||94.30|
|West Texas Intermediate (WTI) C$/bbl||112.31||96.42||110.62||95.82|
|Differential - WTI vs AWB - %||24.1||%||27.1||%||26.3||%||34.7||%|
|Bitumen realization - $/bbl||72.75||53.98||68.06||42.04|
|Net operating costs(1) - $/bbl||14.49||8.85||14.11||9.65|
|Non-energy operating costs - $/bbl||9.64||10.00||9.38||9.41|
|Cash operating netback(2) - $/bbl||51.45||41.93||47.89||29.94|
|Total cash capital investment(3) - $000||320,826||653,827||663,829||1,322,759|
|Net income (loss)(4) - $000||248,954||(62,312||)||145,513||(133,606||)|
|Per share, diluted||1.11||(0.28||)||0.65||(0.60||)|
|Operating earnings (loss)(5) - $000||111,139||13,612||151,798||(23,100||)|
|Per share, diluted(5)||0.49||0.06||0.68||(0.10||)|
|Cash flow from operations(5) - $000||261,713||79,184||418,700||86,255|
|Per share, diluted(5)||1.16||0.35||1.86||0.39|
|Cash, cash equivalents and short-term investments - $000||839,870||1,203,457||839,870||1,203,457|
|Long-term debt - $000||4,016,257||2,923,382||4,016,257||2,923,382|
(1) Net operating costs include energy and non-energy operating costs, reduced by power sales. Please refer to Cash Operating Netbacks discussed further under the heading "RESULTS OF OPERATIONS" in the Company's second quarter MD&A.
(2) Cash operating netbacks are calculated by deducting the related diluent, transportation, field operating costs and royalties from proprietary sales volumes and power revenues, on a per barrel basis. Please refer to note 3 of the Cash Operating Netbacks table within "RESULTS OF OPERATIONS" in the Company's second quarter MD&A.
(3) Includes capitalized interest of $22.1 million and $41.6 million for the three and six months ended June 30, 2014, respectively ($18.2 million and $31.8 million respectively, for the three months and six months ended June 30, 2013).
(4) Includes a foreign exchange gain of $144.1 million on conversion of the U.S. dollar denominated debt for the three months ended June 30, 2014. Includes a foreign exchange loss of $15.4 million on conversion of the U.S. dollar denominated debt for the six months ended June 30, 2014. Includes foreign exchange losses on conversion of U.S. dollar denominated debt of $100.9 million and $150.1 million, respectively, for the three and six months ended June 30, 2013.
(5) Please refer to Non-IFRS Financial measures below.
A conference call will be held to review MEG's second quarter results at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) on July 30, 2014. The U.S./Canada toll-free conference call number is 1 866-223-7781. The international/local conference call number is 416-340-2216.
This document may contain forward-looking information including but not limited to: expectations of future production, revenues, expenses, cash flow, operating costs, SORs, pricing differentials, reliability, profitability and capital investments; estimates of reserves and resources; the anticipated reductions in operating costs as a result of optimization and scalability of certain operations; the anticipated capital requirements, timing for receipt of regulatory approvals, development plans, timing for completion, commissioning and start-up, capacities and performance of the Access Pipeline expansion, the RISER initiative, the Stonefell Terminal, third party barging and rail facilities, the future phases and expansions of the Christina Lake Project, the Surmont Project and potential projects on the Growth Properties; and the 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 (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, 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 (e.g. operational risks and delays in the development, exploration or production associated with MEG's projects; the securing of adequate supplies and access to markets and transportation infrastructure; the availability of capacity on the electrical 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; 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 and foreign exchange rates; and risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the continued expansion of the Christina Lake Project and the development of the Corporation's other projects and facilities. 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.
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 the Corporation assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances, except as required by law. For more information regarding forward-looking information see "Notice Regarding Forward Looking Information", "Regulatory Matters" and "Risk Factors" within MEG's Annual Information Form dated March 5, 2014 (the "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 (www.sedar.com) or by contacting MEG's investor relations department.
Non-IFRS Financial Measures
This document includes references to financial measures commonly used in the crude oil and natural gas industry, such as operating earnings, cash flow from operations and cash operating netback. These financial measures are not defined by IFRS as issued by the International Accounting Standards Board and therefore are referred to as non-IFRS measures. The non-IFRS measures used by MEG may not be comparable to similar measures presented by other companies. MEG uses these non-IFRS measures to help evaluate its performance. Management considers operating earnings and cash operating netback to be important measures as they indicate profitability relative to current commodity prices. Management uses cash flow from operations to measure MEG's ability to generate funds to finance capital expenditures and repay debt. These non-IFRS measures should not be considered as an alternative to or more meaningful than net income (loss) or net cash provided by (used in) operating activities, as determined in accordance with IFRS, as an indication of MEG's performance. The non-IFRS operating earnings and cash operating netback measures are reconciled to net income (loss), while cash flow from operations is reconciled to net cash provided by (used in) operating activities, as determined in accordance with IFRS, under the heading "Non-IFRS Measurements" in MEG's Management's Discussion and Analysis pertaining to the second quarter of 2014.
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."
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