CALGARY, ALBERTA (July 26, 2012) – MEG Energy Corp. today reported second quarter 2012 operational and financial results. Highlights include:
- Record high quarterly production volumes of 30,429 barrels of bitumen per day (bpd);
- Record low non-energy operating costs of $7.79 per barrel;
- An updated independent reserves evaluation reporting a 70% increase in proved reserves to 1.2 billion barrels and a 25% increase in proved plus probable reserves to 2.6 billion barrels;
- On July 16, 2012, MEG announced plans for new investment to support a 30% increase in production;
- On July 19, 2012, MEG closed a US $800 million offering of senior unsecured notes.
Cash flow from operations for the second quarter of 2012 was $60.0 million ($0.30 per share, diluted) compared to cash flow of $88.2 million ($0.45 per share, diluted) in the second quarter of 2011. Second quarter 2012 cash flow from operations was supported by record production and low operating costs, offset by lower commodity prices.
“Our strategy of driving to be the low-cost producer continues to pay off during periods of volatile crude oil pricing and wider light-heavy differentials, such as we’ve seen recently,” said Bill McCaffrey, MEG President and Chief Executive Officer.
Operating earnings, which are adjusted for items that are not indicative of operating performance, were $11.1 million ($0.06 per share, diluted) in the second quarter of 2012 compared to $36.5 million ($0.18 per share, diluted) in the same period of 2011.
Net earnings, which include unrealized losses or gains, were recorded as a $29.5 million loss ($0.15 per share, diluted) in the second quarter of 2012, compared to net income of $42.5 million ($0.21 per share, diluted) in the second quarter of 2011. The net loss is primarily due to the decline in value of the Canadian dollar relative to the U.S. dollar, resulting in an unrealized, non-cash foreign exchange loss of $34.9 million (after tax), on the translation of the company’s U.S. dollar denominated debt.
Non-energy operating costs decreased to record low of $7.79 per barrel in the second quarter of 2012 from $8.74 per barrel in the same period of 2011. Net operating costs, which include natural gas consumption costs and revenues from electricity sales, declined 25% to $8.55 per barrel in the second quarter of 2012 from the second quarter 2011 average of $11.36 per barrel.
Production during the second quarter of 2012 averaged 30,429 bpd, MEG's highest quarterly volume to date. Comparative second quarter 2011 production averaged 27,826 bpd. For the first six months of 2012, production increased to 29,411 bpd from 27,740 in the first half of 2011.
“In our drive to be among the top performers in the industry, we continue to look at initiatives to achieve ‘interphase growth’ between major expansion phases,” said McCaffrey. “Our goal going forward is to increase production volumes each and every year.”
In support of its goal to steadily increase production volumes over the mid to longer term, MEG recently unveiled its RISER initiative. Using infill wells, non-condensable gas injection and related proprietary processes, RISER targets incremental production increases from the company’s existing facilities and future growth phases. RISER has been implemented at MEG’s Christina Lake Phase 1 project area and is expected to be deployed to Phase 2 over the next several years, pending consent for amendments to the company’s regulatory approvals. With RISER in place, MEG is targeting to increase production by 30% compared to volumes that would otherwise have been expected by the end of 2014 or early 2015. The targeted production rate of 80,000 bpd in this time frame includes Christina Lake Phase 2B, which remains on schedule for completion in 2013 and on budget.
To help fund RISER, Christina Lake Phase 3A and related infrastructure requirements, MEG has recently secured additional financial flexibility. Subsequent to the end of the quarter, MEG successfully completed a private offering of senior unsecured notes due in 2023. The notes offering, priced at 6.375%, was increased in size from US$700 million to US$800 million due to a strong market response.
“The recently issued senior unsecured notes – combined with cash on hand and our revolving credit facilities – provide MEG with a strong and flexible financial base,” said McCaffrey. “That flexibility allows us to make investments to accelerate production targets, while also allowing us to take advantage of opportunities and avoid bottlenecks in procurement for future growth phases.”
Pro forma for the recent issue of senior unsecured notes, MEG's financial resources, including cash and cash equivalents, short-term investments, and undrawn revolving credit facilities, totaled approximately $2.9 billion as at June 30, 2012.
Operational and Financial Highlights
|Three months ended June 30||Six months ended June 30|
|Bitumen production – bpd||30,429||27,826||29,411||27,740|
|Steam to oil ratio||2.4||2.5||2.4||2.5|
|West Texas Intermediate (WTI) –US$/bbl||93.49||102.56||98.21||98.33|
|Differential – WTI/Blend %||31.6||23.1||31.4||25.0|
|Bitumen realization – $/bbl||45.59||62.78||47.81||56.23|
|Net operating costs(1) – $/bbl||8.55||11.36||8.25||10.01|
|Cash operating netback(2)||34.17||46.55||36.62||41.75|
|Capital cash investment – $000||339,077||209,158||703,939||419,615|
|Net income (loss) – $000||(29,534)||42,537||23,835||87,915|
|Per share, diluted||(0.15)||0.21||0.12||0.44|
|Operating earnings – $000(3)||11,134||36,474||34,663||57,339|
|Per share, diluted(3)||0.06||0.18||0.18||0.29|
|Cash flow from operations – $000(3)||59,975||88,204||131,966||157,541|
|Per share, diluted(3)||0.30||0.45||0.67||0.80|
Cash and short-term
investments – $000
|Long-term debt – $000||1,751,552||1,660,445||1,751,552||1,660,445|
(1) Net operating costs include energy and non-energy operating costs, reduced by power sales for the period.
(2) Cash operating netbacks are calculated by deducting the related royalties and diluents, transportation, operating costs and realized gains/losses on financial derivatives from bitumen sales revenues, on a per barrel basis.
(3) Please refer to Non-IFRS Financial Measures below.
A conference call will be held to review the second quarter results and discuss MEG's strategy at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) on Thursday, July 26, 2012. The U.S./Canada toll-free conference call number is 1 888-231-8191.
This news release may contain forward-looking information including but not limited to: expectations of future production, SORs, light-heavy crude oil pricing differentials, operating costs and capital investments; the anticipated capital requirements, timing for receipt of regulatory approvals, development plans, timing for completion, production capacities and performance of the future phases and expansions of the Christina Lake project, including the RISER program, the Surmont project and MEG's other properties and facilities; estimates of reserves; and the anticipated sources of funding for operations and capital investments. All 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 and delays in the development of or in the production associated with MEG's projects; the securing of adequate supplies and access to markets and transportation infrastructure; the uncertainty of estimates and projections relating to production, costs and revenues; the availability of take away capacity on the electric transmission grid; health, safety and environmental risks; risks of legislative and regulatory changes to, amongst other things, tax, land use, royalty and environmental laws; changes in 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 development of MEG's projects and facilities. Although MEG believes that the assumptions supporting 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. For supplemental information regarding reserve estimates, please see MEG's annual information form dated March 28, 2012 (the "AIF"), and in particular, the "Independent Reserves and Resources Evaluation" section. For supplemental information regarding forward-looking information generally, see "Risk Factors" and "Regulatory Matters" within the AIF along with MEG's other public disclosure documents. A copy of the AIF and of 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 news release 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 are indicative of 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 or net cash provided by 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, while cash flow from operations is reconciled to net cash provided by 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 2012.
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."