CALGARY, ALBERTA (October 24, 2013) – MEG Energy Corp. today reported third quarter 2013 operational and financial results. Highlights include:
- Record quarterly production of 34,246 barrels per day (bpd) and record year-to-date production of 32,980 bpd, 20% higher than comparative 2012 year-to-date volumes;
- Record quarterly cash flow from operations of $144.5 million, driven by increased production levels and strong cash operating netbacks;
- First steam and the start of commissioning of the central processing facilities at MEG’s Christina Lake Phase 2B;
- Continuing progress on MEG’s marketing strategy, with the commissioning of the company’s Stonefell Terminal underway and the completion of pipeline tie-ins to the nearby Canexus rail-loading facility.
“MEG’s third quarter performance reinforces our strategy and is a good illustration of the standard that we are working toward – steadily growing production volumes combined with attaining the best prices for our product,” said Bill McCaffrey, President and Chief Executive Officer. “We feel confident that, as we continue to implement the RISER initiative, execute major project expansion phases and advance our marketing efforts, we’ll move toward achieving this standard on an ongoing basis.”
MEG’s production during the third quarter of 2013 increased to a quarterly record volume of 34,246 bpd from a third quarter 2012 production average of 23,941 bpd, which was impacted by planned maintenance. For the first nine months of 2013, average production increased by 20% to 32,980 bpd from 27,592 bpd in the same period of 2012. Nine month production volumes for both 2012 and 2013 were impacted by planned maintenance.
“With the strong performance to date, we anticipate finishing the year in the upper half of our production guidance of 32,000 to 35,000 barrels per day and the lower half of non-energy operating cost guidance of $9 to $11 per barrel,” said McCaffrey.
Third quarter 2013 non-energy operating costs averaged $9.20 per barrel compared to $15.23 in the same period of 2012. Net operating costs, which include natural gas energy costs, as well as the benefit of electricity sales, were $9.40 per barrel in the third quarter of 2013, compared to $15.61 in the third quarter of 2012. Non-energy and net operating costs for the comparable 2012 period were impacted by planned maintenance.
Higher production volumes, lower operating costs and stronger price realizations in the third quarter of 2013 contributed to record quarterly cash flow from operations of $144.5 million ($0.64 per share, diluted), compared to $24.4 million ($0.12 per share, diluted) in the third quarter of 2012.
Operating earnings, which are adjusted for items that are not indicative of operating performance, were $56.2 million ($0.25 per share, diluted) in the third quarter of 2013 compared to an operating loss of $12.9 million ($0.07 per share, diluted) in the same period of 2012, reflecting the same factors that impacted cash flow from operations.
MEG recorded net income of $115.4 million ($0.51 per share, diluted) in the third quarter of 2013 compared to net income of $47.5 million ($0.24 per share, diluted) in the third quarter of 2012. The increase reflects the same factors that impacted cash flow from operations and operating earnings.
Capital Growth Strategy
MEG’s 2013 capital investment program has focused on cost effective intra-phase production growth through the RISER initiative, the completion of the Christina Lake Phase 2B project, and infrastructure investment to support strong and stable product pricing.
After successfully piloting the RISER initiative at Christina Lake Phase 1, MEG has continued over the third quarter to roll out RISER to Phase 2 assets. The majority of the capital investment needed to implement RISER in Phase 2 is now complete. MEG has also continued to incorporate related reservoir recovery enhancements and processing facility modifications into Phase 2B, with the goal of ultimately increasing production beyond the initial Phase 2B design capacity of 35,000 bpd.
Steam injection into Phase 2B well pairs commenced in the third quarter. MEG is also taking advantage of previous integration work to use Phase 2 production to accelerate the commissioning of Phase 2B oil treatment facilities. Phase 2B is currently anticipated to begin first production in the fourth quarter of 2013 and is expected to ramp-up to initial design capacity in 2014.
In alignment with the company’s production growth plans, MEG has also advanced its marketing strategy.
“Our objective is to work toward a ‘floor price’ for our production that is closely tied to world-pricing for comparable crude oils,” said McCaffrey. “While prices for Canadian heavy oil strengthened during the third quarter, we continue to focus on taking control of marketing and transportation options that will provide us with the flexibility to reach the markets of our choice, support higher netbacks and cash flows, and reduce price volatility.”
The hub of MEG’s marketing strategy is the 900,000 barrel Stonefell Terminal, which is currently being commissioned. Stonefell is located in the Edmonton area and provides access to current and proposed Canadian crude oil export pipelines, including connections to the Flanagan/Seaway system in which MEG has firm capacity starting mid-2014. Stonefell also serves as the launch point for connections to alternate transportation options, including connections to barging options and the Canexus Bruderheim rail-loading facility, which is nearing completion.
To support projected capital spending plans in 2014, most of which will be directed to future growth beyond the company’s goal of 80,000 bpd by early 2015, MEG announced on October 1 the successful closing of an offering of US$800 million in senior unsecured notes. As with MEG’s previous financings, the recent offering is covenant-lite in structure. Its 2024 maturity is staggered relative to other debt maturities and is timed to coincide with significantly higher projected cash flows. With a strong financial base, combined with projected production increases and related cash flows, MEG believes it is well-positioned to fund its 2014 capital program.
“We’ve achieved several key milestones in the third quarter as we continue to put innovative technology, major project expansions and new market initiatives in place and move toward our near-term target of increasing production to 80,000 barrels in early 2015,” said McCaffrey. “As we advance our plans, we’re looking forward to a strong finish to 2013 and an even stronger 2014.”
Operational and Financial Highlights
ended Sept. 30
ended Sept. 30
|Bitumen production (bpd)||34,246||23,941||32,980||27,592|
|Steam-oil ratio (SOR)||2.5||2.5||2.4||2.4|
|West Texas Intermediate (WTI) - US$/bbl||105.83||92.22||98.14||96.21|
|Differential - Blend vs WTI - %||21.4%||32.2%||29.7%||31.4%|
|Bitumen realization - $/bbl||74.33||46.49||53.35||47.43|
|Net operating costs (1) - $/bbl||9.40||15.61||9.56||10.40|
|Cash operating netback(2) - $/bbl||59.59||27.85||40.32||34.07|
|Capital cash investment – $000(3)||476,362||399,659||1,799,121||1,103,598|
|Net income (loss) – $000||115,383||47,474||(18,223)||71,309|
|Per share, diluted||0.51||0.24||(0.08)||0.36|
|Operating earnings (loss) – $000(4)||56,171||(12,883)||33,071||21,780|
|Per share, diluted(4)||0.25||(0.07)||0.15||0.11|
|Cash flow from operations – $000(4)||144,521||24,442||230,776||156,408|
|Per share, diluted(4)||0.64||0.12||1.03||0.79|
|Cash, cash equivalents and short-term investments – $000||647,096||1,607,036||647,096||1,607,036|
|Long-term debt – $000||2,857,740||2,461,676||2,857,740||2,461,676|
(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 diluent, transportation, field operating costs and royalties from production and power revenues, on a per barrel basis.
(3) Includes capitalized interest of $21,773 and $53,618 for the three and nine months ended September 30, 2013 respectively ($9,501 and $20,254 for the three and nine months ended September 30, 2012).
(4) Please refer to Non-IFRS Financial Measures below.
A conference call will be held to review MEG’s third quarter results at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) on Thursday, October 24, 2013. The U.S./Canada toll-free conference call number is 1 888-231-8191. The international/local conference call number is 647-427-7450.
This document may contain forward-looking information including but not limited to: expectations of future production, revenues, cash flow, pricing differentials and capital investments; estimates of reserves and resources; the anticipated capital requirements, development plans, timing for completion, commissioning and start-up, as well as capacities and performance of Phase 2B and the RISER initiative, the Stonefell Terminal, third party barging and rail facilities and the future phases and expansions of the Christina Lake project; and the anticipated sources and sufficiency of funding for MEG's future growth. 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", "Risk Factors" and "Regulatory Matters" within MEG's Annual Information Form dated February 27, 2013 (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 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 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 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 third quarter of 2013.
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."