Top tier operational results and execution of growth projects set stage for strong second half
CALGARY, ALBERTA (July 30, 2013) – MEG Energy Corp. today reported second quarter 2013 operational and financial results. Highlights include:
- Phase 2B water treatment and steam generation facilities are mechanically complete, with commissioning underway and steaming set to begin later in the third quarter, with first oil planned in the fourth quarter;
- Near-record quarterly production volumes of 32,144 barrels of bitumen per day (bpd);
- A highly efficient steam-oil ratio of 2.3, reflecting continued deployment of MEG’s eMSAGP technology;
- Net operating costs of $8.85 per barrel;
- Strong cash operating netbacks at $41.93 per barrel, primarily due to narrowing light-heavy crude oil differentials;
- Revolving credit facility increased from US$1 billion to US$2 billion (which remains undrawn) and maturity extended to 2018.
MEG’s production during the second quarter of 2013 increased by 6% to an average 32,144 bpd, from a second quarter 2012 production average of 30,429 bpd. For the first six months of 2013, production increased by 10% to 32,337 bpd from 29,411 bpd in the first half of 2012.
“We’re very pleased with our performance this quarter, especially considering the impact of maintenance and tie-in work that took place in May,” said Bill McCaffrey, President and Chief Executive Officer. “As we continue to roll out the RISER initiative, and with plans to start up Phase 2B later this year, we’re set for a very strong second half.” MEG is targeting 2013 exit rates of 37,000 to 43,000 bpd and annual average production volumes of 32,000 to 35,000 bpd.
Net operating costs, which include natural gas energy costs and revenues from electricity sales, were $8.85 per barrel in the second quarter of 2013 compared to $8.55 in the second quarter of 2012. Second quarter 2013 non-energy operating costs averaged $10.00 per barrel and remain within 2013 guidance of $9 to $11 per barrel.
High production volumes, low operating costs and stronger price realizations in the second quarter of 2013 generated cash flow of $79.2 million ($0.35 per share, diluted), compared to cash flow of $60.0 million ($0.30 per share, diluted) in the second quarter of 2012.
Operating earnings, which are adjusted for items that are not indicative of operating performance, were $13.6 million ($0.06 per share, diluted) in the second quarter of 2013 compared to $11.1 million ($0.06 per share, diluted) in the same period of 2012, reflecting the same factors that impacted cash flow from operations.
MEG recorded a $62.3 million net loss ($0.28 per share, diluted) in the second quarter of 2013, compared to a net loss of $29.5 million ($0.15 per share, diluted) in the second quarter of 2012. The net loss in the second quarter of 2013 is primarily due to an unrealized foreign exchange loss of $82.4 million (before tax) on the translation of the company’s U.S. dollar denominated debt, net of U.S. dollar cash and cash equivalents, as the Canadian dollar lost value relative to the U.S. dollar.
Capital and Growth Strategy
MEG’s management believes the company has the financial resources in place, including working capital of $731 million and an undrawn US$2.0 billion revolving credit facility, to execute its plans to increase production to 80,000 bpd by early 2015.
“Increased production is expected to drive a substantial increase in cash flow, which enables a larger portion of future capital spending to be internally funded,” said McCaffrey.
As part of RISER, in the second quarter MEG tied-in 13 new infill wells in the Phase 2 area that are expected to ramp up through the second half of 2013 and into early 2014 with the continued deployment of eMSAGP technology.
Phase 2B water treatment and steam generating facilities are now mechanically complete and in the commissioning process, with start-up of steaming planned for late in the third quarter. Completion of oil treating facilities and first oil are expected in the fourth quarter. Phase 2B has a design capacity of 35,000 bpd at a conservative steam-oil ratio of 2.8. However, with many of the elements of the RISER initiative already built into the plant’s design, MEG anticipates that we will be able to increase throughput beyond the base design level.
In addition to growing its production base, MEG continues to pursue strategies to expand the company’s reach to higher-value crude oil markets. MEG now has all 18 of its leased barges available for use, as needed, to move products along the U.S. Inland Waterway system to the Gulf Coast. MEG also expects connections between its Stonefell Terminal and an Edmonton-area rail loading facility, which is scheduled for operation later this year, to provide further transportation options.
“While we’ve seen differentials between Western Canadian heavies and WTI narrow significantly this quarter, we are taking a longer-term view with the goal of significantly mitigating that differential volatility from our revenues,” said McCaffrey. “Having a full suite of market options will help move us toward world pricing and support greater price stability, regardless of short-term market swings.
Operational and Financial Highlights
ended June 30
ended June 30
|Bitumen production (bpd)||32,144||30,429||32,337||29,411|
|Steam-oil ratio (SOR)||2.3||2.4||2.4||2.4|
|West Texas Intermediate (WTI) - US$/bbl||94.22||93.49||94.30||98.21|
|Differential - Blend vs WTI - %||27.1%||31.6%||34.7%||31.4%|
|Bitumen realization - $/bbl||53.98||45.59||42.04||47.81|
|Net operating costs(1) - $/bbl||8.85||8.55||9.65||8.25|
|Cash operating netback(2) - $/bbl||41.93||34.17||29.94||36.62|
|Capital cash investment – $000||653,827||339,077||1,322,759||703,939|
|Net income (loss) – $000||(62,312)||(29,534)||(133,606)||23,835|
|Per share, diluted||(0.28)||(0.15)||(0.60)||0.12|
|Operating earnings (loss) – $000(3)||13,612||11,134||(23,100)||34,663|
|Per share, diluted(3)||0.06||0.06||(0.10)||0.18|
|Cash flow from operations – $000(3)||79,184||59,975||86,255||131,966|
|Per share, diluted(3)||0.35||0.30||0.39||0.67|
|Cash, cash equivalents and short-term investments – $000||1,203,457||1,111,150||1,203,457||1,111,150|
|Long-term debt – $000||2,923,382||1,751,522||2,923,382||1,751,522|
(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) 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 Tuesday, July 30, 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 (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 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."