All financial figures are in Canadian dollars ($ or C$) and all
references to barrels are per barrel of bitumen sales unless
otherwise noted
CALGARY, AB, Nov. 29, 2021 /CNW/ - MEG Energy Corp. (TSX:
MEG) ("MEG" or the "Corporation") announced today its 2022 capital
investment plan and operational guidance. Highlights include:
- 2022 capital budget of $375
million;
- 2022 production guidance of 94,000 to 97,000 barrels per day
(bbls/d) which takes into account a planned major turnaround
expected to impact full year production by approximately 6,000
bbls/d;
- 2022 non-energy operating costs and general and administrative
("G&A") expense guidance of $4.50
to $4.80 per barrel and $1.70 to $1.85 per
barrel, respectively;
- Concurrent with this press release, MEG has issued a notice to
redeem US$225 million (approximately
$285 million) of MEG's 6.50% senior
secured second lien notes due January
2025; and
- Due to the positive rate of change in expected future free cash
flows resulting from the current commodity price environment, MEG
intends to begin allocating a portion of free cash flow generated
to shareholder returns in 2022 while continuing to prioritize
ongoing debt reduction.
2022 Capital Investment Summary
|
|
($millions)
|
|
Sustaining and
maintenance
|
$
|
310
|
Previously announced
Christina Lake optimization capital
|
|
50
|
Field infrastructure,
regulatory, corporate and other
|
15
|
|
$
|
375
|
Approximately 15% of the $310
million sustaining and maintenance capital will be directed
toward turnaround activities planned for the second quarter of 2022
with the remainder directed toward the drilling, completing and
tying in of new SAGD and infill wells.
Optimization capital of $50
million represents the remainder of the previously announced
$125 million of incremental well
capital necessary to allow the Corporation to fully utilize the
Christina Lake central plant
facility's oil processing capacity of approximately 100,000 bbls/d,
prior to any impact from scheduled maintenance activity or
outages.
The $15 million of capital
investment targeted to field infrastructure, regulatory, corporate
and other represents capital necessary to maintain MEG's business
that is not directly associated with sustaining and maintenance of
production at Christina Lake.
Budgeted capital costs reflect approximately 10% year over year
impact from observed inflationary and supply chain pressures.
In the current commodity price environment, total capital
investment represents approximately 35% of MEG's estimated full
year 2022 adjusted funds flow.
Debt Repayment
MEG announced today that the Corporation has issued a notice to
redeem US$225 million (approximately
$285 million) of MEG's 6.50% senior
secured second lien notes due January
2025 at a redemption price of 101.625%, plus accrued and
unpaid interest to, but not including, the redemption date. The
redemption is expected to be completed on or about January 18, 2022.
Debt reduction over the last four years now totals approximately
US$1.8 billion. Continued debt
reduction remains a core focus of the Corporation.
Ongoing Debt Repayment and Intention to Initiate Capital
Return to Shareholders
MEG expects to exit 2021 with net debt of US$1.9 billion. Until the corporation reaches its
near-term net debt target of US$1.7
billion, 100% of free cash flow generated will continue to
go toward debt repayment. In the current commodity price
environment MEG expects to reach this near-term target early in the
second quarter of 2022.
Upon reaching its near-term net debt target, MEG intends to
increase shareholder returns through the implementation of a share
buyback program. MEG expects to allocate approximately 25% of free
cash flow generated to shareholder returns, with the remaining free
cash flow applied to ongoing debt reduction until the Corporation's
net debt balance reaches US$1.2
billion. At current production levels, this net debt target
implies a net debt to EBITDA multiple of less than 2 times at a
long-term US$50 per barrel WTI price.
Assuming a US$70 per barrel WTI
price, MEG expects to reach this net debt target in early 2023, at
which time the Corporation expects to increase the percentage of
free cash flow returned to shareholders while continuing to further
strengthen its balance sheet.
2022 Guidance
MEG's 2022 production and operational guidance reflects the
impact of a scheduled 30-day turnaround in the second quarter at
its Christina Lake Phase 2B facility
which is expected to impact full year production by approximately
6,000 bbls/d.
MEG has capacity to ship 100,000 bbls/d of AWB blend sales, on a
pre-apportionment basis, to the U.S. Gulf Coast market via its
committed capacity on the Flanagan South and Seaway Pipeline
systems ("FSP"). MEG expects to sell approximately two-thirds of
its full year 2022 AWB blend sales volumes into the U.S. Gulf Coast
via FSP with the remainder being sold into the Edmonton market. MEG expects full year 2022
total transportation costs to average between US$7.50 to US$8.00
per barrel of AWB blend sales.
MEG has not entered into any WTI or WTI:WCS differential hedges
for 2022.
|
|
|
|
2022 Guidance
(1)
|
2021 Revised
Guidance (2)
|
Capital
investment
|
$375
million
|
$335
million
|
Production
(average)
|
94,000 - 97,000
bbls/d
|
92,500 - 93,500
bbls/d
|
Non-energy operating
costs
|
$4.50 - $4.80 per
bbl
|
$4.40 - $4.50 per
bbl
|
G&A
expense
|
$1.70 - $1.85 per
bbl
|
$1.65 - $1.75 per
bbl
|
(1)
|
2022 guidance
includes the impact of scheduled 30-day turnaround at MEG's
Christina Lake Phase 2B facility which is expected to impact
production by approximately 6,000 bbls/d. 2021 production was
not impacted by turnaround activities.
|
(2)
|
2021 non-energy
operating costs and G&A expense guidance ranges include
approximately $2.1 million (($0.06/bbl) and $1.6 ($0.05/bbl),
respectively, of temporary cost reductions as the Corporation took
part in various government led initiatives in 2021 aimed at
supporting businesses facing the negative impacts of
COVID-19.
|
Conference Call
A conference call will be held to review MEG's 2022 capital
investment plan at 6:30 a.m. Mountain
Time (8:30 a.m. Eastern Time)
on Tuesday, November 30th,
2021. 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 noon Mountain Time (2 p.m.
Eastern Time) on the same day at
www.megenergy.com/investors/presentations-and-events.
Non-GAAP Measures
Certain financial measures in this news release including free
cash flow and net debt to EBITDA are non-GAAP measures. These 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.
Free cash flow is a non-GAAP measure 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, fund capital expenditures and return
capital to shareholders. Free cash flow is calculated as adjusted
funds flow less capital expenditures. Adjusted funds flow is
defined in Note 19 of the third quarter 2021 Financial
Statements.
Net debt to EBITDA is a non-GAAP measure used to monitor the
Corporation's capital structure and financial position. EBITDA is
defined as net earnings before financing costs, interest income,
income tax expense (recovery), depletion, depreciation and
amortization, gains (losses) on asset dispositions, and other
income (loss), excluding all unrealized gains (losses). Net debt is
defined in Note 19 of the third quarter 2021 Financial Statements.
The ratio of net debt to EBITDA is used to measure the
Corporation's financial strength.
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", "dependent",
"ability", "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 news release contains forward looking statements
with respect to: the Corporation's 2022 capital investment plan and
operational guidance, including its 2022 capital budget, production
guidance and non-energy operating costs and general and
administrative expense guidance; the Corporation's statements
relating to its capital investment plans, including its sustaining
and maintenance capital, optimization capital and capital targeted
to field infrastructure, regulatory, corporate and other matters;
the Corporation's expectations regarding inflationary and supply
chain pressures; the Christina
Lake central plant facility's processing capacity of 100,000
bbls/d; the Corporation's statements regarding 2022 free cash flow;
the timing and successful completion of the redemption of a portion
of the Corporation's 6.5% senior secured second lien notes; the
Corporation's statements regarding net debt level and continued
debt reduction plans, including exiting 2021 with net debt of
US$1.9 billion and timing of reaching
near-term debt targets; the Corporation's statements regarding
increasing shareholder returns, including the timing and percentage
of free cash flow to be returned to shareholders; the Corporation's
2022 guidance regarding capital investment, production, non-energy
operating costs, general and administrative costs and
transportation costs; the Corporation's 2021 revised guidance
regarding capital investment, production, non-energy operating
costs and general and administrative costs; the Corporation's
expectations regarding sales of 2022 AWB blend sales volumes into
the U.S. Gulf Coast; the Corporation's statements regarding the
2022 plant turnaround and the timing and impact thereof; and the
Corporation's statements regarding its 2022 hedge book.
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 federal and
provincial climate change policies, in which MEG conducts and will
conduct its business; 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 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; 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 sustaining 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; MEG's response to the COVID-19 global pandemic;
the severity and duration of the COVID-19 pandemic, including
vaccine rollouts; the potential for a temporary suspension of
operations impacted by an outbreak of COVID-19; actions taken by
OPEC+ in relation to supply management; 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; 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,
operating costs, general and administrative costs and hedging
program, 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 region of Alberta, Canada. MEG is actively developing
innovative enhanced oil recovery projects that utilize
steam-assisted gravity drainage ("SAGD") extraction methods to
improve the responsible economic recovery of oil as well as lower
carbon emissions. MEG transports and sells its thermal oil
production to refiners throughout North
America and internationally. MEG's common shares are listed
on the Toronto Stock Exchange under the symbol "MEG".
For further information, please contact:
Investor Relations
T 587.293.6045
E invest@megenergy.com
Media Relations
T 403.775.1131
E media@megenergy.com
SOURCE MEG Energy Corp.