All financial figures are in Canadian dollars ($ or C$) and all references to barrels are per barrel of bitumen unless otherwise noted. The Corporation’s Non-GAAP and Other Financial Measures are detailed in the Advisory section of this news release. They include: cash operating netback, bitumen realization net of transportation and storage expense, operating expenses net of power revenue, energy operating costs net of power revenue, non-energy operating costs, energy operating costs, adjusted funds flow, free cash flow and net debt.
CALGARY, AB, Feb. 29, 2024 /CNW/ – MEG Energy Corp. (TSX:MEG) (“MEG” or the “Corporation”) reported its full year 2023 operational and financial results.
“I am extremely proud of MEG’s safety, operating, and financial performance in 2023”, said Derek Evans, President and Chief Executive Officer. “Annual production grew by 6%, averaging over 100,000 barrels per day for the first time and exiting the year at approximately 110,000 barrels per day. MEG’s financial performance was also strong generating nearly $1 billion of free cash flow for debt repayment and share buybacks. At current prices MEG is well positioned to achieve US$600 million net debt in the third quarter of 2024, after which 100% of free cash flow will be returned to shareholders.”
Highlights include:
Annual free cash flow (“FCF”) of $953 million used to repay $437 million of debt and return $446 million of capital to shareholders through the repurchase and cancellation of 19.0 million shares at a weighted average price of $23.54 per share. FCF of $254 million in the fourth quarter was used to repay $173 million of debt and repurchase 8.7 million shares at a weighted average price of $25.29 per share, returning $219 million to shareholders;
The Corporation exited 2023 with net debt of US$730 million ($1.0 billion);
Annual bitumen production of 101,425 barrels per day (“bbls/d”) at a 2.27 steam-oil ratio (“SOR”), representing a 6% increase in production and a 4% decrease in SOR from 2022. Fourth quarter bitumen production averaged 109,112 bbls/d at a 2.28 SOR;
Annual funds flow from operating activities (“FFO”) and adjusted funds flow (“AFF”) of $1,476 million and $1,402 million, or $5.13 and $4.87 per share, respectively. FFO and AFF totaled $358 million, or $1.27 per share, during the fourth quarter;
Annual capital expenditures of $449 million and fourth quarter capital expenditures of $104 million were focused on sustaining and maintenance activities;
Operating expenses net of power revenue declined 25% in 2023 to $5.96 per barrel, including $5.01 per barrel of non-energy operating costs and $0.95 per barrel of energy operating costs net of power revenue. Fourth quarter 2023 operating expenses net of power revenue rose 5% from the comparable 2022 quarter to $6.10 per barrel, including $4.64 per barrel of non-energy operating costs and $1.46 per barrel of energy operating costs net of power revenue; and
Intended renewal of the Corporation’s normal course issuer bid (“NCIB”) for a one-year period upon its expiration on March 9, 2024, which will allow the repurchase of an additional 10% of MEG’s public float1.
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1 As defined by the Toronto Stock Exchange
Three months ended December 31
Year ended December 31
($millions, except as indicated)
2023
2022
2023
2022
Operational results:
Bitumen production – bbls/d
109,112
110,805
101,425
95,338
Steam-oil ratio
2.28
2.22
2.27
2.36
Bitumen sales – bbls/d
112,634
113,582
101,086
95,691
Benchmark pricing:
WTI – US$/bbl
78.32
82.65
77.62
94.23
Differential – WTI:AWB – Edmonton – US$/bbl
(23.79)
(29.14)
(20.79)
(20.64)
AWB – Edmonton – US$/bbl
54.53
53.51
56.83
73.59
Differential – WTI:AWB – USGC – US$/bbl
(7.43)
(16.35)
(8.72)
(9.62)
AWB – USGC – US$/bbl
70.89
66.30
68.90
84.61
Financial results:
Bitumen realization after net transportation
and storage expense(1) – $/bbl
63.52
54.75
62.46
76.66
Non-energy operating costs(2) – $/bbl
4.64
4.34
5.01
4.73
Energy operating costs net of power
revenue(1) – $/bbl
1.46
1.49
0.95
3.18
Operating expenses net of power revenue –
$/bbl
6.10
5.83
5.96
7.91
Cash operating netback(1) – $/bbl
38.65
43.89
43.36
62.61
General & administrative expense –
$/bbl of bitumen production
1.89
1.62
1.86
1.78
Funds flow from operating activities
358
383
1,476
1,882
Per share, diluted
1.27
1.28
5.13
6.09
Adjusted funds flow(3)
358
401
1,402
1,934
Per share, diluted(3)
1.27
1.34
4.87
6.26
Capital expenditures
104
106
449
376
Free cash flow(3)
254
295
953
1,558
Debt repayments – US$
128
150
322
1,016
Share repurchases – C$
219
196
446
382
Revenues
1,444
1,445
5,653
6,118
Net earnings
103
159
569
902
Per share, diluted
0.37
0.53
1.98
2.92
Long-term debt, including current portion
1,124
1,581
1,124
1,581
Net debt – US$(3)
730
1,026
730
1,026
(1)
Non-GAAP financial measure – please refer to the Advisory section of this news release.
(2)
Supplementary financial measure – please refer to the Advisory section of this news release.
(3)
Capital management measure – please refer to the Advisory section of this news release.
Fourth Quarter Results
FCF of $254 million was used to repay US$128 million ($173 million) of debt and repurchase 8.7 million shares, returning $219 million to shareholders.
Average bitumen production of 109,112 bbls/d was similar to 110,805 bbls/d in the fourth quarter of 2022 reflecting stable operations and no significant maintenance activity in both periods.
AFF decreased to $358 million, or $1.27 per share, from $401 million in the fourth quarter of 2022, reflecting a 12% decline in the cash operating netback.
The lower cash operating netback reflects increased royalty expense, the result of reaching payout status in the second quarter of 2023, partially offset by a higher bitumen realization due to narrower WTI:AWB differentials and lower diluent expense.
Annual Financial Results
AFF decreased to $1,402 million, or $4.87 per share, in 2023 from $1,934 million, or $6.26 per share, in 2022 driven by a lower cash operating netback partially offset by lower interest expense. The 31% decline in the cash operating netback for 2023 reflects a lower bitumen realization after net transportation and storage expense and higher royalties, the result of reaching payout status.
Bitumen realization after net transportation and storage expense decreased to $62.46 per barrel in 2023, from $76.66 per barrel in 2022, primarily driven by a lower average WTI benchmark price partially offset by the realized price improvement from MEG’s strategic market access and marketing optimization activities.
The Corporation sold 66% of blend sales volumes in the U.S. Gulf Coast during both 2023 and 2022 and average heavy oil apportionment on the Enbridge mainline system was 9% and 5%, respectively, in those years.
FCF totaled $953 million in 2023, compared to $1,558 million in 2022, reflecting lower AFF and higher capital spending.
Annual capital expenditures of $449 million were in line with guidance and rose from $376 million in 2022 due to increased scope, inflation and timing of field development and maintenance work. Spending in both years focused on sustaining and maintenance activities.
Net earnings declined to $569 million in 2023 from $902 million in 2022 primarily driven by a lower cash operating netback, higher depletion and depreciation expense and an onerous contract expense. These were partially offset by an unrealized foreign exchange gain on long-term debt and reduced interest and income tax expenses.
Annual Operating Results
Annual bitumen production in 2023 rose 6% to 101,425 bbls/d at a 2.27 SOR from 95,338 bbls/d at a 2.36 SOR in 2022. The production increase and improved SOR reflects a continued focus on short-cycle redevelopment programs, enhanced completion designs, optimized well spacing and targeted facility enhancements. Production was impacted by major planned turnaround activities at the Christina Lake Facility in both years.
Non‐energy operating costs averaged $5.01 per barrel of bitumen sales in 2023, in line with guidance and representing a 6% increase from 2022 despite inflationary pressures on the cost of services, treating chemicals and staff.
Energy operating costs net of power revenue decreased to $0.95 per barrel in 2023 from $3.18 per barrel in 2022 as weaker natural gas prices more than offset reduced power revenue. Revenue from the sale of excess power generated by the Corporation’s cogeneration facilities offset 76% and 56% of energy operating costs in 2023 and 2022, respectively.
Annual Debt Repayment and Share Repurchases
The $953 million of 2023 FCF was used to repay debt, return capital to shareholders and fund working capital requirements. The Corporation repaid US$322 million (approximately $437 million) of outstanding 7.125% senior unsecured notes at a weighted average price of 101.7% and returned $446 million to shareholders through the repurchase and cancellation of 19.0 million shares at a weighted average price of $23.54 per share, approximately 7% of MEG’s December 31, 2022 issued and outstanding shares.
Capital Allocation Strategy
Approximately 50% of FCF was allocated to debt repayment in 2023 with the remainder applied to share repurchases. 100% of FCF will be returned to shareholders when the Corporation reaches its US$600 million net debt target, which is anticipated to occur in the third quarter of 2024 assuming a US$75 per barrel WTI price. The Corporation exited 2023 with net debt of US$730 million (approximately $1.0 billion).
The Corporation intends to renew the current NCIB for a one-year period upon its expiration on March 9, 2024, which will allow the repurchase of an additional 10% of MEG’s public float.
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