MEG Energy Corp. (TSX:MEG) today reported second quarter 2014 operational and
financial results. Highlights include:
-- Record cash flow from operations of $261.7 million;
-- Record quarterly production of 68,984 barrels per day (bpd), nearly 18
per cent higher than the first quarter and 115 per cent higher than the
second quarter of 2013, all while factoring in the impact of planned
maintenance on Phases 1 and 2;
-- Christina Lake Phase 2B reaching design capacity seven months after
first oil production;
-- 2014 production guidance increased eight per cent to 65,000 to 70,000
bpd, reflecting strong operational performance;
-- Completion of the Phase 1 and 2 plant turnaround, with inspections and
maintenance confirming assets are in good operating condition.
"Exceptional operating performance and higher realized pricing drove record cash
flow in the quarter," said Bill McCaffrey, MEG President and Chief Executive
Officer. "This step change in our cash flow represents the beginning of a new
chapter for MEG. Internal cash flow is now poised to be the major contributor to
our future capital funding plans, with this past quarter being an important
milestone."
Cash flow from operations in the second quarter of 2014 reached a record $261.7
million ($1.16 per share, diluted) compared to $79.2 million ($0.35 per share,
diluted) for the same period of 2013. The increase in cash flow from operations
was primarily due to higher production volumes and increased netbacks per
barrel.
MEG's production during the second quarter of 2014 increased nearly 115 per cent
to 68,984 bpd compared to second quarter 2013 production of 32,144 bpd. For the
first six months of 2014, production approximately doubled to 63,842 bpd
compared to 32,337 bpd in the first half of 2013. Quarterly and year-to-date
production volumes in both comparative periods were impacted by planned
maintenance.
"Phase 2B reached planned production volumes seven months after first oil, just
prior to the Phase 1 and 2 plant turnaround," said McCaffrey. "We are looking to
a strong second half and have raised our production guidance to 65,000 to 70,000
barrels per day for the year."
Second quarter 2014 non-energy operating costs were $9.64 per barrel, down from
$10.00 per barrel in the second quarter of 2013, including costs for planned
maintenance. Net operating costs were $14.49 per barrel for the second quarter
of 2014 compared to $8.85 per barrel in the second quarter of 2013. This
reflects lower non-energy operating costs offset by increased natural gas costs
and lower electricity sales revenues from the company's cogeneration facilities.
MEG's steam-oil ratio declined to 2.4 in the second quarter of 2014 from 2.5 in
the first quarter, reflecting the performance of RISER in Phases 1 and 2 as well
as the ramp-up of Phase 2B.
Average bitumen price realizations increased approximately 17% in the second
quarter of 2014 compared to the previous quarter and were approximately 35%
higher than price realizations in the second quarter of 2013. Continued
logistics enhancements, including increased crude-by-rail transportation,
pipelines connecting the U.S. mid-continent to the U.S. Gulf Coast and refinery
modifications in the U.S. Midwest contributed to improved pricing. The
anticipated completion of the Flanagan-Seaway pipeline system in the second half
of 2014 is expected to further enhance transportation logistics and pricing.
Operating earnings, which are adjusted for items that are not indicative of
operating performance, were $111.1 million ($0.49 per share, diluted) in the
second quarter of 2014 compared to $13.6 million ($0.06 per share, diluted) in
the same period of 2013, reflecting the same factors that impacted cash flow
from operations.
Net income was $249.0 million ($1.11 per share, diluted) in the second quarter
of 2014, compared to a net loss of $62.3 million ($0.28 per share, diluted) in
the second quarter of 2013.
Operational and Financial Highlights
The following table summarizes selected operational and financial information
for the three and six months ended June 30. Dollar values are in Canadian
dollars unless otherwise noted.
============================================================================
Three months ended Six months ended
June 30 June 30
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
Bitumen production - bbls/d 68,984 32,144 63,842 32,337
Bitumen sales - bbls/d 70,849 32,175 64,504 32,284
Steam to oil ratio (SOR) 2.4 2.3 2.4 2.4
West Texas Intermediate (WTI) 102.99 94.22 100.84 94.30
US$/bbl
West Texas Intermediate (WTI) C$/bbl 112.31 96.42 110.62 95.82
Differential - WTI vs AWB - % 24.1% 27.1% 26.3% 34.7%
Bitumen realization - $/bbl 72.75 53.98 68.06 42.04
Net operating costs(1) - $/bbl 14.49 8.85 14.11 9.65
Non-energy operating costs - $/bbl 9.64 10.00 9.38 9.41
Cash operating netback(2) - $/bbl 51.45 41.93 47.89 29.94
Total cash capital investment(3) - 320,826 653,827 663,829 1,322,759
$000
Net income (loss)(4) - $000 248,954 (62,312) 145,513 (133,606)
Per share, diluted 1.11 (0.28) 0.65 (0.60)
Operating earnings (loss)(5) - $000 111,139 13,612 151,798 (23,100)
Per share, diluted(5) 0.49 0.06 0.68 (0.10)
Cash flow from operations(5) - $000 261,713 79,184 418,700 86,255
Per share, diluted(5) 1.16 0.35 1.86 0.39
Cash, cash equivalents and short-
term investments - $000 839,870 1,203,457 839,870 1,203,457
Long-term debt - $000 4,016,257 2,923,382 4,016,257 2,923,382
============================================================================
(1) Net operating costs include energy and non-energy operating costs, reduced
by power sales. Please refer to Cash Operating Netbacks discussed further under
the heading "RESULTS OF OPERATIONS" in the Company's second quarter MD&A.
(2) Cash operating netbacks are calculated by deducting the related diluent,
transportation, field operating costs and royalties from proprietary sales
volumes and power revenues, on a per barrel basis. Please refer to note 3 of the
Cash Operating Netbacks table within "RESULTS OF OPERATIONS" in the Company's
second quarter MD&A.
(3) Includes capitalized interest of $22.1 million and $41.6 million for the
three and six months ended June 30, 2014, respectively ($18.2 million and $31.8
million respectively, for the three months and six months ended June 30, 2013).
(4) Includes a foreign exchange gain of $144.1 million on conversion of the U.S.
dollar denominated debt for the three months ended June 30, 2014. Includes a
foreign exchange loss of $15.4 million on conversion of the U.S. dollar
denominated debt for the six months ended June 30, 2014. Includes foreign
exchange losses on conversion of U.S. dollar denominated debt of $100.9 million
and $150.1 million, respectively, for the three and six months ended June 30,
2013.
(5) Please refer to Non-IFRS Financial measures below.
A full version of MEG's Second Quarter 2014 Report to Shareholders, including
unaudited financial statements, is available at www.megenergy.com/investors and
at www.sedar.com.
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 July 30, 2014. The U.S./Canada
toll-free conference call number is 1 866-223-7781. The international/local
conference call number is 416-340-2216.
Forward-Looking Information
This document may contain forward-looking information including but not limited
to: expectations of future production, revenues, expenses, cash flow, operating
costs, SORs, pricing differentials, reliability, profitability and capital
investments; estimates of reserves and resources; the anticipated reductions in
operating costs as a result of optimization and scalability of certain
operations; the anticipated capital requirements, timing for receipt of
regulatory approvals, development plans, timing for completion, commissioning
and start-up, capacities and performance of the Access Pipeline expansion, the
RISER initiative, the Stonefell Terminal, third party barging and rail
facilities, the future phases and expansions of the Christina Lake Project, the
Surmont Project and potential projects on the Growth Properties; and the
anticipated sources of funding for operations and capital investments. 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", "Regulatory Matters" and
"Risk Factors" within MEG's Annual Information Form dated March 5, 2014 (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 to be 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 2014.
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."
FOR FURTHER INFORMATION PLEASE CONTACT:
MEG Energy Corp.
Investors
Helen Kelly
Director, Investor Relations
403-767-6206
helen.kelly@megenergy.com
MEG Energy Corp.
Media
Brad Bellows
Director, External Communications
403-212-8705
brad.bellows@megenergy.com
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