All financial figures in Canadian dollars ($ or C$) unless
otherwise noted
CALGARY, Feb. 8, 2018
/CNW/ - MEG Energy Corp. (TSX:MEG) ("MEG" or the "Company") is
pleased to announce that it has entered into an agreement with Wolf
Midstream Inc. ("Wolf") for the sale of the Company's 50% interest
in Access Pipeline and 100% interest in Stonefell Terminal (the
"Transaction") for cash and other consideration of $1.61 billion, representing 13.4x 2018 annualized
EBITDA.
MEG will receive $1.52 billion in
cash at closing, and a credit of $90
million toward future expansions of Access Pipeline whereby
MEG will not pay incremental tolls to fund such expansions.
As part of the Transaction, MEG and Wolf have entered into a
Transportation Services Agreement ("TSA") dedicating MEG's
Christina Lake production and
condensate transport to Access Pipeline for an initial term of 30
years. In addition, under the TSA, commercial parameters have been
established for the conversion of Access Pipeline's 16" unutilized
pipeline to transport natural gas liquids. MEG has secured a
substantial proportion of the rights to this pipeline on a
long-term basis to support its proprietary enhanced bitumen
recovery process known as eMVAPEX. The Transaction also includes a
Stonefell Lease Agreement ("SLA") which is a 30-year arrangement
that secures MEG operational control and exclusive use of 100% of
Stonefell Terminal's 900,000 barrel blend and condensate storage
facility. Under the TSA, MEG has secured a market-based toll on
transported volumes related to MEG's bitumen production up to
approximately 113,000 barrels per day (bpd) and an incentive toll
structure where the tolls on additional barrels step down by as
much as 60% as incremental production is brought on
stream. The Company will pay a fixed lease fee, plus operating
expenses under the terms of the SLA.
"This transaction accomplishes the objectives we set out to
achieve in unlocking the value of our midstream assets," said
Bill McCaffrey, MEG's President and
Chief Executive Officer. "Our goal was to surface attractive value
and terms that allow us to substantially pay down debt, pursue
highly economic growth projects and ensure our future
transportation and storage needs are met, all while protecting
MEG's competitive cost position. We expect to more than offset the
incremental transportation costs related to this transaction as we
bring on additional barrels."
Upon closing, the net cash proceeds from the Transaction will be
used to repay approximately C$1.225
billion of MEG's senior secured term loan and to fully fund
the Company's $275 million highly
economic 13,000 bpd brownfield expansion at the Phase 2B facility.
MEG intends to increase its 2018 capital budget from
$510 million to $700 million to fund approximately 70% of the
Phase 2B brownfield expansion in
2018. The expansion includes the addition of incremental steam
capacity at the Phase 2B facility and
two well pads and is expected to generate returns of approximately
30% at current strip prices. Production is anticipated to
begin ramping up in the second half of 2019 to reach the full
brownfield expansion capacity of 13,000 bpd in 2020. MEG's average
and exit production guidance for 2018 remains unchanged.
The Transaction comprises the sale of Access Pipeline for total
consideration of $1.4 billion, and
the sale of Stonefell for $210
million. 2018 annualized costs related to the Transaction
are approximately $80 million for the
transportation of diluted bitumen, $25
million for condensate transport, and $15 million for blend storage at
Stonefell. As a result of the Transaction, MEG expects its net
cash costs to increase by approximately $50
million on an annualized basis, comprised of an increase in
transportation and storage costs of approximately $120 million, offset by a reduction in interest
costs of approximately $70
million.
"With the resources and technology that are at our disposal, we
have the ability to deliver low-cost, continuous growth which
improves the overall profitability and sustainability of the
business as we add incremental barrels," commented Bill McCaffrey. "The divestiture of our
midstream assets strengthens our financial position while providing
sufficient liquidity to allow MEG to complete its high return
growth projects. Looking forward to 2020, we anticipate our debt to
EBITDA to come into the range of 2 to 3 times while generating free
cash flow at current prices."
Future growth beyond 113,000 bpd, which will drive cash costs
per barrel down further, will incorporate MEG's proprietary
reservoir enhancement technologies, adding 10 to 15% per annum of
production growth over the medium term at very attractive capital
cost intensities.
"We look forward to working with Wolf in the years to come to
meet our ongoing transportation and storage needs," added
Bill McCaffrey. "Wolf has proven to
be a very reliable partner in our Access Pipeline joint venture
over the last two years, and this transaction will enable us to
work together in even closer partnership."
The Transaction is expected to close in the first quarter of
2018, subject to regulatory approvals and customary closing
conditions. There are no financing or other non-customary closing
conditions.
BMO Capital Markets and Credit Suisse are acting as financial
advisors to MEG. Burnet, Duckworth and Palmer LLP and Latham
& Watkins LLP are acting as legal counsel to MEG.
A conference call to discuss the Transaction and the Company's
fourth quarter and full year 2017 results has been scheduled for
the new time of 9:30 a.m. Mountain
Time (11:30 a.m. Eastern Time)
on Thursday, February 8, 2018. The
North American toll-free conference call number is 1-888-231-8191.
The international conference call number is 647-427-7450.
A recording of the call will be available from 12:30 p.m. Mountain Time (2:30 p.m. Eastern Time) on February 8, 2018 until 9:59 p.m. Mountain Time (11:59 p.m. Eastern Time) on March 8, 2018. To access the recording, dial
toll-free 1-855-859-2056 or local 403-451-9481 and enter the pass
code 8358159.
ADVISORY
Non-GAAP Measures
Certain financial measures in this news release including
EBITDA, annualized EBITDA, net debt and free cash flow are non-GAAP
measures. These terms are not defined by International Financial
Reporting Standards ("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.
Forward-Looking
Information
This news release may contain forward-looking information within
the meaning of applicable securities laws. Forward-looking
information is frequently characterized by words such as "plan",
"expect", "project", "intend", "believe", "anticipate", "estimate",
"target", "scheduled", "potential", or other similar words, or
statements that certain events or conditions ''may'', "should'',
''might'' or ''could'' occur.
Such forward-looking information may include but is not limited
to: expectations of future production, revenues, expenses, cash
flow, operating costs, reliability, profitability and capital
investments; the anticipated reductions in operating costs as a
result of optimization and scalability of certain operations; and
the anticipated sources of funding for operations and capital
investments. Without limitation, this news release contains
forward-looking information with respect to: our 2018 annualized
EBITDA and the multiple that the purchase price represents thereof;
our expectations regarding the terms of the TSA and SLA; the
benefits that we expect to derive from the transaction; our
expectation that we can offset the incremental transportation costs
related to the Transaction; the completion of the Transaction, the
timing thereof and the expected use of proceeds and debt reduction
resulting therefrom; forecast capital expenditure levels, the
components of our capital expenditure program, and anticipated
returns therefrom and production guidance; anticipated increases in
future net cash costs and reductions in interest costs; our ability
to deliver low-cost, continuous growth and improve overall
profitability and sustainability of our business; the ability of
the Transaction to allow us to complete our high return growth
projects; anticipated future debt to EBITDA levels and the
generation of free cash flow; our expectations for annual
production growth over the medium term and ability to further drive
down cash costs. Such forward-looking information is based on
management's expectations and assumptions regarding future growth,
results of operations, production, future capital and other
expenditures, 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, for example, the securing of adequate
supplies and access to markets and transportation infrastructure;
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; 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, interest rates and foreign
exchange rates, and, risks and uncertainties related to 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; risks and uncertainties associated with securing and
maintaining the necessary regulatory approvals and financing to
proceed with MEG's future phases and the expansion and/or operation
of MEG's projects; risks and uncertainties related to the timing of
completion, commissioning, and start-up, of MEG's future phases,
expansions and projects; the operational risks and delays in the
development, exploration, production, and the capacities and
performance associated with MEG's projects; and the risks
associated with the Transaction being completed on the expected
terms and timing, including the risk that applicable regulatory
approvals are not received or that other conditions precedent to
the closing of the Transaction are not satisfied or waived and that
the Transaction does not close.
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
SEDAR website which is available at www.sedar.com.
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 MEG assumes no obligation to update or revise any
forward-looking information to reflect new events or circumstances,
except as required by law.
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:
Investors
Helen
Kelly
Director, Investor Relations
403-767-6206
helen.kelly@megenergy.com
Media
Davis
Sheremata
Senior Advisor, External Communications
587-233-8311
davis.sheremata@megenergy.com
SOURCE MEG Energy Corp.