MEG Energy reports strong fourth quarter and full-year 2017 results
Strong cash position at year end 2017, driven by the seventh consecutive year of record-low non-energy operating costs, supports highly-economic growth to 100,000 bpd by early 2019
All financial figures in Canadian dollars ($ or C$) unless otherwise noted
CALGARY, Feb. 8, 2018 /CNW/ - MEG Energy Corp. (TSX:MEG) today reported fourth quarter and full-year 2017 operating and financial results. Highlights include:
- Record fourth quarter production volumes of 90,228 barrels per day (bpd) contributing to annual production of 80,774 bpd, within guidance for the year. Exit production volumes of 93,674 bpd, which are significantly above the company's exit guidance, reflect the continued ramp-up of MEG's eMSAGP growth initiative at Christina Lake Phase 2B;
- Fourth quarter non-energy operating costs of $4.53 per barrel contributing to record-low annual non-energy operating costs of $4.62 per barrel, which are well below the low end of the company's guidance;
- Record-low annual net operating costs of $6.84 per barrel;
- Total cash capital investment for 2017 of $503 million, 15% lower than MEG's original budget of $590 million and lower than the company's $510 million revised capital guidance; and
- Year-end cash and cash equivalents of $464 million, which along with expected funds flow will enable MEG to fully fund its 2018 capital program of $510 million.
MEG is positioned to complete the implementation of the eMSAGP growth initiative at Christina Lake Phase 2B in 2018, which is expected to enable production to continue to ramp up to reach 95,000 to 100,000 bpd by the end of the year.
"The transformation of MEG's business over the last two years has been remarkable. Our eMSAGP technology is enabling us to increase our production and decrease our costs, all at a very attractive capital efficiency," said Bill McCaffrey, President and Chief Executive Officer. "Through the application of eMSAGP on our Phase 2B assets, we expect to increase our production by 25% to 100,000 bpd while continuing to drive our non-energy operating costs down."
Record–Low Costs
MEG set records for the full year of 2017 in both per barrel net operating costs and non-energy operating costs, which totaled $6.84 per barrel and $4.62 per barrel respectively. Net operating costs per barrel for full year 2017 were 14% less than in 2016, while non-energy operating costs per barrel decreased 18% in 2017 compared to the previous year. The continued reduction in net operating costs and non-energy operating costs in 2017 were primarily due to efficiency gains and continued cost management.
MEG posted fourth quarter non-energy operating costs of $4.53 per barrel, a result of higher sales volumes. Non-energy operating costs for 2017 averaged $4.62 per barrel, below the low end of the $4.75 - $5.00 per barrel revised guidance provided in MEG's third quarter 2017 disclosure, and a 55% reduction since 2011.
Net operating costs for the fourth quarter of 2017 averaged $5.86 per barrel compared to $8.24 per barrel for the same period in 2016. This 29% reduction is comprised of a per barrel decrease in both non-energy and energy operating costs, offset by a decrease in per barrel power revenue.
Strong Fourth Quarter Sales
Sales volumes in the fourth quarter of 2017 were approximately 4,300 bpd higher than fourth quarter production volumes, primarily as a result of volumes sold at the U.S. Gulf Coast that were in transit over the third quarter of 2017.
MEG benefitted from increases in its realized sales price during the fourth quarter. The WTI:WCS differential average narrowed to US$12.26 per barrel, or 22.1%, for the fourth quarter of 2017, compared to US$14.32 per barrel, or 29.1% for the same period in 2016 due to higher demand for Canadian heavy oil from U.S. Gulf Coast refineries. The WTI:WCS differential averaged US$11.98 per barrel, or 23.5%, for 2017 compared to US$13.84 per barrel, or 31.9%, for 2016.
Adjusted Funds Flow and Earnings
MEG realized adjusted funds flow from operations of $192 million for the fourth quarter of 2017 compared to adjusted funds flow from operations of $40 million in the same quarter of 2016. The increase was primarily due to an increase in bitumen realization and a reduction in net operating costs, partially offset by an increase in transportation. The increase in bitumen realization is a result of the quarter-over-quarter increase in average crude oil benchmark pricing and blend sales volumes.
The company recorded fourth quarter 2017 operating earnings of $44 million compared to an operating loss of $72 million for the same period in 2016. MEG recognized an operating loss of $114 million for 2017 compared to an operating loss of $455 million for 2016. The decrease in the operating loss for full year and fourth quarter 2017 was primarily due to higher bitumen realization as a result of the increase in average crude oil benchmark pricing and lower operating costs.
MEG's long-term debt is entirely denominated in U.S. dollars. Primarily as a result of the increase in the value of the Canadian dollar relative to the U.S. dollar, long-term debt as presented on the company's Consolidated Balance Sheet decreased to C$4.64 billion at December 31, 2017 from C$5.05 billion at December 31, 2016.
MEG's four-year covenant-lite US$1.4 billion credit facility remains undrawn.
Highly-Economic Growth Progressing in 2018
"In 2018, our focus is on the successful completion of the Phase 2B eMSAGP program and our growth plans beyond 100,000 bpd," said McCaffrey. "We continue to be encouraged by the results we are getting from the eMVAPEX technology, and we also have further opportunities around the application of eMSAGP and brownfield expansions. Our low-cost continuous growth approach is providing the way for MEG into the future."
Operational and Financial Highlights
| Year ended |
2017 |
2016 |
|||||||||
| ($ millions, except as indicated) |
2017 |
2016 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|
| Bitumen production - bbls/d |
80,774 |
81,245 |
90,228 |
83,008 |
72,448 |
77,245 |
81,780 |
83,404 |
83,127 |
76,640 |
|
| Bitumen realization - $/bbl |
41.89 |
27.79 |
48.30 |
39.89 |
39.66 |
37.93 |
36.17 |
30.98 |
30.93 |
11.43 |
|
| Net operating costs - $/bbl(1) |
6.84 |
7.99 |
5.86 |
6.00 |
7.42 |
8.43 |
8.24 |
7.76 |
7.43 |
8.53 |
|
| Non-energy operating costs - $/bbl |
4.62 |
5.62 |
4.53 |
4.57 |
4.23 |
5.20 |
4.99 |
5.32 |
5.81 |
6.45 |
|
| Cash operating netback - $/bbl(2) |
27.00 |
13.13 |
33.83 |
26.84 |
22.96 |
22.33 |
21.73 |
16.74 |
16.09 |
(3.71) |
|
| Adjusted funds flow from (used in) operations(3) |
374 |
(62) |
192 |
83 |
55 |
43 |
40 |
23 |
7 |
(131) |
|
| Per share, diluted(3) |
1.29 |
(0.27) |
0.65 |
0.28 |
0.19 |
0.16 |
0.18 |
0.10 |
0.03 |
(0.58) |
|
| Operating earnings (loss)(3) |
(114) |
(455) |
44 |
(43) |
(36) |
(79) |
(72) |
(88) |
(98) |
(197) |
|
| Per share, diluted(3) |
(0.39) |
(2.01) |
0.15 |
(0.14) |
(0.12) |
(0.29) |
(0.32) |
(0.39) |
(0.43) |
(0.88) |
|
| Revenue(4) |
2,435 |
1,866 |
755 |
546 |
574 |
560 |
566 |
497 |
513 |
290 |
|
| Net earnings (loss) |
188 |
(429) |
(1) |
84 |
104 |
2 |
(305) |
(109) |
(146) |
131 |
|
| Per share, basic |
0.65 |
(1.90) |
(0.00) |
0.29 |
0.36 |
0.01 |
(1.34) |
(0.48) |
(0.65) |
0.58 |
|
| Per share, diluted |
0.65 |
(1.90) |
(0.00) |
0.28 |
0.35 |
0.01 |
(1.34) |
(0.48) |
(0.65) |
0.58 |
|
| Total cash capital investment |
503 |
137 |
163 |
103 |
158 |
78 |
63 |
19 |
20 |
35 |
|
| Cash and cash equivalents |
464 |
156 |
464 |
398 |
512 |
549 |
156 |
103 |
153 |
125 |
|
| Long-term debt |
4,637 |
5,053 |
4,637 |
4,636 |
4,813 |
4,945 |
5,053 |
4,910 |
4,871 |
4,859 |
|
| (1) |
Net operating costs include energy and non-energy operating costs, reduced by power revenue. |
| (2) |
Cash operating netback is calculated by deducting the related diluent expense, transportation, operating expenses, royalties and realized commodity risk management gains (losses) from proprietary blend revenues and power revenues, on a per barrel of bitumen sales volume basis. |
| (3) |
Adjusted funds flow from (used in) operations, Operating earnings (loss) and the related per share amounts do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. For the three months and years ended December 31, 2017 and December 31, 2016, the non-GAAP measure of adjusted funds flow from (used in) operations is reconciled to net cash provided by (used in) operating activities and the non-GAAP measure of operating earnings (loss) is reconciled to net earnings (loss) in accordance with IFRS under the heading "NON-GAAP MEASURES" and discussed further in the "ADVISORY" section. |
| (4) |
The total of Petroleum revenue, net of royalties and Other revenue as presented on the Interim Consolidated Statement of Earnings and Comprehensive Income. |
ADVISORY
Basis of Presentation
MEG prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS") and presents financial results in Canadian dollars ($ or C$), which is the Corporation's functional currency.
Non-GAAP Measures
Certain financial measures in this news release including: net marketing activity, funds flow from (used in) operations, adjusted funds flow from (used in) operations, operating earnings (loss), operating cash flow and total debt 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.
Funds Flow From (Used in) Operations and Adjusted Funds Flow From (Used in) Operations
Funds flow from (used in) operations and adjusted funds flow from (used in) operations are non-GAAP measures utilized by the Corporation to analyze operating performance and liquidity. Funds flow from (used in) operations excludes the net change in non-cash operating working capital while the IFRS measurement "net cash provided by (used in) operating activities" includes these items. Adjusted funds flow from (used in) operations excludes the net change in non-cash operating working capital and charges not incurred in the normal course of operations, while the IFRS measurement "net cash provided by (used in) operating activities" includes these items. Funds flow from (used in) operations and adjusted funds flow from (used in) operations are not intended to represent net cash provided by (used in) operating activities calculated in accordance with IFRS. Funds flow from (used in) operations and adjusted funds flow from (used in) operations are reconciled to net cash provided by (used in) operating activities in the table below.
| Three months ended December 31 |
Year ended December 31 |
||||||||||
| ($000) |
2017 |
2016 |
2017 |
2016 |
|||||||
| Net cash provided by (used in) operating activities |
$ |
200,538 |
$ |
82,621 |
$ |
317,935 |
$ |
(94,074) |
|||
| Net change in non-cash operating working capital items |
(4,405) |
(43,636) |
24,517 |
25,061 |
|||||||
| Funds flow from (used in) operations |
196,133 |
38,985 |
342,452 |
(69,013) |
|||||||
| Adjustments: |
|||||||||||
| Contract cancellation expense |
- |
- |
18,765 |
- |
|||||||
| Net change in other liabilities |
(9,389) |
(718) |
(9,389) |
- |
|||||||
| Payments on onerous contracts |
4,878 |
1,505 |
19,569 |
6,116 |
|||||||
| Decommissioning expenditures |
556 |
195 |
2,403 |
1,290 |
|||||||
| Adjusted funds flow from (used in) operations |
$ |
192,178 |
$ |
39,967 |
$ |
373,800 |
$ |
(61,607) |
|||
Operating Earnings (Loss)
Operating earnings (loss) is a non-GAAP measure which the Corporation uses as a performance measure to provide comparability of financial performance between periods by excluding non-operating items. Operating earnings (loss) is defined as net earnings (loss) as reported, excluding unrealized foreign exchange gains and losses, unrealized gains and losses on derivative financial instruments, unrealized gains and losses on commodity risk management, impairment charge, contract cancellation expense, onerous contracts expense, debt extinguishment expense, insurance proceeds and the respective deferred tax impact on these adjustments. Operating earnings (loss) is reconciled to "Net earnings (loss)", the nearest IFRS measure, in the table below.
| Three months ended December 31 |
Year ended December 31 |
||||||||
| ($000) |
2017 |
2016 |
2017 |
2016 |
|||||
| Net earnings (loss) |
$ |
(1,295) |
$ |
(304,758) |
$ |
188,460 |
$ |
(428,726) |
|
| Adjustments: |
|||||||||
| Unrealized net loss (gain) on foreign exchange(1) |
6,972 |
119,610 |
(338,144) |
(148,153) |
|||||
| Unrealized loss (gain) on derivative financial liabilities(2) |
(8,833) |
(7,146) |
(16,179) |
(12,508) |
|||||
| Unrealized loss (gain) on commodity risk management(3) |
57,689 |
42,049 |
38,336 |
30,313 |
|||||
| Impairment charge(4) |
- |
80,072 |
- |
80,072 |
|||||
| Contract cancellation expense(5) |
- |
- |
18,765 |
- |
|||||
| Onerous contracts expense(6) |
5,149 |
16,383 |
10,830 |
47,866 |
|||||
| Debt extinguishment expense(7) |
- |
28,845 |
- |
28,845 |
|||||
| Insurance proceeds |
- |
(4,391) |
(183) |
(4,391) |
|||||
| Deferred tax expense (recovery) relating to these adjustments |
(15,627) |
(42,653) |
(15,409) |
(48,416) |
|||||
| Operating earnings (loss) |
$ |
44,055 |
$ |
(71,989) |
$ |
(113,524) |
$ |
(455,098) |
|
| (1) |
Unrealized net foreign exchange gains and losses result from the translation of U.S. dollar denominated long-term debt and cash and cash equivalents using period-end exchange rates. |
| (2) |
Unrealized gains and losses on derivative financial liabilities result from the interest rate floor on the Corporation's long-term debt and interest rate swaps entered into to effectively fix a portion of its variable rate long-term debt. |
| (3) |
Unrealized gains or losses on commodity risk management contracts represent the change in the mark-to-market position of the unsettled commodity risk management contracts during the period. |
| (4) |
During the fourth quarter of 2016, the Corporation recognized an impairment charge of $80.1 million relating to an investment in the right to participate in the Northern Gateway pipeline. |
| (5) |
During the third quarter of 2017, the Corporation recognized a contract cancellation expense of $18.8 million relating to the termination of a long-term transportation contract. |
| (6) |
Onerous contracts expense primarily includes changes in estimated future cash flow sublease recoveries related to the onerous office lease provision for the Corporation's office building lease contracts. |
| (7) |
At December 31, 2016, the Corporation recognized $28.8 million of debt extinguishment expense associated with the planned redemption of the 6.5% Senior Unsecured Notes on March 15, 2017, under the comprehensive refinancing plan completed on January 27, 2017. |
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, steam-oil ratios, pricing differentials, reliability, profitability and capital investments; estimates of reserves and resources; anticipated reductions in operating costs as a result of optimization and scalability of certain operations; and 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, plans for and results of drilling activity, environmental matters, 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 include, but are not limited to: risks associated with the oil and gas industry, for example, results securing access to markets and transportation infrastructure; availability of capacity on the electricity transmission grid; uncertainty of reserve and resource estimates; uncertainty associated with 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 uncertainties arising in connection with any future disposition of assets.
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.
A full version of MEG's Fourth Quarter 2017 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 the operating and financial results at 11:30 a.m. Mountain Time (1:30 p.m. Eastern Time) on Thursday, February 8, 2017. The North American toll-free conference call number is 1-888-231-8191. The international conference call number is 647-427-7450.
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
[email protected]
Media
Davis Sheremata
Senior Advisor, External Communications
587-233-8311
[email protected]
SOURCE MEG Energy Corp.
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