CALGARY, April 24, 2013 /CNW/ - MEG Energy Corp. ("MEG") today reported first quarter 2013 operational and financial results. Highlights include:
- Record quarterly production volumes of 32,531 barrels per day as MEG drives toward a 2013 exit production rate 30% to 50% higher than 2012 average volumes and a nearly 180% increase over 2012 averages by early 2015;
- Low net operating costs of $10.44 per barrel, which mitigated the challenging price environment through January and February - prices began to improve in March and continued to strengthen in April;
- New eMSAGP wells demonstrating initial results consistent with the industry-leading steam-oil ratio performance of MEG's pilot wells using the technology;
- Ongoing progress on the Christina Lake Phase 2B project, which remains on schedule for initial steaming in the third quarter and full plant operations targeted to ramp up in the fourth quarter;
- Receipt in the first quarter of dedicated barges to move crude oil around mid-continent pipeline congestion to reach higher priced markets - initial deliveries by barge commenced in April.
"Although we faced challenging market conditions in the first two months of the quarter, MEG's operational results were outstanding, with record quarterly production," said Bill McCaffrey, MEG President and Chief Executive Officer. "The stage is set for what we see as a truly transformational year as we continue our efforts to drive higher production volumes through the RISER initiative and our target to more than double production capacity with the start-up of Phase 2B later in the year."
Production in the first quarter of 2013 averaged 32,531 barrels per day (bpd), compared to 28,446 bpd for the same period in 2012. The 14% increase is the result of expanded steam generation capacity and enhanced reservoir efficiency measures that have allowed additional wells to be placed into production.
Wider deployment of MEG's proprietary reservoir technology began in the first quarter, with three additional wells adapted to enhanced modified steam and gas push technology (eMSAGP) in March and plans to initiate eMSAGP at an additional six wells in the second quarter. MEG's pilot eMSAGP well pattern has demonstrated steam-oil ratios at an industry-leading 1.3, with production volumes remaining steady. New wells utilizing the technology are exhibiting similar initial performance profiles, driving expectations of further efficiencies and incremental production increases.
Net operating costs for the first quarter of 2013 were $10.44 per barrel, compared to $7.95 per barrel for the first three months of 2012. The increase was primarily due to higher natural gas energy prices and higher operational costs associated with MEG's growth strategy and planned near-term production increases. Net operating costs were partially offset by electricity sales revenue from the company's cogeneration facilities.
"Top-quartile operating cost efficiency, increasing production, and our moves to bypass areas of pipeline congestion that have been restricting access to higher priced markets are all coming together. We expect to deliver significantly stronger cash flows as we advance these initiatives in 2013," said McCaffrey.
Cash flow from operations was $7.1 million ($0.03 per share, diluted) for the first quarter of 2013, compared to $72.0 million ($0.36 per share, diluted) for the first quarter of 2012. The decrease in cash flow from operations was primarily due to lower price realizations, particularly in the first two months of the quarter, partially offset by higher production volumes.
MEG recognized a net loss for the first quarter of 2013 of $71.3 million compared to net income of $53.4 million for the first quarter of 2012. The net loss is primarily due to unrealized foreign exchange impacts on the translation of the company's U.S. dollar denominated debt, cash and cash equivalents, as the Canadian dollar decreased in value relative to the U.S. dollar. The recorded net loss in the first quarter was also impacted by the same factors affecting cash flow from operations.
First quarter operating earnings, which are adjusted to exclude unrealized items, were recorded as a loss of $36.7 million ($0.16 per share, diluted) compared to operating earnings of $23.5 million ($0.12 per share, diluted) for the same period in 2012.
Capital and growth strategy
MEG's management believes the company has the financial resources in place, including working capital of $1.3 billion and an additional undrawn US$1.0 billion revolving credit facility, to execute its plan to increase production to 80,000 bpd by early 2015.
The corporation's remaining budgeted 2013 capital investment totals approximately $1.3 billion, including approximately $135 million deferred from previously planned 2012 investments and will be directed towards:
- The RISER initiative, which is focused on increasing production and throughput capacity in the near-term from existing facilities;
- Drilling and completion of an inventory of stand-by wells to take advantage of freed-up steam from the implementation of eMSAGP;
- Completion of Christina Lake Phase 2B;
- Engineering, long lead items and site preparation for Phase 3A; and
- Infrastructure investments to expand the jointly-owned Access Pipeline and complete the 900,000 barrel Stonefell Terminal in mid-2013, effectively placing MEG's production at the Edmonton transportation hub and providing flexible market transportation options.
"Investments in new reservoir technologies and plant debottlenecking are already showing results - and that's a trend that we expect to continue through the year," said McCaffrey. "We are also beginning to see the results of our marketing initiative, with our first barge shipments aimed at bypassing market congestion already underway. Building on that initiative, we are planning to roll out significant rail transportation volumes in the second half of the year. As we continue through 2013, we expect to deliver increasing volumes to higher-priced markets. The first quarter has set the stage."
Operational and financial highlights
The following table summarizes selected operational and financial information of the corporation for the three months ended March 31:
|Bitumen production - bpd||32,531||28,446|
|Steam to oil ratio||2.5||2.5|
|West Texas Intermediate (WTI) US$/bbl||94.37||102.92|
|Differential - WTI/Blend %||41.9%||31.2%|
|Bitumen realization - $/bbl||30.04||50.15|
|Net operating costs(1) - $/bbl||10.44||7.95|
|Cash operating netback(2) - $/bbl||17.90||39.20|
|Capital cash investment - $000||668,932||364,862|
|Net income (loss) - $000||(71,294)||53,369|
|Per share, diluted||(0.32)||0.27|
|Operating earnings (loss) - $000(3)||(36,712)||23,529|
|Per share, diluted(3)||(0.16)||0.12|
|Cash flow from operations - $000(3)||7,071||71,991|
|Per share, diluted(3)||0.03||0.36|
|Cash and short-term investments - $000||1,803,338||1,402,390|
|Long-term debt - $000||2,823,207||1,718,474|
|(1) Net operating costs include energy and non-energy operating costs, reduced by power sales.|
| (2) Cash operating netbacks are calculated by deducting the related diluent, transportation, field
operating costs and royalties from production and power revenues, on a per barrel basis.
|(3) Please refer to Non-IFRS Financial Measures below.|
A conference call will be held to review the first quarter results and discuss MEG's strategy at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) on Wednesday, April 24, 2013. The U.S./Canada toll-free conference call number is 1 888-231-8191.
This document may contain forward-looking information including but not limited to: expectations of future production, revenues, cash flow, pricing differentials and capital investments; estimates of reserves and resources; the anticipated capital requirements, development plans, timing for completion, capacities and performance of the RISER initiative, the Stonefell Terminal, third party barging and rail facilities and the future phases and expansions of the Christina Lake project; and the anticipated sources and sufficiency of funding for MEG's future growth. 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", "Risk Factors" and "Regulatory Matters" within MEG's Annual Information Form dated February 27, 2013 (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 (loss), 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 (loss) and cash operating netback 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 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 (loss) 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 first quarter of 2013.
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."
SOURCE: MEG Energy Corp.
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