Production increase reflects continuing success in the ramp-up of Phase 2B and the RISER initiative
CALGARY, April 30, 2014 /CNW/ - MEG Energy Corp. today reported first quarter 2014 operational and financial results. Highlights include:
- Record cash flow from operations of $157.0 million;
- Record quarterly production of 58,643 barrels per day (bpd), an increase of 80% over first quarter 2013 production volumes driven by the continuing ramp-up of production at Christina Lake Phase 2B and MEG's RISER initiative;
- Quarterly exit rate production for the month of March was over 60,600 bpd, supporting targeted annual average production of 60,000 to 65,000 bpd in 2014 and 80,000 bpd by 2015; and
- First quarter non-energy operating costs of $9.05 per barrel, in line with annual guidance of an average of $8 to $10 per barrel.
"The first quarter has set the stage for a very solid year," said Bill McCaffrey, MEG President and Chief Executive Officer. "The implementation of RISER at Phase 1 and 2 has already exceeded our initial expectations. With this strong performance, combined with the steady production ramp-up we are seeing at Phase 2B, we believe we are well on track to achieve our 2014 average production target of 60,000 to 65,000 barrels per day, as well as our 80,000 barrels per day target by 2015."
With the benefits of its RISER initiative at its Phase 1 and 2 assets and the ramp-up of production from Phase 2B, MEG reached a production record of 58,643 bpd in the first quarter of 2014, an increase of 80% over first quarter 2013 volumes of 32,531 bpd.
"The ramp-up of Phase 2B to its initial design capacity of 35,000 barrels per day is going very well," said McCaffrey. "We are now in the early planning stages for a RISER initiative on Phase 2B, which will be the next phase of production growth for the company".
RISER 2B will employ the same proven and proprietary technologies which drove increased production and resource recovery at Phase 1 and 2, but this time with a major brownfield expansion of the Phase 2B plant. RISER 2B is anticipated to add significant production above initial design capacity at lower capital and operating costs than a typical greenfield development.
Cash flow from operations reached a record $157.0 million ($0.70 per share, diluted) for the first quarter of 2014, compared to $7.1 million ($0.03 per share, diluted) for the same period of 2013. The increase in cash flow from operations was primarily due to higher sales volumes and increased price realizations per barrel.
First quarter 2014 net operating costs were $13.63 per barrel, compared to $10.44 per barrel in the first quarter of 2013. The increase was primarily due to higher natural gas energy prices. Net operating costs were partially offset by electricity sales revenue from MEG's cogeneration facilities. Non-energy costs were slightly higher at $9.05 per barrel in the first quarter of 2014, compared to $8.81 in the first quarter of 2013, primarily due to the ramp-up of Phase 2B.
Operating earnings, which are adjusted to exclude unrealized items such as foreign exchange conversion, were $40.7 million in the first quarter of 2014, compared to a loss of $36.7 million in the same period of 2013. Increased operating earnings were primarily driven by higher sales volumes and increased price realizations per barrel.
MEG recognized a net loss of $103.4 million for the first quarter of 2014 compared to a net loss of $71.3 million for same period in 2013. The loss in the first quarter of 2014 was primarily due to the $159.5 million impact of the conversion of the company's U.S. dollar denominated debt as a result of the strengthening of the U.S. dollar against the Canadian dollar.
Average bitumen price realizations increased more than 60% in the first quarter of 2014 compared to the previous quarter and were more than double the price realizations in the first quarter of 2013. Continued logistics enhancements, including recent additions of crude-by-rail facilities, pipelines connecting the U.S. mid-continent to the U.S. Gulf Coast and refinery modifications in the U.S. Midwest contributed to improved pricing. The expected completion of the Flanagan-Seaway pipeline system in the second half of 2014 will further enhance transportation logistics and is expected to assist in alleviating ongoing pipeline congestion.
"The combination of increasing production volumes, low and stable operating costs and our efforts to increase the market price we realize on every barrel is anticipated to further strengthen our cash flow profile," said McCaffrey.
Operational and Financial Highlights
The following table summarizes selected operational and financial information for the three months ended March 31. Dollar values are in Canadian dollars unless otherwise noted.
|Bitumen production - bpd||58,643||32,531|
|Bitumen sales - bpd||58,089||32,393|
|Steam-oil ratio (SOR)||2.5||2.5|
|West Texas Intermediate (WTI) US$/bbl||98.68||94.37|
|West Texas Intermediate (WTI) C$/bbl||108.89||95.21|
|Differential - Blend vs WTI - %||29.3%||41.9%|
|Bitumen realization - $/bbl||62.28||30.04|
|Net operating costs(1) - $/bbl||13.63||10.44|
|Non-energy operating costs - $/bbl||9.05||8.81|
|Cash operating netback(2) - $/bbl||43.51||17.90|
|Total cash capital investment(3) - $000||343,003||668,932|
|Net income (loss)(4) - $000||(103,441)||(71,294)|
|Per share, diluted||(0.46)||(0.32)|
|Operating earnings (loss)(5) - $000||40,659||(36,712)|
|Per share, diluted(5)||0.18||(0.16)|
|Cash flow from operations(5) - $000||156,987||7,071|
|Per share, diluted(5)||0.70||0.03|
|Cash, cash equivalents and short-term investments - $000||890,335||1,803,338|
|Long-term debt - $000||4,162,209||2,823,207|
|(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 proprietary sales volumes and power revenues, on a per barrel basis.|
|(3)||Includes capitalized interest of $19.5 million for the three months ended March 31, 2014 ($13.6 million for three months ended March 31, 2013).|
|(4)||Includes a foreign exchange loss of $159.5 million on conversion of the U.S. dollar denominated debt for the three months ended March 31, 2014 ($49.3 million for the three months ended March 31, 2013).|
|(5)||Please refer to Non-IFRS Financial Measures below.|
A conference call will be held to review MEG's first quarter results at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) on Wednesday, April 30. The U.S./Canada toll-free conference call number is 1 888-231-8191. The international/local conference call number is 647-427-7450.
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 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 first 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."
SOURCE: MEG Energy Corp.
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