CALGARY, AB–(Marketwired – February 04, 2016) – MEG Energy Corp. (TSX: MEG) today reported fourth quarter and full-year 2015 operating and financial results. Highlights include:
- Record quarterly production volumes of 83,514 barrels per day (bpd) contributing to record annual production of 80,025 bpd, a 12% increase year-over-year, while the 2015 capital budget was significantly reduced;
- Record-low net and non-energy operating costs for both the fourth quarter and the full year of 2015;
- Year-end cash and cash equivalents of $408 million and an undrawn credit facility of US$2.5 billion;
- An approximately 50% reduction in planned 2016 capital spending to $170 million from previous guidance of $328 million, while still maintaining production guidance for the full year.
MEG’s fourth quarter 2015 production was a record 83,514 bpd, compared to 80,349 bpd for the fourth quarter of 2014. Full-year 2015 production increased 12% from 2014 totals, meeting targets and reflecting the ongoing efficiency gains associated with MEG’s proprietary eMSAGP reservoir technology.
MEG established record-low net and non-energy operating costs for both the fourth quarter and the full year of 2015. Net operating costs were recorded at $8.52 per barrel in the fourth quarter of 2015 with net annual operating costs of $9.39 per barrel. At $5.66 per barrel, fourth quarter non-energy operating costs supported record-low annual non-energy operating costs of $6.54 per barrel, well below the company’s 2015 revised guidance. Lower operating costs on both a quarterly and annual basis are reflective of higher production volumes and efficiency gains, as well as lower input prices for natural gas.
“Our operating performance throughout 2015 met or exceeded our targets,” said Bill McCaffrey, President and Chief Executive Officer. “Our low cost structure is enabling MEG to weather the low commodity price environment seen over the past year.”
MEG recorded cash flow used in operations of $44 million for the fourth quarter of 2015 compared to cash flow from operations of $134 million for the same period in 2014. Cash flow from operations decreased primarily due to lower price realizations and higher transportation and interest costs, partially offset by higher sales volumes and lower royalty expenses. Full year 2015 cash flow from operations remained positive at $49 million.
The company recorded a fourth quarter 2015 operating loss of $140 million compared to operating earnings of $8 million for the same period in 2014. The difference in operating earnings reflects the same factors impacting cash flow, as well as an increase in depletion and depreciation expense.
Capital investment and financial liquidity
MEG’s capital investment in 2015 totalled $257 million, which was 23% below the capital budget after adjusting for capitalized turnaround costs. This reduced spending was a result of ongoing gains in capital efficiency.
In December 2015, MEG announced a 2016 annual capital program of $328 million. This has been revised downward by approximately 50% to $170 million. The reduction was achieved through the deferral of some previously planned growth capital spending, as well as efficiency enhancements to reservoir performance that has resulted in higher well productivity. Productivity improvements have enabled MEG to reduce planned 2016 sustaining and maintenance requirements to below $5 per barrel from previous estimates of $7 to $8 per barrel.
The reduction in 2016 capital spending is not expected to impact MEG’s production guidance of 80,000 to 83,000 bpd and non-energy operating costs of $6.75 to $7.75 per barrel, although the company maintains the flexibility to temporarily defer production if warranted by market conditions.
The monetization of MEG’s 50% holding in the Access Pipeline continues to be a key priority. The company is working diligently to complete this process, while ensuring the transaction is in the long-term interest of MEG’s shareholders.
“MEG entered 2016 with more than $400 million in cash and an undrawn US$2.5 billion credit facility,” said McCaffrey. “With significant liquidity and low operating costs, we are well positioned to reduce the impact of the current low-price environment.”
Operational and Financial Highlights
The following table summarizes selected operational and financial information for the periods noted. Dollar values are in $Cdn millions unless otherwise noted.
|($ millions, except as indicated)||2015||2014||Q4||Q3||Q2||Q1||Q4||Q3||Q2||Q1|
|Bitumen production – bbls/d||80,025||71,186||83,514||82,768||71,376||82,398||80,349||76,471||68,984||58,643|
|Bitumen realization – $/bbl||30.63||62.67||23.17||31.03||44.54||25.82||50.48||65.12||72.75||62.28|
|Net operating costs – $/bbl(1)||9.39||12.06||8.52||9.10||9.43||10.49||10.13||10.31||14.49||13.63|
|Non-energy operating costs – $/bbl||6.54||8.02||5.66||5.98||7.01||7.57||6.42||7.16||9.64||9.05|
|Cash operating netback – $/bbl(2)||15.72||44.87||9.05||16.41||29.64||9.83||35.56||48.70||51.45||43.51|
|Cash flow from (used in) operations(3)||49||791||(44)||24||99||(30)||134||239||262||157|
|Per share, diluted(3)||0.22||3.52||(0.20)||0.11||0.44||(0.13)||0.60||1.06||1.16||0.70|
|Operating earnings (loss)(3)||(374)||247||(140)||(87)||(23)||(124)||8||87||111||41|
|Per share, diluted(3)||(1.67)||1.10||(0.62)||(0.39)||(0.10)||(0.56)||0.04||0.39||0.49||0.18|
|Net earnings (loss)(5)||(1,170)||(106)||(297)||(428)||63||(508)||(150)||(101)||249||(103)|
|Per share, basic||(5.21)||(0.47)||(1.32)||(1.90)||0.28||(2.27)||(0.67)||(0.45)||1.12||(0.46)|
|Per share, diluted||(5.21)||(0.47)||(1.32)||(1.90)||0.28||(2.27)||(0.67)||(0.45)||1.11||(0.46)|
|Total cash capital investment(6)||257||1,238||54||32||90||80||324||291||299||324|
|Cash and cash equivalents||408||656||408||351||438||471||656||777||840||890|
|(1)||Net operating costs include energy and non-energy operating costs, reduced by power revenue.|
|(2)||Cash operating netbacks are calculated by deducting the related diluent, transportation, operating expenses and royalties from proprietary sales volumes and power revenues, on a per barrel of bitumen sales volume basis.|
|(3)||Cash 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, 2015 and December 31, 2014, the non-GAAP measure of cash flow from (used in) operations is reconciled to net cash provided by operating activities and the non-GAAP measure of operating earnings (loss) is reconciled to net 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 (Loss) and Comprehensive Income (Loss).|
|(5)||Includes a net unrealized foreign exchange loss of $159.0 million and $785.3 million on the Corporation’s U.S. dollar denominated debt and U.S. dollar denominated cash and cash equivalents for the three months and year ended December 31, 2015, respectively. The net loss for the three months and year ended December 31, 2014 include a net unrealized foreign exchange loss of $139.0 million and $333.1 million, respectively.|
|(6)||Defined as total capital investment excluding dispositions, capitalized interest, and non-cash items.|
|(7)||On February 3, 2016, Moody’s Investors Service (“Moody’s”) downgraded the Corporation’s Corporate Family Rating (CFR) to Caa2 from B1, Probability of Default Rating to Caa2-PD from B1-PD, secured bank credit facility rating to B3 from Ba2 and senior unsecured notes rating to Caa3 from B2. The Speculative Grade Liquidity Rating was lowered to SGL-2 from SGL-1. The rating outlook is negative. The Corporation’s senior secured term loan and senior unsecured notes do not include any provision that would require any changes in payment schedules or terminations as a result of a credit downgrade.|
|Note: Totals may not add due to rounding.|
Basis of Presentation
MEG prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”) and presents financial results in Canadian dollars ($ or C$), which is the corporation’s functional currency.
Non-GAAP Financial Measures
This document includes references to financial measures commonly used in the crude oil and natural gas industry, such as cash flow from (used in) operations and operating earnings (loss). These financial measures are not defined by IFRS as issued by the International Accounting Standards Board and therefore are referred to as non-GAAP measures. The non-GAAP measures used by MEG may not be comparable to similar measures presented by other companies. MEG uses these non-GAAP measures to help evaluate its performance. These non-GAAP measures should not be considered as an alternative to or more meaningful than net cash provided by (used in) operating activities or net earnings (loss), as determined in accordance with IFRS, as an indication of MEG’s performance.
Cash Flow from (Used In) Operations
Cash flow from (used in) operations is a non-GAAP measure utilized by the Corporation to analyze operating performance and liquidity. Cash flow from (used in) operations excludes the net change in non-cash operating working capital, contract cancellation expense, payments on onerous contracts and decommissioning expenditures while the IFRS measurement “Net cash provided by (used in) operating activities” includes these items. Cash flow from (used in) operations is reconciled to Net cash provided by (used in) operating activities in the table below.
|Three months ended December 31||Year ended
|Net cash provided by operating activities||$||12,515||$||209,985||$||112,158||$||767,500|
|Net change in non-cash operating working capital items||(76,388)||(93,313)||(77,991)||5,610|
|Contract cancellation expense||18,759||16,455||12,879||16,455|
|Payments on onerous contracts||541||–||541||–|
|Cash flow from (used in) operations||$||(44,130)||$||134,099||$||49,460||$||791,458|
Operating Earnings (Loss)
Operating earnings (loss) is a non-GAAP measure which the Corporation uses as a performance measure to provide comparability of financial performance between periods by excluding non-operating items. Operating earnings (loss) is defined as net earnings (loss) as reported, excluding gains (losses) on disposition of assets, unrealized foreign exchange gains and losses, unrealized gains and losses on derivative financial liabilities, unrealized fair value gains and losses on other assets, onerous contracts, contract cancellation expense and the respective deferred tax impact of these adjustments. Operating earnings (loss) is reconciled to “Net earnings (loss)”, the nearest IFRS measure, in the table below.
|Three months ended
|Gain on disposition of assets (1)||(68,192)||–||(68,192)||–|
|Unrealized net loss on foreign exchange(2)||159,009||139,009||785,310||333,149|
|Unrealized loss (gain) on derivative financial liabilities(3)||(15,890)||5,444||(13,289)||(1,469)|
|Unrealized fair value gain on other assets||–||–||–||(429)|
|Onerous contracts (4)||58,719||–||58,719||–|
|Contract cancellation expense (5)||18,759||16,455||12,879||16,455|
|Deferred tax expense relating to these adjustments||4,636||(2,748)||19,870||5,185|
|Operating earnings (loss)||$||(140,234)||$||8,084||$||(374,374)||$||247,353|
|(1)||A gain related to the sale of a non-core undeveloped oil sands asset in the fourth quarter of 2015.|
|(2)||Unrealized net foreign exchange losses result from the translation of U.S. dollar denominated long-term debt and cash and cash equivalents using period-end exchange rates.|
|(3)||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.|
|(4)||During the fourth quarter of 2015, costs relating to certain onerous Calgary office building leases were recognized.|
|(5)||During the fourth quarter of 2015, a contract cancellation expense was recorded primarily relating to the termination of a marketing transportation contract. For the year ended December 31, 2015, the Corporation recognized contract cancellation expense of $12.9 million which included the termination of the marketing transportation contract, partially offset by a recovery recorded in the second quarter of 2015. During the fourth quarter of 2014, field asset construction contract cancellation expense was recognized as a result of the reduction of the Corporation’s capital program.|
A conference call will be held to review MEG’s fourth quarter results at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, February 4. The U.S./Canada toll-free conference call number is 1 800-396-7098. The international/local conference call number is 416-340-8527.