CALGARY, AB –(Marketwired – April 28, 2016) – MEG Energy Corp. today reported first quarter 2016 operating and financial results. Highlights include:
- Quarterly production of 76,640 barrels per day (bpd), which includes the impact of planned turnaround work;
- Net operating costs of $8.53 per barrel, a decrease of 19% from the first quarter of 2015 and in line with record-low costs of $8.52 per barrel in the fourth quarter of 2015;
- Cash flow used in operations of $0.58 per share, primarily resulting from lower bitumen price realizations;
- A reduction in planned annual capital spending from $328 million to $170 million, while still maintaining annual guidance of 80,000 to 83,000 bpd at $6.75 to $7.75 per barrel non-energy operating costs;
- Continuing strong financial liquidity, exiting the quarter with $125 million of cash and cash equivalents and an undrawn US$2.5 billion credit facility.
“Operating results for the first quarter were right on plan,” said Bill McCaffrey, President and Chief Executive Officer. “Strong, steady and reliable production, combined with low operating costs and capital flexibility, are the foundation this company is built on.”
MEG recorded production of 76,640 bpd in the first quarter of 2016. This included the impact of a turnaround at the company’s Christina Lake facilities that was brought forward from the second quarter of 2016 to take advantage of the lower oil price environment. Volumes in the first quarter of 2016 were only slightly lower than the first quarter 2015, which was not impacted by a turnaround.
MEG continues to target average production of 80,000 to 83,000 barrels per day in 2016 at an average non-energy operating cost of $6.75 to $7.75 per barrel.
Net operating costs in the first quarter of 2016 averaged $8.53 per barrel compared to $10.49 per barrel in the first quarter of 2015. The significant decrease in net operating costs reflects the implementation of efficiency measures through MEG’s RISER initiative and a continuing focus on cost management for services at the company’s operating facilities. Net operating costs also benefited from a decrease in the cost of natural gas used to power the company’s SAGD facilities.
“The low commodity price environment continued to impact cash flow generated from the strong operating performance,” says McCaffrey. “Low operating and capital costs, strong liquidity and well-structured debt have all helped MEG to navigate through this current low price environment.”
MEG reported cash flow used in operations of $131 million for the first quarter of 2016, compared to cash flow used in operations of $30 million for the same period in 2015. Cash flow used in operations increased primarily due to lower bitumen realization and reduced sales volumes associated with the turnaround, partially offset by lower net operating costs and lower royalties. The decrease in bitumen realization is directly correlated to the significant decline of U.S. crude oil benchmark pricing.
MEG recognized an operating loss of $197 million for the first quarter of 2016, compared to an operating loss of $124 million in the same period of 2015. Comparative results are primarily impacted by the same factors affecting cash flow used in operations.
In the first quarter of 2016, MEG reduced its 2016 capital budget to $170 million from $328 million and expects annual capital spending will be primarily directed towards sustaining activities. As a result of ongoing cost control initiatives, MEG has reduced, respectively, non-energy operating costs by 15% per barrel and general and administrative expenses by 12% per barrel, compared to the first quarter of 2015.
In addition, the company is implementing a strategic hedging program to increase the predictability of future cash flows.
At the end of the first quarter, MEG had $125 million of cash on hand. At current strip prices, MEG anticipates its US$2.5 billion revolving credit facility will be undrawn at the end of 2016.
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)||Q1||Q4||Q3||Q2||Q1||Q4||Q3||Q2|
|Bitumen production – bpd||76,640||83,514||82,768||71,376||82,398||80,349||76,471||68,984|
|Bitumen realization – $/bbl||11.43||23.17||31.03||44.54||25.82||50.48||65.12||72.75|
|Net operating costs – $/bbl(1)||8.53||8.52||9.10||9.43||10.49||10.13||10.31||14.49|
|Non-energy operating costs – $/bbl||6.45||5.66||5.98||7.01||7.57||6.42||7.16||9.64|
|Cash operating netback – $/bbl(2)||(3.71||)||9.05||16.41||29.64||9.83||35.56||48.70||51.45|
|Cash flow from (used in) operations(3)||(131||)||(44||)||24||99||(30||)||134||239||262|
|Per share, diluted(3)||(0.58||)||(0.20||)||0.11||0.44||(0.13||)||0.60||1.06||1.16|
|Operating earnings (loss)(3)||(197||)||(140||)||(87||)||(23||)||(124||)||8||87||111|
|Per share, diluted(3)||(0.88||)||(0.62||)||(0.39||)||(0.10||)||(0.56||)||0.04||0.39||0.49|
|Net earnings (loss)(5)||131||(297||)||(428||)||63||(508||)||(150||)||(101||)||249|
|Per share, basic||0.58||(1.32||)||(1.90||)||0.28||(2.27||)||(0.67||)||(0.45||)||1.12|
|Per share, diluted||0.58||(1.32||)||(1.90||)||0.28||(2.27||)||(0.67||)||(0.45||)||1.11|
|Total cash capital investment(6)||35||54||32||90||80||324||291||299|
|Cash and cash equivalents||125||408||351||438||471||656||777||840|
|(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 expense, transportation, operating expenses and royalties from proprietary blend revenues 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 ended March 31, 2016 and March 31, 2015, the non-GAAP measure of cash flow used in operations is reconciled to net cash used in operating activities and the non-GAAP measure of operating 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 (Loss) and Comprehensive Income (Loss).|
|(5)||Includes a net unrealized foreign exchange gain of $320.3 million on the Corporation’s U.S. dollar denominated debt and U.S. dollar denominated cash and cash equivalents for the three months ended March 31, 2016. The net loss for the three months ended March 31, 2015 includes a net unrealized foreign exchange loss of $370.8 million.|
|(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.|
|(8)||Totals may not add due to rounding.|