MEG Energy reported its Q4 results late last week. Along with the results, the company announced a CEO succession plan, with the appointment of Darlene Gates, the Corporation’s current Chief Operating Officer, to succeed Mr. Evans as President and Chief Executive Officer.
MEG’s stated use of free cash flow (FCF) has been directed 50% to net debt, and 50% to share buybacks. The plan as it stands today is for this to transition toward 100% of FCF being returned to shareholders once net debt reaches $600 MM USD, or slightly over $800 MM CAD at today’s exchange rate. What this means is as long as that net debt level can be achieved and held, then share buybacks (and maybe even a small dividend?) will become 100% of the FCF allocation.
Two charts from BOE Intel stood out to us as the new quarterly information was reflected into all of our different industry specific charts. The first chart shows net debt relative to capital expenditures (Figure 1). Here we can see the decrease in net debt over the years. Net debt at the end of Q4 2023 was below $1 billion CAD for the first time in recent history.
Figure 1
Figure 2 shows the effect that share buybacks are beginning to have on the number of outstanding shares. Keep in mind this reduction in shares outstanding has occurred with “only” 50% of its FCF going to share buybacks.
Figure 2
Put simply, these 2 charts illustrate MEG’s FCF strategy: 1)pay down debt, 2)buy back shares.