All financial figures are in Canadian dollars ($ or C$) and all references to barrels are per barrel of bitumen sales unless otherwise noted
CALGARY, Nov. 21, 2019 /CNW/ - MEG Energy Corp. (TSX:MEG) announced today its 2020 capital investment plan and operational guidance. Highlights include:
- A capital budget of $250 million, to be fully funded with a portion of expected 2020 adjusted funds flow;
- 2020 production guidance of 94,000 to 97,000 bpd, which takes into account a planned major turnaround with an anticipated 2,500 bpd impact on production for the year;
- Non-energy operating cost and G&A cost guidance of $4.50 to $4.90 per barrel and $1.75 to $1.85 per barrel, respectively; and
- Year-to-date debt repayment of approximately $500 million. Management remains committed to applying all free cash flow above its 2020 capital investment plan to further debt reduction.
MEG 2020 production guidance is based on MEG entering and exiting the year with productive capacity of approximately 96,000 bpd and 100,000 bpd, respectively and includes the impact of a major 25-day turnaround planned for September 2020, which is expected to impact annual production levels by approximately 2,500 bpd. The January 2020 productive capacity level of 96,000 bpd, which is approximately 3,500 bpd over MEG's current curtailment limit, reflects management's decision in the second quarter of 2019 to moderate the Corporation's productive capacity in response to the uncertainty at that time as to how long government mandated production curtailment, which came into effect January 1, 2019, would stay in effect. After the Alberta Government's Special Production Allowance ("SPA") program was announced on October 31, 2019 for curtailed producers, MEG began ramping back up its productive capacity and expects to reach full 100,000 bpd capacity post plant turnaround.
Concurrent with the ramping up of productive capacity at Christina Lake after the October 31, 2019 SPA announcement, MEG began finalizing its 2020 rail strategy which includes the re-contracting of a significant portion of its rail loading capacity at the Bruderheim rail loading facility. This capacity was previously contracted for blend sales agreements with the Alberta Petroleum Marketing Commission ("APMC") but was terminated as part of the APMC's oil-by-rail sales process. While MEG is well advanced on its re-contracting strategy and expects to have these contracts in place by the end of 2019, the ability of MEG to achieve its production guidance will be dependent in part on its ability to re-contract this rail capacity.
MEG's 2020 capital investment plan includes $210 million directed to sustaining and maintenance capital. Additionally, as previously announced, MEG will invest approximately $20 million to complete the Corporation's in-progress brownfield project at the Phase 2B central processing facility which includes incremental steam generation, water handling and oil treating capacity. MEG expects to complete this project by the end of the second quarter of 2020 and be able to utilize the incremental capacity to limit the annualized production impact of the major planned turnaround to approximately 2,500 bpd. The remaining $20 million of capital spending is required primarily for non-discretionary field infrastructure, regulatory and corporate capital costs.
2020 Capital Investment Summary
Sustaining and maintenance
Phase 2B brownfield project completion, field
Over the last three years, MEG has focused on rationalizing ongoing G&A expense. MEG has largely completed that process, with 2020 G&A expense guidance being 35%, or approximately $35 million, lower than G&A expense incurred in 2016.
2019 guidance (revised)
94,000 to 97,000 bpd
92,000 to 93,000 bpd
Non-energy operating costs
$4.50 to $4.90 per barrel
$4.75 to $5.00 per barrel
$1.75 to $1.85 per barrel
$1.95 to $2.05 per barrel
This news release refers to the non-GAAP measure of free cash flow, as well as adjusted funds flow which is defined in Note 20 of the third quarter 2019 Financial Statements. These terms may not be comparable to similar measures provided by other companies and are not intended to represent net cash provided by (used in) operating activities.
Certain statements contained in this news release may constitute forward-looking statements within the meaning of applicable Canadian securities laws. These statements relate to future events or MEG's future performance. All statements other than statements of historical fact may be forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "dependent", "ability" "plan", "intend", target, potential and similar expressions are intended to identify forward-looking statements. Forward-looking statements are often, but not always, identified by such words. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, and without limiting the foregoing, this news release contains forward looking statements with respect to our 2020 capital budget, allocation and funding, expected 2020 free cash flow, future production capability, and target 2020 production, and non-energy operating and general & administrative costs, our focus and strategy, expecting sustaining and maintenance capital and other capital, future re-contracting of rail loading capacity and plans to improve overall cost efficiencies.
Forward-looking information contained in this news release is based on management's expectations and assumptions regarding, among other things: future crude oil, bitumen blend, natural gas, electricity, condensate and other diluent prices, foreign exchange rates and interest rates; the recoverability of MEG's reserves and contingent resources; MEG's ability to produce and market production of bitumen blend successfully to customers; future growth, results of operations and production levels; future capital and other expenditures; revenues, expenses and cash flow; operating costs; reliability; anticipated reductions in operating costs as a result of optimization and scalability of certain operations; anticipated sources of funding for operations and capital investments; plans for and results of drilling activity; the regulatory framework governing royalties, land use, taxes and environmental laws and Federal and Provincial climate change policies, and the timing and level of government apportionment easing, ability to re-contract rail loading capacity, in which MEG conducts and will conduct its business; and 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, for example, the securing of adequate access to markets and transportation infrastructure; the availability of capacity on the electricity 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, environmental laws, and Federal and Provincial climate change policies and curtailment of production policies, and, MEG's ability to implement sales under the Alberta Government's Special Production Allowance ("SPA") program; assumptions regarding and the volatility of commodity prices, interest rates and foreign exchange rates, and, risks and uncertainties related to commodity price, interest rate and foreign exchange rate swap contracts and/or derivative financial instruments that MEG may enter into from time to time to manage its risk related to such prices and rates; risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with MEG's future phases and the expansion and/or operation of MEG's projects; risks and uncertainties related to the timing of completion, commissioning, and start-up, of MEG's turnarounds, and of future phases, expansions and projects; the operational risks and delays in the development, exploration, production, and the capacities and performance associated with MEG's projects; and uncertainties arising in connection with any future acquisitions and/or dispositions of assets.
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.
Further information regarding the assumptions and risks inherent in the making of forward-looking statements can be found in MEG's most recently filed Annual Information Form ("AIF"), along with MEG's other public disclosure documents. Copies of the AIF and MEG's other public disclosure documents are available through the Company's website at www.megenergy.com/investors and through the SEDAR website at www.sedar.com.
The forward-looking information included in this news release is expressly qualified in its entirety by the foregoing cautionary statements. Unless otherwise stated, the forward-looking information included in this news release is made as of the date of this news release and MEG assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances, except as required by law.
This news release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about MEG's prospective results of operations including, without limitation, cash flow and various components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth above. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on FOFI. MEG's actual results, performance or achievement could differ materially from those expressed in, or implied by, these FOFI, or if any of them do so, what benefits MEG will derive therefrom. MEG has included the FOFI in order to provide readers with a more complete perspective on MEG's future operations and such information may not be appropriate for other purposes. MEG disclaims any intention or obligation to update or revise any FOFI statements, whether as a result of new information, future events or otherwise, except as required by law.
MEG is an oil company focused on sustainable in situ thermal oil development and production in the southern Athabasca region of Alberta, Canada. MEG is actively developing enhanced oil recovery projects that utilize steam-assisted gravity drainage ("SAGD") extraction methods to improve the economic recovery of oil as well as lower carbon emissions. MEG transports and sells Access Western Blend ("AWB" or "blend") to refiners throughout North America and internationally. MEG's common shares are listed on the Toronto Stock Exchange under the symbol "MEG".
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SOURCE MEG Energy Corp.
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