Quarterly / Earnings Reports | Production | Second Quarter (2Q) Update | Financial Results | Capital Markets

MEG On Track to Meet Guidance as Production Levels Peak

Share Print Bookmark    |    Monday,August 22,2016

MEG Energy Corp. reported second quarter 2016 operating and financial results. 

Key Points:

• MEG expects to meet annual production guidance of 80,000 to 83,000 bpd

• Volumes in the second quarter of 2016 were 16% higher than production in the second quarter of 2015.

Highlights include:

• Record first half production volumes of 79,883 barrels per day (bpd) with second quarter production of 83,127 bpd and post-maintenance production volumes above 86,000 bpd in May and June;
• Record-low quarterly net operating costs of $7.43 per barrel, supported by non-energy operating costs of $5.81 per barrel;
• Cash flow from operations of $7 million, a substantial improvement from cash flow used in operations of $131 million in the first quarter of 2016;
• Improved financial liquidity, exiting the quarter with $153 million of cash and cash equivalents and an undrawn US$2.5 billion credit facility;
• Ongoing planning of 'brownfield' growth, targeting production levels up to 110,000 to 120,000 barrels per day.

Bill McCaffrey, President and Chief Executive Officer, said: "Our quarterly results demonstrate the positive impacts of technology and innovation as we continued to advance MEG's eMSAGP technology. Our second quarter production levels have been close to record highs and we are currently seeing net operating costs of under $7.50 to produce a barrel of oil."

MEG recorded production of 83,127 bpd in the second quarter of 2016. Production levels included the impact of a planned turnaround at the company's Christina Lake facilities which continued from the first quarter into April. Volumes in the second quarter of 2016 were 16% higher than production in the second quarter of 2015.

Related net operating costs for the second quarter were a record low $7.43 per barrel compared to $9.43 per barrel in the second quarter of 2015. Non-energy operating costs (which exclude natural gas consumption) were $5.81 per barrel, a 17% improvement from the same period in 2015. The significant decrease in net operating costs reflects the ongoing efficiency gains from the application of eMSAGP, which is now being fully deployed across the company's Phase 2 operations. Net operating costs also benefited from a decrease in the cost of natural gas used to fuel the company's SAGD facilities.

With strong production volumes and low operating costs over the first half of 2016, MEG expects to meet annual production guidance of 80,000 to 83,000 bpd. While production levels remain on target, in light of the strong operating performance over the first half of 2016, the company has reduced its target non-energy operating costs to $6.00 to $7.00 per barrel from initial projections of $6.75 to $7.75 per barrel.

High production volumes and low operating costs contributed to cash flow from operations of $7 million for the second quarter of 2016, despite the current commodity price environment. Cash flow from operations decreased from $99 million in the second quarter of 2015 primarily due to a lower bitumen price realization, partially offset by an increase in bitumen sales volumes and lower operating costs. The decrease in bitumen realization is directly related to the decline of U.S. crude oil benchmark pricing.

MEG recognized an operating loss of $98 million for the second quarter of 2016, compared to an operating loss of $23 million in the same period of 2015. Comparative results are primarily impacted by the same factors affecting cash flow from operations and a $24 million increase in depletion and depreciation expense from the second quarter of 2015.

At the end of the second quarter, MEG had $153 million of cash and cash equivalents on hand. At current strip prices, MEG anticipates its US$2.5 billion revolving credit facility will remain undrawn at the end of 2016.

Capital investment for the second quarter totaled $20 million, bringing total capital invested year to date to $55 million. As a result of the ongoing efficiency gains achieved through the application of eMSAGP, MEG anticipates it will achieve its sustaining and maintenance, marketing and other initiatives in 2016 with an investment of $140 million. Depending on market conditions, the company now anticipates it could direct up to $30 million towards growth projects later in the year, which will leave the revised capital investment guidance of $170 million unchanged.

"We are continuing to capture efficiencies across the business that are enabling us to reduce our sustaining capital requirements," says McCaffrey. "These incremental improvements allow us the opportunity to refocus a portion of our capital investment toward growth, while still maintaining a very conservative capital investment plan."