MEG Energy Corp. (TSX: MEG) today reported first quarter 2017 operating and financial results. Highlights include:
MEG's first quarter 2017 production was 77,245 bpd, compared to 76,640 bpd for the first quarter of 2016. Production for the first quarter met the forecast provided by the company in its 2016 year end disclosure, and was partially impacted by preparatory work to facilitate the drilling of infill wells and pipeline maintenance at the Christina Lake project. MEG increased production over first quarter 2016 levels primarily due to the continued implementation of eMSAGP, which has improved reservoir efficiency and allowed for redeployment of steam, enabling the company to place additional wells into production. MEG is on track to meet its annual production guidance of 80,000 bpd to 82,000 bpd and targets exit production for 2017 of 86,000 bpd to 89,000 bpd.
"By initiating the expansion of eMSAGP to our Phase 2B assets which represent 75% of our production, we are embarking on a step change for MEG's business," said Bill McCaffrey, President and Chief Executive Officer. "We are very excited that our drilling program is proceeding on time and on budget and when we see production ramp up beginning in the third quarter, the benefits of this technology will become evident. Where we have already implemented it, the eMSAGP process has enabled us to increase production, reduce costs and cut the steam-oil ratio by about 50% to an industry-leading range of 1.0 to 1.25."
MEG anticipates that the company's next project, known as the Phase 2B brownfield expansion, will proceed in 2018, with actual timing to be determined as the company formulates its 2018 capital budget later this year. This expansion will add a further 13,000 barrels per day and can be done concurrently with the implementation of eMSAGP. The company expects the eMSAGP and brownfield expansions to bring production to approximately 113,000 barrels per day and reduce corporate cash costs by $6 to $7 per barrel.
For the first quarter of 2017, non-energy operating costs averaged $5.20 per barrel compared to $6.45 per barrel for the same period in 2016, mainly due to efficiency gains and a continued focus on cost management. Energy operating costs averaged $4.18 per barrel for the first quarter of 2017 compared to $2.90 per barrel for the first quarter of 2016, primarily due to increased natural gas prices.
MEG realized adjusted funds flow of $43 million for the first quarter of 2017 compared to negative adjusted funds flow of $131 million for the same period in 2016. The increase in adjusted funds flow is directly correlated to increased bitumen realization as a result of an increase in average U.S. crude oil benchmark pricing. Adjusted funds flow was also impacted by MEG's bitumen production exceeding sales volumes as the company focused on maximizing future revenues, as well as a transitional one-time $9 million interest expense associated with MEG's debt restructuring incurred to take advantage of a lower early redemption premium on MEG's 2021 notes.
The company recorded a first quarter 2017 operating loss of $79 million compared to an operating loss of $197 million for the same period in 2016. The decrease in operating loss reflects the same factors impacting adjusted funds flow.
Capital Investment and Financial Liquidity
Total cash capital investment during the first quarter of 2017 was $78 million, compared to $35 million for the same period in 2016. Capital investment in 2017 was primarily directed towards the company's eMSAGP production growth initiative at Christina Lake Phase 2B. In the first quarter, the company drilled 14 out of a total of 39 infill wells planned for 2017, with as many as 28 additional SAGD well pairs planned for the remainder of the year. MEG expects to fund the remaining 2017 capital program with a combination of internally generated funds flow and $549 million of cash on hand as of March 31, 2017.
MEG has entered into a series of hedges designed to protect its capital program against downward movements in crude oil prices. MEG's five-year covenant-lite US$1.4 billion credit facility remains undrawn.
A full version of MEG's First Quarter 2017 Report to Shareholders, including unaudited financial statements, is available at www.megenergy.com/investors and at www.sedar.com.
A conference call will be held to review the financial results at 7:30 a.m. Mountain Time (9:30 a.m. Eastern Time) on Thursday, May 11, 2017. The U.S./Canada toll-free conference call number is 1 866-225-0198. The international/local conference call number is 416-340-2218.
MEG Energy Corp. is focused on sustainable in situ oil sands development and production in the southern Athabasca oil sands region of Alberta, Canada. MEG is actively developing enhanced oil recovery projects that utilize SAGD extraction methods. MEG's common shares are listed on the Toronto Stock Exchange under the symbol "MEG."
SOURCE: MEG Energy Corp.
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