Q3 2023 MEG Energy Corp Earnings Call
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Speaker 1: Good morning. My name is Ludi and I'll be your conference operator today. At this time, I would like to welcome everyone to the MEG NRG's 2023 Q3 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Good morning, My name is <unk> and I'll be a conference operator today at this time I would like to welcome everyone to the Meg Energy's 2020, Q3 results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
Speaker 1: If you would like to ask a question during this time, simply press this bar, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press this bar, followed by the number two. Thank you. I would now like to turn the conference over to your speaker today, Mr. Derek Evans, President and CEO of MEG Energy. You may begin your conference.
If you would like to ask a question. During this time keep your practice star followed by the number one on your telephone keypad. If you would like to draw. Your question. Please press the star followed by the number to you. Thank you I would now like to turn the conference over to your Speaker today, Mr. Derek Evans, President and CEO of Meg and I showed you may begin your conference.
Speaker 2: Thank you, Ludi. Good morning, everyone, and thank you for joining us to review MEG Energy's 2023 Q3 operating and financial results.
Thank you Larry Good morning, everyone and thank you for joining us to review Meg Energy 2023, Q3, operating and financial results with me on this call on the call. This morning are Ryan <unk>, Our Chief Financial Officer, Garland Gates, our Chief operating officer, and Laura <unk>, Our general counsel.
Speaker 2: With me on the call this morning are Ryan Kubik, our Chief Financial Officer, Darlene Gates, our Chief Operating Officer, and Lyle Ustefsky, our General Counsel and Corporate Secretary.
And corporate Secretary.
Speaker 2: I'd like to remind our listeners that this call contains forward-looking information. Please refer to the advisories in our disclosure documents filed on CDAR and on our website.
I'd like to remind our listeners that this call contains forward looking information.
Please refer to the advisory is in our disclosure documents filed on SEDAR and on our website.
Speaker 2: I'll keep my remarks brief today and refer listeners to yesterday's press release for more detail.
I'll keep my remarks brief today and refer listeners to yesterday's press release for more detail.
Speaker 2: Our top priority at MAG is our focus on health, safety and the environment that ensures nobody gets hurt, eliminates serious incidents and delivers operational excellence.
Our top priority at <unk> is our focus on health safety and the environment that ensures nobody gets hurt eliminate serious incidents and delivers operational excellence.
Speaker 2: I'm extremely proud of the safety, operating, and financial performance delivered by our team. Their focus on plant reliability, steam utilization, project execution, and ongoing well optimization have all contributed to a strong operational corridor.
I'm extremely proud of the safety operating and financial performance delivered by our team and their focus on plant reliability steam utilization project execution and ongoing well optimization have all contributed to a strong operational quarter.
Speaker 2: Before I turn the call over to Darleen and Ryan to share details of our results, I would like to briefly touch on the business highlight.
Before I turn the call over to Darlene and Ryan to share details of our results I would like to briefly touch on the business highlights.
Speaker 2: MIG's financial performance continues to benefit from strong oil prices, which reflect favorable supply and demand fundamentals for both WTI and WCS heavy oil differentials.
<unk> financial performance continues to benefit from strong oil prices, which reflect favorable supply and demand fundamentals for both <unk> and WCS heavy oil differentials.
Speaker 2: WTI prices averaged $82 a barrel U.S. in the third quarter, supported by increasing global oil demand and coordinated OPEC plus production cuts and supply management.
<unk> prices averaged $82 a barrel U S. In the third quarter supported by increasing global oil demand and coordinated OPEC plus production cuts and supply management.
Speaker 2: The WCS discounted WTI and Edmonton averaged $13 per barrel US during the quarter, driven by effectively zero apportionment on the Nbridge system. Strong US Gulf Coast exports as a result of rising heavy crude capacity in Asia, and tight global heavy crude markets as a result of OPEC plus reducing supply.
The WCS discount tw Ti in Edmonton averaged $13 per barrel U S. During the quarter driven by effectively zero apportionment on the Enbridge system.
<unk> U S Gulf Coast exports as a result of rising heavy crude capacity in Asia and tight global heavy crude markets as a result of OPEC plus reducing supply.
Speaker 2: That WCS differential is a key indicator of pricing for our product and Edmonton, but it's important to remember that we sold 73% of our blend volumes in the third quarter into the US Gulf Coast.
That WCS differential is a key indicator of pricing for our product in Edmonton, but it's important to remember that we sold 73% of our blend volumes in the third quarter into the U S Gulf Coast.
Speaker 2: Heavy oil in that market has been even stronger, allowing us to receive a premium over what is achievable in Edmonton.
Heavy oil and that market has been even stronger, allowing us to receive a premium over what is achievable that had been turned.
Speaker 2: Our market access and market optimization activities in the third quarter generated a weighted average premium of $0.69 per barrel on our realized AWB price over the Edmonton AWB benchmark.
Our market access and market optimization activities in the third quarter generated a weighted average premium of 69 cents per barrel on our realized AWP price over the Edmonton AWP benchmark.
Speaker 2: After deducting diluent transportation costs to get our product to market, our bitumen realization was $84.75 per barrel at our plant gate in Q3.
After deducting diluent transportation cost to get our product to market. Our bitumen realization was $84 75 per barrel at our plant gate in Q3.
Speaker 2: WCS prices have more recently widened, reflecting refinery turnarounds, higher Western Canadian sedimentary basin production, seasonal heavy oil blending requirements, as well as perceived concerns about Alberta storage capacity and TMX timing.
WCS prices have more recently widened reflecting refinery turnarounds higher western Canadian sedimentary basin production seasonal heavy oil blending requirements as well as perceived concerns about Alberta storage capacity and TM ex timing.
Speaker 2: TMX pipeline to Kansas West Coast is on track for start-up late in the first quarter. Line fill of 4.5 million barrels should positively impact the WCS differentials in Q1 2024. With 20,000 barrels per day of committed capacity on TMX, Meg will have over 80% of its production with access to tidewater.
<unk> pipeline to canvas West coast is on track for start up late in the first quarter line fill a $4 5 million barrels should positively impact the WCS differentials in Q1 2024 with 20000 barrels per day of committed capacity on <unk> X Meg will have over 80%.
Sent up its production with access to Tidewater.
Speaker 2: Near-term fundamentals remain strong as we head into 2024. The industry will also be positioned with excess takeaway capacity for the first time in many years, and that should narrow and reduce the volatility of WCS heavy oil differentials.
Near term fundamentals remained strong as we head into 2020 for the industry. We will also be positioned with excess takeaway capacity for the first time in many years and that should narrow and reduce the volatility of WCS heavy oil differentials.
Speaker 2: We anticipate the current Y WCS differentials will narrow slightly as we head into the end of the year and we'll remain elevated until TMX moves into operation at the end of Q1.
We anticipate the current wide WCS differentials will narrow slightly as we head into the end of the year and will remain elevated until <unk> moves into operation at the end of Q1.
Speaker 2: Q2 and Q3 or Q2 and Q3 2024 differentials should look similar to 2023 with Q4 2024 only marginally higher than Q2 and Q3.
Q2, and Q3 or Q2, and Q3 2020 for differentials should look similar to 2023 with Q4 2024, only marginally higher than Q2 and Q3.
Speaker 2: Our financial results reflect strong operating performance and enable our commitment to debt reduction and share buybacks. Since April 2022, we've repurchased $853 million U.S. of senior notes and $668 million, or about 33 million shares, at a weighted average price of $20.16 per share.
Our financial results reflect strong operating performance and enable our commitment to debt reduction and share buybacks. Since April 2022, we've repurchased 853 million U S senior notes and $668 million or about 33 million shares at a weighted average price of $20.
<unk> 16 cents per share.
Speaker 2: Go share by Vax, represent approximately 10% of our 2021 outstanding share count.
Those share buybacks represents approximately 10% of our 2021 outstanding share count.
Speaker 2: Free cash flow remains allocated at 50% to debt reduction and 50% to share buybacks, but that will ramp up to 100% shareholder returns next year when we reach our 600 million US net debt target.
Free cash flow remains allocated at 50% to debt reduction and 50% to share buybacks, but that will ramp up to a 100% shareholder returns next year. When we reach our 600 million U S net debt target.
Speaker 2: Corporation published its first, or excuse me, its third ESB report in September 2023, which discusses its foundational commitments of business model resilience and governance and the corporation's priorities ESG topics. Health and safety, climate change and greenhouse gas emissions, water management, energy security, energy affordability and indigenous relations.
Corporation published its first or excuse me its third ESG report in September 2023, which discusses its foundational commitments of business model resilience and governance and.
And the corporation's priorities ESG topics health and safety climate change and greenhouse gas emissions water management energy security energy affordability and indigenous relations.
Speaker 2: I will now ask Darlene Gates, our COO, to speak to our operating results and ask Ryan Kubik, our CFO , to talk to our financial results. Before I open the call to questions, I'll provide an update on the Pathways Alliance efforts this quarter. Darlene, over to you.
I will now ask Darling gates, our COO to speak to our operating results and as Ryan cubic our CFO to talk through our financial results before I open the call to questions I'll provide an update on the pathways Alliance.
Efforts this quarter.
<unk> over to you.
Thank you Derek and good morning, everyone.
Speaker 3: In the third quarter, as Derek mentioned, we delivered strong safety, health and environmental performance with no lost time injuries and no recordable spills.
The third quarter as Derek mentioned, we delivered strong safety health and environmental performance with no lost time injuries and no recordable spills.
Speaker 3: Production of about 104,000 barrels per day in the third quarter was delivered at a top tier steam to oil ratio of 2.28. Reflecting the successful completion of our short cycle in-fill and redevelopment programs, and a continued emphasis on steam allocation to the highest quality reaches.
Production of about 104000 barrels per day in the third quarter with delivered at a top tier steam to oil ratio of two <unk>, reflecting the successful completion of our short cycle infill and redevelopment programs and a continued emphasis on steam allocation to the highest quality resource.
Speaker 3: When compared to the same quarter last year, this represents a 2% production increase and a 5% reduction in steam to oil reach.
When compared to the same quarter last year. This represents a 2% production increase and a 5% reduction in steam to oil ratio.
Speaker 3: These results were achieved while successfully completing our planned facility and field infrastructure projects, which will enable us to distribute a high pressure steam to future wells.
These results were achieved while successfully completing our planned facility and sales infrastructure projects, which will enable us to distribute our high pressure steam to future well pads.
Speaker 3: Operating expenses net a power revenue averaged $5.11 per barrel in the third quarter, primarily reflecting higher production rates, plan maintenance activities, and inflationary pressures on services, chemicals, and staff.
Operating expenses net of power revenue averaged $5.11 per barrel in the third quarter, primarily reflecting higher production rate planned maintenance activities and inflationary pressures on surfaces chemicals and staff costs.
Speaker 3: Power revenue exceeded energy operating costs in the quarter, generating a $0.04 per barrel net recovery, which continues to demonstrate the value of our cogeneration facility.
Power revenue exceeded energy operating costs in the quarter generating a four cent per barrel net recovery, which continues to demonstrate the value of our cogeneration facilities.
Speaker 3: As we head into the fourth quarter, lower facility and maintenance activity levels and increase production rates are projected to drive our non-energy operating expenses back within our full year guidance.
As we head into the fourth quarter lower facility and maintenance activity levels and increased production rates are projected to drive our non energy operating expenses back within our full year guidance.
Speaker 3: Our outlook for second half production continues to be approximately 105,000 barrels per day and half of exiting the year near our 110,000 barrel per day facility capacity.
Our outlook for second half production continues to be approximately 105000 barrels per day and have us exiting the year near our 110000 barrel per day facility capacity and.
Speaker 3: In October , we also achieved first production from our newest well pad, which will continue to ramp up throughout the fourth quarter.
In October we also achieved first production from our newest well pad, which will continue to ramp up throughout the fourth quarter.
Speaker 3: I'd like to take this opportunity to thank our teams for this quarter's operational performance and confident they have positioned MAG for a strong finish to the year. With that, I'll turn it over to Ryan to provide the Q3 financial update. Ryan?
I'd like to take this opportunity to thank our teams for this quarter's operational performance and confident they have positioned make for a strong finish to the year with that I'll turn it over to Ryan to provide our Q3 financial update Brian.
Thanks Sterling.
Speaker 2: Meg generated adjusted funds flow of $492 million in the third quarter of 2023, bringing our year-to-date total to just over $1 billion.
Meg generated adjusted funds flow of $492 million in the third quarter of 2023, bringing our year to date total to just over $1 billion.
Speaker 2: Q3 cash operating net back was $58.64 per barrel, reflecting strong oil prices, lower diluent costs, and the first full quarter of higher post-payout Crown royalties.
Q3 cash operating netback was $58 64 per barrel, reflecting strong oil prices lower diluent costs and the first full quarter of higher postpaid crown royalties.
Speaker 2: After funding $83 million of capital expenditures, we generated $409 million of free cash flow in the quarter, which was used for $68 million U.S. of debt reduction and to repurchase $58 million or 2.3 million shares at an average price of $25.40 per share.
After funding $83 million of capital expenditures, we generated $409 million of free cash flow in the quarter.
Which was used for $68 million U S of debt reduction and to repurchase $58 million or $2 3 million shares at an average price of $25 and <unk> 40 per share.
Speaker 2: In the first nine months of the year, Meg generated $699 million dollars to pre-cash.
In the first nine months of the year make generated $699 million of free cash flow.
Speaker 2: That free cash flow allowed us to purchase $227 million, or 10.3 million mag shares, at an average price of $22.07 per share.
That free cash flow allowed us to purchase $227 million or $10 3 million <unk> shares at an average price of $22 <unk> per share.
Speaker 2: In addition, we reduced debt by a further U.S. $194 million.
In addition, we reduced debt by a further U S $194 million.
Speaker 2: At September 30th, our net debt declined to $885 million US. And at current oil prices, we forecast reaching our US 600 million net debt target around mid-next year.
At September 30, our net debt declined to $885 million U S and at current oil prices, we forecast, reaching our U S $600 million net debt target around mid next year.
Speaker 2: As we head into the last quarter of the year, we expect to achieve the low end of our 100 to 105,000 per barrel, the 1000 barrel per day production guide.
As we head into the last quarter of the year, we expect to achieve the low end of our 100 to 105000 per barrel.
1000 barrel per day production guidance.
Speaker 2: Under that production forecast, non-energy operating costs are trending to the top end of our $4.75 to $5.05 per barrel guidance range, and G&A will also trend to the top end of our $1.70 to $1.90 per barrel range.
Under that production forecast non energy operating costs are trending to the top end of our $4 75 to 505 per barrel guidance range and G&A will also trend to the top end of our $1 70 to $1 90 per barrel range.
Speaker 2: With continuing strong production in oil prices, MAG is well positioned to execute its strategy as we head into 2024. Guidance for 2024 is scheduled for release on November 27th. Thanks.
With continuing strong production and oil prices make us well positioned to execute its strategy as we head into 2024.
Guidance for 2024 is scheduled for release on November 27.
Thanks, and with that I'll hand, it back to Derek.
Speaker 2: Thanks Ryan. I'd now like to share a brief update on Pathways Alliance. Megalong with its Pathway Alliance. Fears continue progressing pre-work on the proposed foundational carbon capture and storage project. Luthor transport CO2 via pipeline from multiple oil stands facilities to be stored safely and permanently in the cold lake region of Alberta.
Thanks, Brian I'd now like to share a brief update on pathways Alliance Meg along with its pathway Alliance peers continue progressing pre work on that proposed foundational carbon capture and storage project will transport cotwo by a pipeline for multiple oil sands facilities to be stored safely and permanently in the cold Lake region.
And out of Alberta.
Speaker 2: Significant engineering, force-based evaluation and environmental field work is enabling more detailed discussions with Indigenous groups, landowners and local communities about the proposed project.
Significant engineering force based evaluation and environmental field work is enabling more detailed discussions with indigenous groups landowners and local communities about the proposed project. Following early engagement over the last two years formal consultation with 25 indigenous groups, along the proposed <unk> transportation and storage.
Speaker 2: Following early engagement over the last two years, formal consultation with 25 indigenous groups along the proposed CO2 transportation and storage network corridor is underway.
Network corridor is underway, we remain encouraged by the work in collaboration with both the federal and Alberta governments to get the necessary agreements in place to advance this ambitious and important project.
Speaker 2: Remain encouraged by the work and collaboration with both the federal and Alberta governments to get the necessary agreements in place to advance this ambitious and important project.
Speaker 2: I'd be remiss if I did not remember and acknowledge with great sadness Ian Bruce, Meg's chair, who passed away tragically at his cottage in Ontario in October .
I'd be remiss, if I did not remember an acknowledged with great sadness, Ian Bruce makes chair, who passed away tragically at as Cartage and Ontario in October <unk>.
Speaker 2: Ian was passionate about our industry and brought a wealth of experience and wisdom to make. It was a tremendous sumoerter of Meg in our management team and will be greatly missed by all of us at Meg and all who knew him.
<unk> passionate about our industry and brought a wealth of experience and wisdom to make it was a tremendous smarter of Meg and our management team and will be greatly missed by all of us at Meg and all who knew him.
Speaker 2: On behalf of our Board of Directors, management team and employees, I extend our deepest sympathies to Ian's wife, Darleen, his family and many friends.
On behalf of our board of Directors management team and employees extend our deepest sympathies to he and his wife Darlene his family and many friends.
Speaker 2: As I bring my remarks to a close, I once again want to extend my thanks to our team for their commitment and perseverance, proud of what we have been able to accomplish, and confident in our future and our commitment to sustainable, innovative, and responsible energy development.
As I bring my remarks to a close I once again want to extend my thanks to our team for their commitment and perseverance proud with what.
What we have been able to accomplish and confident in our future and our commitment to sustainable innovative and responsible energy development.
Speaker 2: On behalf of MEG's board of directors and our management teams, I want to thank you for your continued support. With that, I'll turn the call back over to Ludi to begin the Q&A.
On behalf of <unk> Board of directors, and our management teams and I want to thank you for your continued support with that I'll turn the call back over to Lee to begin the Q&A.
Speaker 1: Thank you. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, you may press the star followed by the number two. And if you're using a speakerphone, please keep the handset before pressing any keys. One moment, please, for your first question.
Thank you and ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your telephone keypad, you will hear it Haytham frump acknowledging your request and your question will be Paul any order received video Mr declines on your calling process you May press the star.
<unk> followed by the number two and if you are using a speaker phone. Please keep the handset before pressing any keys one moment. Please for your first question.
Speaker 1: Your first question comes from the line up, Dennis Fall from CIVC World Market, your line is up.
Your first question comes from the line of Dennis Fong from CIBC World markets. Your line is open.
Speaker 4: Hi, good morning, and thanks for taking my questions. The first one's just around capital structure. You've obviously been very focused around repurchasing the 2027 notes. Just wondering, and especially focusing also on the 600 million U.S. net debt floor here, how are you thinking about your exposure to term notes and kind of longer term debt? I know that.
Hi, good morning, and thanks for taking my questions. The first one just around capital structure, you've obviously been very focused around repurchasing. The 2027 notes just wondering.
Especially focusing also on the $600 million U S. Net debt floor here. How are you thinking about your exposure to term notes and kind of longer term debt.
Speaker 4: The next kind of tranche after the 2027s is quite far up.
I know.
The next kind of tranche accidents in 2017 is quite far out.
Speaker 5: Yeah Dennis, thanks. I'm gonna ask Ryan to talk to that.
Yes, Dennis Thanks, I'm going to ask Ryan to.
Talk to that.
Speaker 2: Hey, Dennis. You know, you should think that we're just gonna continue buying back those 2027 notes. Take that to zero. At that point in time, we do have the 2029 dealt standing US 600 million. That's our debt target. Those are added an attractive rate relative to where we could finance today. So we're gonna keep those outstanding. And you know, that'll provide a significant liquidity obviously going forward without any near-term maturity.
Hey, guys.
You know you should think that we're just going to continue buying back those 2027 notes take that to zero at that point in time, we do have the 2020 Nine's outstanding U S 600 million Thats our debt target.
Those are at an attractive rate relative to where we could finance today. So we're going to keep those outstanding and.
That will provide us significant liquidity, obviously going forward without any near term maturities.
Okay.
Speaker 4: Great, thanks. And then my follow up here is just around, I guess, inventory and fail levels. You guys built up inventory through the quarter. I customized it to some degree around what was potentially an anticipation around line fill for.
Great. Thanks, and then my follow up here is just around.
I guess inventory and sales levels.
You guys built up inventory through the quarter.
It's to some degree around.
Or what was potentially an anticipation around line fill for <unk>.
Speaker 4: TMX, can you speak to that a little bit and just kind of some of your plans with the relatively elevated inventory levels that you currently have that may or may not be a name it at hearted and maybe in other locations like
Can you speak to that a little bit and just kind of some of your plans with the relatively elevated inventory levels that you currently have.
May or may not be needed at hardie.
Hardesty and maybe other locations like closer to the coast.
Speaker 2: Yeah, I mean, we did. The inventory will move around, Dennis, and we did have a couple hundred million build and working capital. At the end of September , I guess, versus the end of June . That was due to a couple of things. We did see oil prices rally, so receivables rallied into the end of the quarter.
Yes, I mean, we did the inventory will move around Dennis and we did have a couple of hundred million build in working capital at the end of September I guess versus the end of June that was due to a couple of things. We did see oil prices rally so receivables rallied into the end of the quarter on the inventory side you can see.
Speaker 2: On the inventory side, you can see movements around.
Movements around <unk>.
Speaker 2: various factors whether we're building a cargo for example that might ship off the coast.
Various factors, whether we're building our cargo for example that might ship off the coast, which was the case at the end of September whether we're buying non proprietary volumes to manage our pipeline space in and.
Speaker 2: which was the case at the end of September , whether we're buying non-proprietary volumes to manage our pipeline space and, you know, add some optimization activities through our
Add some optimization activities through our.
Speaker 2: marketing activities, etc. So you will see
Marketing activities et cetera, So you will see a move.
Speaker 2: movements up and down in that inventory level. With respect to TMX, we're expecting we'll be holding about 160,000 barrels a day, or 160,000 barrels.
<unk> up and down in that inventory level with respect to <unk>, we're expecting we'll be holding about 160000 barrels a day or 160000 barrels.
Speaker 2: of line fill, that will be long-term. It will be classified as long-term assets, I guess, in our financial statements and won't be classified as inventory for working capital.
Line fill that will be long term it'll be classified as long term assets I guess in our financial statements.
It wont be classified as inventory for working capital.
Speaker 4: Right. Thanks. And then if you may permit me one last question here. I understand that you obviously have a lot of experience with respect to marketing some of your production, not just within North America, but even potentially globally. How do you view that as being a potential advantage when TMX eventually comes online in terms of finding buyers for your crude? And obviously, I guess, a different needs of access.
Great. Thanks, and then if you made from it and one last question here.
I understand that you obviously have a lot of experience with respect to marketing some of your production.
Within North America, but even potentially globally, how do you view that as being a potential match.
H.
When <unk> eventually comes online in terms of finding.
Buyers for your crude in obviously.
Yes.
Means of accessing that market. Thanks.
Speaker 5: Yeah, Dennis, it's Derek. I'll take that one. A big part of our marketing strategy is to ensure that we don't move all of our crude into the US Gulf Coast and overwhelm that market and create a bigger differential. Just instead of moving that, instead of having a differential, egress related differential and Edmonton, we've now gotten over supply in the US Gulf Coast. So we've spent a fair amount of time working to develop Asian markets, both in India and in China. I think we have a very good idea of people that like the quality of crude that we have. And this was a big driver behind our tankage and dockspace in the US Gulf Coast.
Yes, Dennis it's Derrick I'll take that one.
A big part of our marketing strategy is to ensure that we don't move all of our crude into the U S Gulf coast, and overwhelm that market and create a bigger differential just instead of moving that instead of having a differential egress related differential in Edmonton.
<unk> got an oversupply in the U S. Gulf Coast. So we spend a fair amount of time working to develop Asian markets, both in India and in China.
Think we have a very good idea of people that like the quality of crude that we have and this was a big driver behind.
Our tankage and dock space in the U S Gulf Coast.
Speaker 5: You know, as we move to Burnaby,
As we move to.
At to Burnaby.
Speaker 5: At this juncture, we think Burnaby's got basically two markets, the West Coast of the United States, that California market.
At this juncture, we think barnaby's got basically two two markets.
The west coast of the United States at California market.
And.
Fundamentally China.
We don't think transportation rates are going to our net backs are going to be sufficient to access.
Speaker 5: access India, but our understanding of those markets, our understanding of buyers in those markets are, you know, our historic ability to have shipped them samples of our product so that they can determine whether they would want to get in a queue to buy some of that is all, you know, very, very important not only to finding a market, but helping us be less reliant on US golf course.
India, but.
Our understanding of those markets are understanding of buyers in those markets are.
Our historic ability to have shipped them samples of our product so that they.
They can determine whether they would want to get in Q2.
To buy some of that is all.
Speaker 5: you know, very, very important, not only to finding a market, but.
Very very important not only to finding a market back.
Speaker 4: helping us be less reliant on U.S. Gulf Coast refinery operators to give us a fair price for our product.
Helping us be less reliant on U S. Gulf coast operators, a refinery operators to give us a fair price for our product.
Great I appreciate that color and context I'll turn it back thanks.
Thanks Dennis.
Speaker 1: Your next question comes from the line of Greg Bardy from RBC Capital Marcus. Please proceed with your question.
Your next question comes from the line of Greg Pardy from RBC capital markets. Please proceed with your question.
Speaker 6: Yeah. Hey, thanks. Good morning. Thanks for the rundown guys. Derek, I want to, wanted to come back to, uh,
Yeah, Hey, thanks. Good morning, Thanks for the rundown guys Derek I wanted to I wanted to come back to.
Speaker 6: pathways so let's just say in a hypothetical world that the incentives are you know inclusive of operating costs like you've got pathways has got adequate incentives in place let's just say by the end of this year and the trunk lines in place for 2029
The pathway, so, let's just say in a hypothetical world.
That the incentives are inclusive of operating cost like you've got pathways got adequate incentives in place, let's just say by the end of this year and the trunk lines in place for 2029.
Speaker 6: What's the plan then for Meg? I'm just trying to think in broad strokes. What are the series of steps that you're going to take in terms of decarbonization?
What is what's the plan then for Meg I'm, just trying to think in broad strokes what are the series of steps.
You are going to take in terms of decarbonization.
Speaker 5: Great question, Greg, and a little more forward looking, I guess I appreciate this because we're not going to talk about when the pipeline is going to be in, let's just assume that all of that has taken place. What that means for MEG is in 2026, 2027, 2028, and 2029, in those four years, we would probably spend somewhere in the neighborhood of a net.
Okay.
Great question Greg.
Little more forward looking.
I guess I appreciate this because we're not going to talk about when the pipeline is going to be and let's just assume that all of that has taken place.
What that means for Meg is in 2026, 2027, 2028 and 2029 in those four years, we would probably spend somewhere in the neighborhood of <unk>.
Speaker 5: $50 to $75 million of capital building our first carbon capture facility at site. So that would be the facility that would capture a net capture of...
Our net.
$50 million to $75 million of capital building, our first carbon capture facility.
At at site, so that would be.
The facility that would capture a net capture of somewhere between <unk> 63, and <unk> 73.
Speaker 5: somewhere between 0.63 and 0.73 megatons a year of carbon.
<unk> tons, a year of carbon so what once we got the they started the fiscal certainty and the regulatory uncertainty, which would be associated with having that pipe in place and up and running by 2029.
Speaker 5: Once we've got the sort of the fiscal certainty and the regulatory certainty, which would be associated with having the pipe in place and up and running by 2029, we will then start to
We will then start to.
Speaker 5: push forward past our feed type of work to an FID decision, which have capital being spent in that timeframe of 2026 to 2029.
Push forward past our feet.
Of work to an FID decision.
<unk> capital being spent in that timeframe of 2026 to 2029.
Speaker 6: Thanks, because I was going to ask you about the capital, so that's super helpful. And then maybe kind of related, because it sounds like you'll be doing probably going with post-combustion capture. Where does where does AMVAPEX fit into everything, or is that something that might be several years away?
Okay. Thanks, because I was going to ask about the capital Thats Super helpful.
And then maybe kind of related because it sounds like you'll be doing probably going with post combustion.
Capture where does where does <unk> fit into everything or is that something that might be several years away.
Speaker 5: I think EMVAPEX, so just for other people on the call, EMVAPEX is a solvent process that was developed at MEG and helps us reduce our steam-oil ratio significantly. It replaces steam with solvent effectively. So very important if you're trying to reduce not only your steam-oil ratio, but also to keep down the amount of carbon that you have to capture.
I think Ian Vaping, So just for other people on the call in apex is a solvent process that was developed at Meg and helps us reduce our steam oil ratio significantly it replaces theme with solvent effectively so.
Very importantly, if you are trying to reduce not only your steam oil ratio, but also to keep down the amount of carbon that you have to capture.
We have spent an extensive amount of time working with <unk>, we think it's a technology.
In a new Greenfield development is something that we would look at very seriously.
Or if we decided to move.
As significant a ways away from our central processing facility and we were going to create a brownfield facility that was connected back to our.
Speaker 5: away from our central processing facility and we were going to create a brownfield facility that was connected back to our, um,
Speaker 5: central processing facility, we would look at it there. But at this point in time, there's a number of commercial aspects that we don't have in place to contemplate that.
Central processing facility, we would look at it there but at this point in time.
There's a number of commercial aspects that we don't have in place to contemplate that the biggest one which would be really the solvent that we would need and a long term agreement and pipeline transportation agreement both for the supply and the transportation of that product and.
Speaker 5: Biggest one, which would be really the solvent that we would need and a long term agreement and pipeline transportation agreement, both for the supply and the transportation of that product. And, you know, just to be very clear, we've thought about those. We've costed those out at this point in time.
Just to be very clear, we thought about those with cost of those out at this point in time the brown.
Speaker 5: Brownfield work that we continue to do inside of the facility is much more economic and significantly lower cost on a dollar per flowing BLE than EMVPEX would be at this point in time. Okay, Tritik.
Brownfield work that we continue to do inside of the facility is much more economic.
And <unk>.
Significantly lower cost on a dollar per flowing Boe than.
<unk> would be at this point in time.
Okay terrific, thanks very much.
Thanks, Greg.
Speaker 7: Your next question comes from the line of Mano Hulsha from TD Securities, your line is open. Thanks and good morning everyone. I'll start with a question on Surmont. Given Conoco's
Your next question comes from the line of Menno <unk> from TD Securities. Your line is open.
Thanks, and good morning, everyone I'll start with a question on <unk> given conoco's relatively recent decision to exercise its role for onto hotels working interest on its surmount project right next door can you just give us a refresh on the status of your server montage at the various <unk>.
Speaker 7: on its Surmont project right next door, can you just give us a refresh on the status of your Surmont asset and
Options or scenario is longer term.
Speaker 5: Good morning, Minnow, and thanks for the question. You know, Surmont is a fabulous asset.
Good morning, Minto and thanks for the question.
Sir Mont.
Yes.
Is a fabulous asset.
Yes.
Speaker 5: I would say it's as good, if not better, than what we are currently developing at Christina Lake. The reason it hasn't been developed is because it's substantially further away. At one point in time, a number of years ago, we had a, we had worked a license for the facility through the Alberta Energy Regulator. We no longer, we let that license go, because as we thought about it, it's going to be
I would say, it's as good if not better than what we are currently developing at Christina Lake. The reason it hasn't been developed is because it's.
Substantially further away at one point in time, a number of years ago, we had a.
We had worked a license for that facility through.
The upper to energy regulator, we no longer we let that license go because as we thought about it it's going to be at least 10 years before we get there with the low hanging fruit that we have at Christina Lake and really I think the the challenge for US is not to go out there.
Speaker 5: at least 10 years before we get there with the low-hanging fruit that we have at Christina Lake.
Speaker 5: And really, I think the challenge for us is not to go out there and build another once-through-steam-generator type of facility. The challenge will be, is this an opportunity for us to put solvents to work, warm solvents to work, and to bring a different exploitation strategy to this reservoir? So, nothing in the...
Air and build another one.
Once through steam generator type of facility that challenge will be.
Is this an opportunity for us to put solvents to work.
Warm solvents to work and to bring a different exploitation strategy.
To this reservoir so.
Nothing in the.
Speaker 5: The medium term is going to be developed and that's primarily because, you know, we still have a massive amount of running room going from, you know, I'd say 110,000 all the way up to 210,000. There's 100,000 barrels of incremental capacity that we can develop at Christina Lake, which has got our full and undivided attention at the current time.
The medium term is going to be developed and thats, primarily because we still have massive amount of running room going from.
Say 110000, all the way up to 210000, there is a 100000 barrels of <unk>.
Incremental capacity that we can develop at Christina Lake.
Which has got our full and undivided attention at the current time.
Speaker 7: Thanks for that, Derek. And then moving on to buybacks, it looks like activity in the quarter was a bit light at $58 million, roughly 14%.
Thanks for that Derek and then moving on to <unk>.
Buybacks it looks like activity in the quarter was.
Was a bit light at $58 million, roughly 14% Q3 free cash flow.
Speaker 7: Why was that? And does it imply an uptick in buyback activity in Q4?
Why was that and does it imply an uptick in buyback activity in Q4 to get you closer to your 50% annual target.
Speaker 2: Hey, Mano. I guess a couple of reasons for that. We already talked about working capital. We did see a build in working capital requirements in the quarter.
Hey man on the major I guess, a couple of reasons for that we already talked about working capital. We did see a build in working capital requirements in the quarter and so that meant we didn't have the cash available to actually buy back the stock when we look at stock versus the debt buybacks the stock market is actually more.
Speaker 2: and so that meant we didn't have the cash available to actually buy back the stock. When we look at stock versus the debt buybacks, the stock market is actually more liquid, I guess, than the debt buyback market, so we're a little bit more opportunistic on the debt side if we see opportunities to buy.
I guess, then the debt buyback market. So we're a little bit more opportunistic on the debt side, if we see opportunities to buy different pieces. Those may be chunkier. So we may buy back a little bit more debt and we we actually buy back stock in the period, but.
Speaker 2: different pieces, those may be chunkier, so we may buy back a little bit more debt than we actually buy back stock in the period.
Speaker 2: Over time, we do expect that we're going to do exactly what we said we would do 50-50 debt shares as we kind of move toward our net debt target. And you can, you know, depending on where all prices go, et cetera, you'll see those working capital requirements potentially reduce and the cash available for both share and debt buybacks in the fourth quarter.
Over time, we do expect that we're going to do exactly what we said we would do 50 50 debt shares as we kind of move towards our net debt target and you can depending on where oil prices go et cetera, Youll see those working capital requirements potentially reduce in and the cash available for both share and debt buybacks in the fourth quarter.
Perfect. Thanks, Ryan ill turn it back.
Thanks Menno.
Speaker 1: Your next question comes from the line at John Royal from JP Morgan. Your line is open.
Your next question comes from the line of John Royall from Jpmorgan. Your line is open.
Hi, good morning, Thanks for taking my question.
Speaker 8: So, you mentioned energy OPEX net of power revenue was actually negative this quarter, and I've noticed that net number has trended down a bit this year from an average of maybe $2 to $3 per barrel over the few years before that. Is there anything structural there with the relationship between energy OPEX and power revenue, or is it maybe just kind of a Goldilocks scenario of the relationship between gas price and power price, and do you expect it to normalize?
So you mentioned energy Opex net of power revenue was actually negative this quarter end.
I've noticed that net number has trended down a bit this year from an average of maybe two to $3 per barrel over the few years before that.
Is there anything structural there with the relationship between energy Opex in power revenue or.
Or is it maybe just kind of a goldilocks scenario of the relationship between gas price and power price.
And do you expect it to normalize.
John It's Derek I'm not sure I.
Speaker 5: which one of the Goldilocks scenarios we should be going as too hot, just right, or too cold, but uh...
Which one of the Goldilocks scenarios, we should be gone against two hot just right or too cold but.
Speaker 5: Uh, the, we, we do have a unique situation on the go. I think we've got very high power prices, um, in the province and very low gas prices.
The we do have a unique situation on the go I think we've got very high power prices in the province, and very low gas prices.
Speaker 5: which has driven that. You know, as we look forward into next year, we see those power prices, or we're forecasting that they're gonna normalize down into that $90 a megawatt. So I think you shouldn't believe that this is a trend that is going to continue. We're very pleased with what we've been able to achieve or receive, I guess, in terms of that combination over the last couple of quarters. But...
Which has driven that and as we look forward into next year. We see those power prices are we're forecasting that theyre going to normalize down into that $90 a megawatt so I think.
You Shouldnt believe that this is a trend that is going to continue.
We're very pleased with what we've been able to achieve.
GE power receive I guess in terms of that that combination over the last couple of quarters, but.
Speaker 5: It will, I think, revert to historic norms as we drive forward here.
It will.
I think revert to historic norms as we go forward here.
Speaker 8: Got it. Makes sense. And then I know you'll come out with a formal budget later this month, but just thinking about next year's CapEx and am I thinking about it correctly, at least directionally, if I think about higher than 2023 levels of the ramp in the second half after you achieve your net debt floor and start to invest in the next phase of growth? Is that kind of directionally the right way to be thinking about it?
Got it it makes sense and then I know.
So youll come out with.
With a formal budget later this month, but just thinking about next year's Capex.
And my thinking about it correctly at least Directionally. If you think about higher than 2023 levels of the ramp in the second half. After you achieve your net debt four and start to invest in the next phase of growth is that kind of directionally, the right way to be thinking about it.
Speaker 5: Directionally, I would tweak it a little bit and say you should be thinking about it as this year was sustaining capital. As we talked to you and others about what our growth project would be, taking it from $110,000 to $125,000, we think that's somewhere in the neighbourhood of $300 million and you should expect that a third of that notionally would get allocated in the first year.
I think directionally I would tweak it a little bit and say you should be thinking about it as this year with sustaining capital and.
As we've talked to you and others about what are sort of our growth project would be taking it from 110 to 125000, we think that somewhere in the neighborhood of $300 million and you should expect that a third of that Notionally would get allocated in.
In the first year.
Speaker 8: Got it. And just to be clear, that would be after you achieve the net that for so probably more second half loaded. No, I think.
Got it and just to be clear that would be after you've achieved in at that four so probably more second half loaded.
No I think.
And this all depend.
Speaker 5: depended upon where our board lands on this, so it's subject to their approval. We haven't gotten this across the line with them yet, but I think we are comfortable enough that we are going to achieve that $600 million debt target, so we would be planning on.
It depended upon where our board lands on this but.
It's subject to their approval we haven't gotten.
This across the line with them, yet, but I think.
We are comfortable enough that we are going to achieve that 600 million that target. So we would be planning on.
Speaker 5: This would be a full year capital budget which would basically be starting the growth plans or making allowances for and doing the long lead time work on the growth program starting as soon as the budget is approved.
This would be a full year capital budget, which would basically be starting the.
The growth plans are making allowances for and doing the long lead time work on the growth program, starting as soon as budgets fruit.
Understood. Thank you.
Thank you.
Speaker 1: And once again, if you would like to ask a question, simply press a spar followed by the number one on your telephone keypad.
Yes.
And once again, if you'd like to ask a question simply press star followed by the number one on your telephone keypad.
Speaker 1: Your next question comes from the line of Neil Meta from Goldman Fax, your line is up.
Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is open.
Speaker 9: Hi, good morning. Thanks so much for taking the time. This is Nicolette Slusser on for Neil Meta. So, just the first question here would be on pricing dynamics. Curious, any thoughts in terms of what you're seeing in the Gulf Coast and then also more broadly, as we think in 2024, any outlook that you can comment on for the WCS differential?
Hi, good morning. Thanks, so much for taking the time this is Nicolas closer one for Neil Mehta.
So just my first question here would be on pricing dynamic I'm curious any thoughts in terms of what you're seeing in the Gulf Coast and then also more broadly as we think into 2024.
Outlook that you can comment on Florida.
The differential would be helpful.
Speaker 5: Um, yes, good morning. And, uh, you know, I think that one thing that we would say about the WCS differential is
Yes, good morning and.
I think.
One thing that we would say about the WCS differential is.
Speaker 5: For some reason, people aren't factoring in the 4.5 million barrels a day of line fill that TMX is going to need.
For some reason people aren't factoring in the $4 5 million barrels a day of line fill that <unk> is going to need. So if you think if you go and you look at the differential of the day and you say part of the reason that the differential has expanded air blowing out is because of increased production or increased diluent and you think that's <unk>.
Speaker 5: So if you think, if you go and you look at the differential today and you see a part of the reason that the differential has expanded or blown out is because of increased production or increased diluent, and you think that that's somewhere in the neighborhood of 100,000 barrels a day of incremental.
We're in the neighborhood of 100000 barrels.
They are incremental.
Speaker 5: capacity, what we're talking about in terms of line fill is taking half of that away.
Capacity, what we're talking about in terms of line fill is taking half of that away $4 5 million barrels over the first quarter is about 50000 barrels a day.
Speaker 5: Four and a half million barrels over the first quarter is about 50,000 barrels a day.
Speaker 5: I think my own personal opinion is the Q1 2024 differential is too high, it's not factoring in that TMX line fill. And I think there's also some...
So.
I think my own personal opinion is the.
Q1, 2024 differential is too high it's not factoring in that <unk> line fill.
And I think there's also some <unk>.
Speaker 5: concerns about storage, which I don't understand either. I mean, last week's storage in the Western Canadian sedimentary basin was about 26 million barrels or somewhere in sort of a low to medium 30%. We've got lots of room for storage. So I don't think we're going to see a tight storage situation. I think there's going to be effectively less less product moving down.
<unk> about storage.
Which I don't understand it either I mean <unk>.
Last week storage.
And the Western Canadian sedimentary basin was about 26 million barrels or somewhere in that sort of low to medium, 30%, we've got lots of room for storage.
So I don't think we're going to see a tight storage situation I think there is going to be effectively less transfer or less.
Product moving down the line.
Speaker 5: I said in my previous remarks, I provided my predictions as to where I think you're going to see Q2 and Q3 land, and Q3 was under $13 this year and Q2 was in that $15 range. I think that those are quite achievable again next year. I think they'll actually be a little bit high, but if I were modeling, I'd be using those.
I said in my previous remarks, I provided my predictions.
As to where I think youre going to see Q2 and Q3 land.
You know in Q3 was under $13. This year in Q2 was in that $15 range I think that those are quite achievable.
Again next year, I think they'll actually be a little bit high, but if I were modeling I'd be using knows where I think it's going to get very interesting is as you model Q4 of next year, because obviously with an incremental.
Speaker 5: where I think it's going to get very interesting is as you model Q4 of next year because obviously with an incremental...
Speaker 5: TMX volumes, I don't think you're going to see that historic run-up as you've moved into the fourth quarter of the differential. I think it'll stay quite flat through that period. So maybe one or two dollars more, but I think we're out of...
[noise] Tms volumes I don't think youre going to see that historic run up as you've moved into the fourth quarter of.
The differentials I think it will stay quite flat through that period itself, maybe one or $2 more but.
I think we're out of.
Speaker 5: finally out of a period of egress driven, lack of egress driven WCS differentials. And I think we'll have a lot less volatility on that front going forward.
Finally out of a period of egress, driven lack of egress driven.
<unk> differentials.
And I think.
We'll have a lot less volatility on that front going forward.
Speaker 9: Context is incredibly helpful. Thank you so much. And then not to come back to this question again. I know another analyst fast, but just on pathways any.
That context is incredibly helpful. Thank you so much.
Then not to come back to this question again, I know a lot of analysts have asked but just on pathways Annie.
Speaker 9: key updates we should be looking out for towards the end of the year, or anything maybe early next year, we should all be.
Key updates we should be looking out for towards the end of the year or anything maybe early next year, we should all be keeping an eye absolutely.
Speaker 5: Um, you know, where to start on pathways, uh, I think, uh, fundamentally as we drive forward, um, you're going to hopefully hear something at, at some point over the, the next couple of months about, um, how the federal and the provincial government or pathways are continuing to work forward. I think we owe the market an update in that regard. Um, uh, and I, I think you'll
Hi.
Where to start on pathways.
I think.
And fundamentally as we drive forward.
You are going to hopefully hear something at some point over.
The next couple of months about how the federal and the provincial government or pathways that are continuing to work forward I think we owe the market an update in that regard.
And.
I think youll.
Speaker 5: something will be coming in that regard, I hope over the next month or two. I can tell you that we've got a few hundred people working on this project at the moment inside of the companies, continuing to work on the pore space, continue to work on the feed engineering, continuing to try and get the pore space approval through. So I.
Something will be coming in that regard I hope over the next month or two I can tell you that.
We've got a few hundred people working on this project at the moment inside of the company is continuing to work on the poor space continue to work on the feed engineering, continuing to try and get the poor space approval through so.
Speaker 5: I worry sometimes that because, you know, we haven't hit milestones or we're not moving as fast as people think we should be moving, that they think there's nothing going on on this project. I can assure you there is a massive amount of work that is going on in terms of Indigenous consultation, pipeline sizing, looking for appropriate mills that could roll this pipe. So lots and lots of work going on as well as the important work with both the federal and the provincial government trying to arrive at, you know, the appropriate fiscal terms that will make this project economic.
I worry sometimes that because.
We havent hit milestones or we're not moving as fast as people think we should be or moving that they think there is nothing going on on this project I can assure you. There is a massive amount of work that is going on in terms of indigenous consultation pipeline sizing looking for appropriate mills.
It could.
Roll this type.
So lots and lots of work going on as well as.
The important work with both the federal and the provincial government.
Trying to arrive at the appropriate fiscal terms that will make this project economics.
That's great we'll definitely be on the lookout. Thank you so much for taking the time.
Speaker 9: We'll definitely be on the lookout. Thank you so much for taking.
Thank you.
Yeah.
Speaker 1: And there are no further questions at this time. I would like to turn it back to Mr. Derek Evans for closing remarks.
And there are no further questions at this time I would like to turn it back to Mr. Derek Evans for closing remarks.
Speaker 5: Thank you, Luthi, and thank you to everybody that joined us this morning for our Q3 results conference call. We're excited about what we have been able to achieve and look forward to updating you on our 2024 outlook when we release our budget at the end of the November . Have a great day.
Thank you <unk> and thank you to everybody that joined US. This morning for our Q3 results conference call. We're excited about what we have been able to achieve and look forward to updating you on our 2024 outlook when we release our budget at the end of November.
Have a great day and thank you.
Speaker 1: Thank you, presenters and ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect. Have a good day.
Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect good day.