Full Year 2023 MEG Energy Corp Earnings Call
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Good morning, My name is Mark and I'll be conference operator today at this time I'd like to welcome everyone to makes energies Twenty-twenty free Q4 results conference call.
Operator: My name is Mark, and I will... I'd like to welcome everyone to Meg's, for all lines should be in place. So, to ask a question. Thank you, Mark. Good morning, everyone.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question during that time simply press Star then the number one on your telephone keypad, if you'd like to withdraw. Your question you can press star and then the number two and now I'd like to hand, the call over to Mr. Derek.
You May now begin your conference.
Thank you Mark good morning, everyone and thank you for joining us to review Meg Energy's fourth quarter, and annual 2023 operating and financial results.
Unnamed Speaker: And thank you for joining us to review Meg Energy's fourth quarter and annual 2023 operating and financial results. 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. I'd like to remind our listeners that this call contains forward-looking information. Please refer to the cautions in our disclosure documents filed on CDAR Plus and on our website.
With me on the call. This morning are ranked cubic our chief financial Officer, Darlene Gates, our Chief operating officer, and Lyle <unk>, Our general counsel and corporate Secretary.
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 plus and on our website.
Before we get started I'd like to make a few comments regarding the CEO succession announcement, we made yesterday.
Derek W. Evans: Before we get started, I'd like to make a few comments regarding the CEO succession announcement we made yesterday. After almost six years leading MEG, I've decided to step down as president and CEO and from the board on May 1st. Darlene Gates, our Chief Operating Officer, has been appointed by the board as my successor and will be named President and CEO and nominated to join the Board of Directors at MEG's annual general meeting.
After almost six years, leading Meg I've decided to step down as president and CEO and from the board on May 1st.
Darling Gates, our Chief operating officer has been appointed by the board as my successor, and will be named President and CEO and nominated to join the board of directors at <unk> Annual General meeting.
When I joined <unk> in 2018, I set out to deliver shareholder value by strengthening our balance sheet, improving efficiencies and reshaping <unk> long term strategy.
Derek W. Evans: When I joined Meg in 2018, I set out to deliver shareholder value by strengthening our balance sheet, improving efficiencies, and reshaping Meg's long-term strategy. That work is complete, and Meg is now positioned with an enduring foundation for the future. As such, I'm confident this is the appropriate time to step down.
That work is complete and Meg is now positioned with an enduring foundation for the future as such I am confident this is the appropriate time to step down.
Over the past few years I've worked with the board to plan and execute a smooth CEO succession.
Derek W. Evans: Over the past few years, I've worked with the board to plan and execute a smooth CEO succession. Since Darlene joined MEG in 2021, we've worked together on her development as part of that process, and she continues to demonstrate that she's uniquely positioned to lead MEG. Darlene brings many skills to the role, the most important of which is her deep commitment to our people, the environment, and the communities in which we live and work.
Vince Darlene joined Meg in 2021 we've worked together on her development as part of that process and she continues to demonstrate that she is uniquely positioned to lead Meg.
Darlene brings many skills to the role the most important of which is her deep commitment to our people the environment and the communities in which we live and work.
Derek W. Evans: She's also been an exceptional partner to me, driving an intense focus on health and safety and has been instrumental in delivering our operating and financial results and strategy. I have great confidence that Meg will flourish under her leadership, and I'm excited about the company's future as it continues to execute the strategy that we have built together. I joined Meg because we had a world-class resource base and a team that was known for its technological innovation and best-in-class execution. Those qualities remain.
There's also been an exceptional partner to meet driving an intense focus on health and safety and was instrumental in delivering our operating and financial results and strategy.
I have great confidence that Meg will flourish under her leadership and I'm excited about the company's future as it continues to execute the strategy that we have built together.
I joined <unk>, because we had a world class resource base and a team that was known for its technological innovation and best in class execution.
Those qualities remain.
Working the past six years as part of <unk> team has reinforced my belief that fundamentally this is a people business people business, where talented and innovative people can make extraordinary things happen, we want to thank the board and the entire <unk> team for being part of this journey with me I'm extremely.
Derek W. Evans: Working the past six years as part of Meg's team has reinforced my belief that, fundamentally, this is a people business, a people business, where talented and innovative people can make extraordinary things happen. I want to thank the board and the entire Meg team for being part of this journey with me. I'm extremely proud of where Meg is today and how it is poised for the future. Thanks again, and with that said, let's move into a discussion of our fourth quarter and annual 2023 results. Our top priority at MEG is our focus on health, safety, and the environment, which ensures nobody gets hurt, eliminates serious incidents, and delivers operational excellence. Those priorities were clearly reflected in the performance delivered by our team in 2023, which made financial results continue to benefit from a relatively strong WTI oil price, averaging about US $78 per barrel in 2023, that was supported by increasing oil demand and coordinated OPEC plus supply management.
Proud of where <unk> is today and how it is poised for the future.
Thanks, again, and with that said, let's move into a discussion of our fourth quarter and annual 2023 results.
Our top priority at Meg is our focus on health safety and the environment, which ensure nobody gets hurt eliminate serious incidents and delivers operational excellence.
Those priorities were clearly reflected in the performance delivered by our team in 2023.
It makes financial results continued to benefit from a relatively strong WT I oil price, averaging about <unk> $78 per barrel in 2023 that was supported by increasing oil demand and coordinated OPEC plus supply management.
Derek W. Evans: While the Edmonton WCS discount averaged a relatively wide US $22 per barrel during the fourth quarter and US $19 per barrel in 2023, the historic lack of pipeline egress driving those wide differentials is about to change. The TMX pipeline to Canada's west coast continues to progress, with TMX calling for a line fill in April and start-up estimated in the second quarter of this year.
While the Edmonton WCS discount averaged a relatively wide U S $22 per barrel during the fourth quarter and <unk> $19 per barrel in 2023, the historic lack of pipeline egress driving those wide differentials is about to change.
The <unk> pipeline to Canada's West Coast continues to progress with <unk>, calling for line fill in April and startup estimated in the second quarter of this year.
Achieving that long awaited milestone will be a key catalyst to deliver value to make shareholders as the price of all of our barrels will benefit from unconstrained market access.
Derek W. Evans: Achieving that long-awaited milestone will be a key catalyst to deliver value to Meg's shareholders, as the price of all of our barrels will benefit from unconstrained market access. Additionally, over 80% of our production will also have the ability to reach high-value markets in the U.S. Gulf Coast and internationally. Through our diverse market access and marketing optimization activities, Meg was able to deliver a premium of US $2.10 per barrel in 2023 for our production, compared to the AWB index price in Edmonton. Our 2023 results also reflect the company's strong operating performance that has enabled our significant commitment to debt reduction and share buyback. We are on the cusp of reaching our U.S. $600 million long-term net debt target, and that significant milestone will be the end of our multi-year balance sheet rebuild and mark the transition to a company focused on moderate production growth, where 100% of the free cash flow is being returned to shareholders. That strategy capitalizes on the strengths of Meg's high-quality, long-life reserves and will deliver maximum long-term value to our shareholders. Once again, I'm truly proud of the hard work delivered by the Meg team.
Over 80% of our protection, while also had the ability to reach high value markets in the U S Gulf Coast and internationally.
Through our diverse market access and marketing after a night optimization activities make was able to deliver a premium of U S. $2 10 per barrel in 2023 for our production compared to the AWS be index pricing Edmonton.
Our 2023 results also reflect the company's strong operating performance that has enabled our significant commitment to debt reduction and share buybacks. We are on the cusp of reaching our U S 600 million in long term net debt target and that significant milestone will be the end of our mulch.
Your balance sheet rebuild and mark the transition to a company focused on moderate production growth, we're 100% of the free cash flow is being returned to shareholders.
That strategy capitalize on the strengths of Megs high quality long life reserves and will deliver maximum long term value to our shareholders.
Once again.
I'm truly proud of the hard work delivered by the <unk> team.
Darlene M. Gates: With that, I'll now ask Darlene Gates, our Chief Operating Officer, 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 in this last quarter. Darlene, over to you.
With that I'll now ask Darlene gates, our chief operating officer to speak to our operating results and as Ryan <unk>, 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 last quarter Darlene over to you.
Darlene M. Gates: Thank you, Derek, and good morning, everyone. Before I jump into the results, Derek, I'd like to thank you personally for your time, for your leadership, integrity, and your commitment to making MEG the success it is today. You set a great example of what an outstanding CEO and leader should be. On behalf of everyone at Meg, thank you for everything you have done for our people and our business. Know that you have had a significant impact on everyone. Thank you.
Thank you Derek and good morning, everyone.
Before I jump into the results Derek I'd like to thank you personally for your leadership integrity and your commitment to making masks. The success. It is today.
You set a great example, for what an outstanding CEO and leadership.
On behalf of everyone at Mack. Thank you for everything you have done for our people and our business.
Know that you have had a significant impact on every one of us.
Thank you.
I'll now turn our focus over to our operating results.
Darlene M. Gates: I'll now turn our focus over to our operations. Meg continues to be a leader in innovative and responsible energy development, and we delivered another quarter of strong safety, health, and environmental performance with no lost time in it. In 2023, we achieved a 15% reduction in our total recordable incident rate and our lowest annual spill volume in May.
It continues to be a leader in innovative and responsible energy development and we delivered another quarter of strong safety health and environmental performance with no lost time injuries.
In 2023, we achieved a 15% reduction in our total recordable incident rate and our lowest annual spill volume and make history.
Darlene M. Gates: This performance was a result of a continued focus on a strong safety culture and our teams and contractor partners. As part of our commitment to continuous improvement, I'm proud to share that we rolled out a new Operations Excellence Management System. This new system helps us create a workplace where serious incidents are eliminated, improves operational performance, and moves us towards our vision of nobody getting hurt.
This performance was a result of our continued focus on strong safety culture, and our teams and contractor partners.
As part of our commitment to continuous improvement I am proud to share that we've rolled out a new operations excellence management system.
This new system helps us create a workplace where serious incidents are eliminated and proved operational performance and moves us towards our vision of nobody gets hurt.
Darlene M. Gates: In the fourth quarter of 2023, production averaged over 109,000 barrels per day, and we exited the year at 110,000 barrels per day in the month of December. This performance capped off a strong year for Meg, as we delivered a full-year production average of over 101,000 barrels per day, which is a new annual record for us and a 6% increase over 2022. We also achieved a 4% year-over-year reduction in our steam-to-oil ratio, reflecting continued success in steam optimization across our top-tier regions. Fourth Quarter Non-Energy Unit Operating Costs were $4.64 per barrel, driven by low maintenance activity levels and high production. In 2023, our total operating costs net of power revenue will be an industry-leading $5.96 per barrel, which demonstrates the value of our low-cost structure and cogeneration facility.
In the fourth quarter of 2023 production averaged over 109000 barrels per day, and we exited the year at 110000 barrels per day in the month of December.
This performance capped off a strong year for Mac as we delivered a year a full year production average of over a 101000 barrels per day, which is a new annual record for us and a 6% increase over 2022.
We also achieved a 4% year over year reduction in our steam to oil ratio, reflecting continued success and seem optimization across our top tier resource.
Fourth quarter non energy unit operating costs were $4 64 per barrel driven by low maintenance activity levels and high production rates.
In 2023, our total operating costs net of power revenue, we're an industry, leading $5.96 per barrel, which demonstrates the value of our low cost structure and cogeneration facilities.
Darlene M. Gates: In addition, our 2023 capital and development program was also delivered in line with guidance at $449 million. That program included key investments in redevelopment wells, SEG-D well paths, field and facility infrastructure, and a major facility turnaround. As we move into 2024, we've navigated a cold start to the year and kicked off a development program that underpins moderate capacity growth. In the first half of the year, we are increasing drilling activity across ZEG-D paths and executing a short cycle redevelopment and infill program.
In 2020. In addition, our 2023 capital and development program was also delivered in line with guidance at $449 million.
That program included key investments and redevelopment wells.
Well pads field and facility infrastructure and a major facility turnaround.
As we move into 2024, we've navigated a cold start to the year and kicked off a development program that underpins moderate capacity growth.
In the first half of the year, we are increasing drilling activity across safety paths and executing a short cycle redevelopment and infill program.
Ryan M. Kubik: This positions us to bring on two new SEGDPADS in 2024, one late in the first half and another late in the second half. This will support our previously announced production guidance of 102,000 to 108,000 barrels per day. Engineering is also progressing on our multi-year moderate capacity growth projects, and we expect to see activity ramp up through 2024. 2023 was a strong year for Meg, and our continued focus on safety, culture, and operational excellence positions us well to deliver on our 2024 commitment. With that, I will turn it over to Ryan to provide the financial update. Thanks Darlene.
This positions us to bring on two new Sag D pads in 2024, one late in the first half and another late in the second half. This will support our previously announced production guidance of 102 to 108000 barrels per day.
Engineering is also progressing on our multiyear moderate capacity growth projects and we expect to see activity ramp up through 2024.
2023, with a strong year for <unk> and our continued focus on safety culture, and operational excellence positions us well to deliver on our 2024 commitments.
With that I will turn it over to Ryan to provide the financial update Brian.
Thanks Sterling.
Ryan M. Kubik: Meg generated adjusted funds flow of $358 million, or $1.27 per share, in the fourth quarter of 2023, bringing our annual adjusted funds flow to $1.4 billion. After funding $104 million of capital expenditures, we generated $254 million of free cash flow in the fourth quarter, which was used for $128 million of debt reduction and to purchase $219 million, or 8.7 million megshares, at an average price of $25.29 per share. In 2023, Meg generated $953 million of free cash flow, which allowed us to purchase $446 million, or 19 million shares at an average price of $23.54 per share. In addition, we reduced debt by a further US $322 million.
Meg generated adjusted funds flow of $358 million or $1 27 per share in the fourth quarter of 2023, bringing our annual adjusted funds flow to $1 4 billion.
After funding $104 million of capital expenditures, we generated $254 million of free cash flow in the fourth quarter, which was used for 128 million U S of debt reduction and to purchase $219 million or $8 7 million <unk> shares at an average price of two.
$95 in 2009 cents per share.
In 2023 may generated $953 million of free cash flow, which allowed us to purchase $446 million or <unk> 19 million shares at an average price of $23 54 per share.
In addition, we reduced debt by a further USD $322 million.
At December 31, 2023, our net debt declined to <unk> $730 million and under our U S $75 <unk> oil price assumption, we forecast, reaching our U S 600 million net debt target in the third quarter of this year.
Ryan M. Kubik: At December 31, 2023, our net debt declined to U.S. $730 million, and under a U.S. $75 WTI oil price assumption, we forecast reaching our U.S. $600 million net debt target in the third quarter of this year. At that point, we'll raise our return of capital to shareholders up to 100% of free cash. And we're in the process of renewing our normal course issuer bid for another year. The 105,000 barrel per day midpoint of our 2024 production outlook is an increase of about 4% over 2023. And when combined with an estimated share buyback under an US $75 per barrel WTI oil price assumption, Meg is estimated to generate production per share growth of about 12% this year. At the same time, our $550 million capital budget will position the company for future capacity growth over the next several years. Thanks, and with that, I'm going to hand it back to Derek. Thanks, Ryan.
At that point, we'll raise our return of capital to shareholders up to a 100% of free cash flow and we're in the process of Reno renewing our normal course issuer bid for another year.
The 105000 barrel per day midpoint of our 2024 production outlook is an increase of about 4% over 2023, and when combined with an estimated share buyback with estimated share buybacks under our U S $75 per barrel <unk> oil price assumption.
<unk> is estimated to generate production per share growth of about 12% this year.
At the same time, our $550 million capital budget will position the company for future capacity growth over the next several years.
Thanks, and with that I'm going to hand, it back to Derek.
Thanks, Brian I'd now like to share an update on the pathways Alliance.
Derek W. Evans: I'd now like to share an update on the Pathways Alliance. Meg, along with its Pathway Alliance peers, is progressing pre-work on the proposed foundational carbon capture and storage project, which will transport CO2 via pipeline from multiple oil sands facilities to be stored safely and permanently in the Coal Lake region of Alberta. Work continues on the major regulatory applications for the CO2 pipeline network and storage hub, with over 50% of the front-end engineering and design work on the pipeline and over 2,000 hours of environmental field work completed so far, as well as significant community engagement and formal consultation with Indigenous groups along the proposed transportation corridor and storage hub.
<unk> along with its pathway alliance peers is progressing pre work on the proposed foundational carbon capture and storage project, which will transport cotwo via pipeline for multiple oil sands facilities to be stored safely and permanently in the cold Lake region of Alberta work continues on the major regulatory.
<unk> for the <unk> network and storage hub with over 50% of the front end engineering and design work on the pipeline and over 2000 hours of environmental field work completed so far as well as significant community engagement and formal consultation with indigenous groups along the proposed transportation corridor.
<unk> and storage hub.
Derek W. Evans: We continue to work with the federal and provincial governments to secure the necessary fiscal and regulatory framework to advance this project. As I bring my remarks to a close, I once again want to extend my sincere thanks to our team for their commitment and perseverance. I'm proud of what we've been able to accomplish and confident in Meg's future and commitment to sustainable, innovative, and responsible energy development. On behalf of Meg's board of directors and our management team, we want to thank you all for your continued support. With that, I'll turn the call back over to Mark to begin the Q&A. Just as a reminder, if you do wish to ask a question, please dial star 1 to find out whether your question has been answered. Now, the first question. Hi, good morning, and congrats to Derek and Darlene.
We continue to work with the federal and provincial governments to secure the necessary fiscal and regulatory framework to advance this project.
As I bring my remarks to a close I once again want to extend my sincere thanks to our team for their commitment and perseverance I'm proud of what we've been able to accomplish and confident in <unk> future and commitment to sustainable innovative and responsible energy development on behalf of <unk> Board of directors and our man.
Instrument team want to thank you all for your continued support with that.
Turn the call back over to Mark to begin the Q&A.
Just as a reminder, if you do wish to ask a question. Please dial star one on your telephone Keypads now and if you find your question has been answered before so it tends to speak you can dull stall to counsel.
Our first question comes from the line of John Royall at J P. Morgan. Please go ahead you are monocytes.
John Royall: So, my first one is on capital allocation. You're now maybe six months or so away from hitting your net debt target under your guidance. I'm wondering, in terms of getting to that 100% allocation, does a base dividend become something you might look to do early on and then use the buyback as sort of a flywheel? Or might you look to get through this growth investment period first before you think about a dividend? John, thanks for the question. I'm going to ask Brian to take it.
Hi, good morning, and congrats to Derek in Darwin.
So my first one is on capital allocation, you're now maybe six months or so away from hitting it at that for in your guidance.
I'm wondering in terms of getting to that 100% allocation does the base dividend becomes something you might look to do early on.
And then use the buyback as sort of a flywheel or might you look to get through this growth investment period first before you would think about a dividend.
John Thanks for the question I'm going to ask Bryan to take it.
Hey, John.
Ryan M. Kubik: Hey John, a base dividend is under consideration by the board at this time. When we say a base dividend, I would say that we are looking at a relatively small base dividend. We do see it as an addition to our fixed cost structure, and we are cognizant of the capital coming up, etc. We want to make sure that we put a dividend in place that would be sustainable through the cycle and that we can grow with our production as production grows. So that is under consideration. You will see us, however, continue to largely focus on share buybacks as a part of that 100% free cash flow return. And then just looking at your growth investments for this year and next year, I was hoping to dig in a little bit on the skim tank in particular. If you could just go into a little more detail on that,
Based dividend is under consideration by the board at this time, when we say a base dividend I would say that we are looking at a relatively small base dividend, we do see it as a fixed in addition to our fixed cost structure and we are cognizant of the capital coming up et cetera, we want to make sure that we put a dividend in place.
That would be sustainable through the cycle and that we can grow with our production as production grows. So it is under consideration you will see us. However continue to largely focus on share buybacks as a part of that 100% free cash flow return.
Great and then.
Just looking at your your growth investments for this year and next year I was hoping to dig in a little bit on the skim peg in particular.
If you could just go into a little more detail on that.
Darlene M. Gates: And the slides mentioned the benefit of the 2025 turnaround in particular. Is that more of a one-time benefit, or could this reduce the timing of all your turnarounds? Just trying to understand that project a little better. I'll take that one, John.
Slides mentioned the benefit to the 2025 turnaround in particular.
Is that more of a one time benefit or could this reduced timing of all your turnarounds just trying to understand that project a little better.
Sure I'll take that one John Thanks Sterling.
Darlene M. Gates: Thanks, Darlene. The skim tank helps us in a couple different ways. It positions us for future growth strategies with the third processing train, but bringing it in early allows us to start up the plant earlier when you're optimizing a turnaround. I see that also, then as we go forward, we'll have that optionality with the tanks to start up future turnarounds as well. So it'll have a long-term impact. Thank you for it. Yeah, thanks. Good morning.
The skim tank helps us in a couple of different ways. It positions us for the future growth strategy with the third processing train, but bringing it in early allows us really to start up the plant earlier, when you're when you're optimizing the turnaround I see that also then as we go forward, we will have that optionality with the tanks.
To start up future turnarounds as well so it will have a long term impact.
Thank you.
Thank you Alan next question comes from the line of Greg Pardy at RBC. Please go ahead. Your line is open.
Greg Pardy: You know, Derek, it's been great to work with you over the years, so you're definitely going to be missed, and congratulations to Darlene. Really, kind of two very different questions. Maybe the first one is to zero in a little bit on TMX, maybe just because I think I might have missed it in the opening remarks. But assuming that there has been a call for LinePak, and then secondly, to what extent could you comment? Do you think LinePak is going to occur here in, I don't know, April or May? What can you provide us with, color-wise, in terms of how the ramp-up works? I'm Greg. It's Derek.
Thanks, Good morning, Derik, it's been great to work with you over the years, so youre definitely going to be missed and congrats too to darlene.
Really kind of two very different questions. Maybe the first one is to zero in a little bit on.
<unk> maybe just.
I think I might've missed it in the opening remarks, but assuming that there has been a call for line pack and then secondly is to what extent could you comment do you think line pack is going to occur here and I don't know April may whats. Your what can you provide us with color wise in terms of how the ramp up works.
Greg, It's Derek I'm happy to take that one <unk>.
Derek W. Evans: I'm happy to take that one. TMX did issue a call for line fill yesterday. As a matter of fact, they're looking for 2.1 million barrels in April and another 2.1 million barrels in May. So I, you know, we see this as incredibly positive. We can't imagine why you would call for line fill if you didn't, if you weren't comfortable that, you know, obviously the pipeline was going to be up and running in that Q2 type timeframe. So line fill has been called for. I think that's information that's publicly available.
Did issue a call for line fill.
Yesterday as a matter of fact, they are looking for $2 1 million barrels in April and another $2 1 million barrels.
In may so.
We see this is incredibly positive.
Can't imagine why you would call for landfill. If you didn't if you if you werent comfortable that.
Obviously, the pipeline was going to be up and running and that Q2 type time frame. So landfill has been called for I think that information is publicly available so.
Darlene M. Gates: So, and as I said, good news for not only us but really everybody in the heavy oil business, because it will substantially, that incremental egress will substantially reduce that WCS differential. Okay, that is indeed good news. And then, very different, I mean, really a question for Darlene, in terms of priorities, how you see the business running, you know, areas of focus. Like we had a number of inquiries last night from people kind of asking, well, how do we read this? What should we be thinking? And so on.
And as I said, good news for not only.
As you.
You know us, but really everybody in our in the heavy oil business it will substantially.
That incremental egress will substantially reduce <unk> WCS differential.
Okay terrific that is indeed, good news and then very different I mean really question for Darlene in terms of.
Priorities, how you see the business running areas of focus like we had a number of inquiries last night as two people kind of asking how do we read this what should we be thinking and so on so I'm just kind of the floor is yours in terms of whatever you'd like to frame.
Darlene M. Gates: So I'm just kind of the floor is yours in terms of whatever you'd like to frame. Greg, thank you for this question. You know, I would reassure everyone, as you would expect, and you have known Derek as a great leader, he has been working very closely with all of us as an executive team for the last several years, and we have been intimately involved in setting the strategy and the strategic focus for the company and the rollout of the new moderate growth that we have executed for 2024. All of that we have been part of, I've been actively involved, and really, you'll see my fingerprints on all of it.
Greg. Thank you for this question.
You know I would reassure everyone.
As you would expect and you have known Derek is a great leader.
He has been working very closely with all of US as an executive team for the last several years and we have been intimately involved in setting the strategy and the strategic focus for the company and the rollout of the new moderate growth that we executed for 2024 all of that we have been part of I have been actively involved.
And really you'll see my fingerprints over all of it and so as a result of that you will see no change other than continued focus on the story that we've been communicating.
Greg Pardy: And so, as a result of that, you will see no change other than continued focus on the story that we've been communicating. Ryan has been a partner as well as the rest of the executive team, and you will see continued focus on what we've been communicating. So you should be reassured that you already know the game plan. And you know, the executive team already has. We will continue to execute under the leadership and guidance that Derek has instilled in us all. Understandable. Thanks very much.
Ryan has been a partner as well as the rest of the executive team and you will see continued focus on what we've been communicated. So you should be reassured that you already know the game plan.
And you know the executive team already and we will continue to execute under the leadership.
And guidance that Derek has instilled in all of us.
Understood Thanks very much.
Thank you. Our next question comes from the line of Dennis Fong at CIBC. Please go ahead two of monocytes.
Hi, good morning, and thanks for taking my questions first off I'd like to reiterate the sentiments of my my <unk> appears thanks, Derek and congrats to Darling.
Dennis Fong: Hi, good morning, and thanks for taking my questions. First off, I'd like to reiterate the sentiments of my two fellow peers. Thanks, Derek, and congratulations to Darlene.
My first question.
Darlene M. Gates: My first question focuses a little bit on the cost structure going forward. I know in previous conference calls, Derek, you've mentioned some inflationary cost pressures, mostly related to turnaround costs, but also a little bit on, we'll call it, sustaining as well. Darlene, maybe you would wouldn't mind outlining some of the initiatives that you guys are pursuing to help keep those costs in check or even kind of slim those costs, potentially, into the future. Sure, Dennis. You know, again, this really just reinforces the direction that we've been going in, a strategic focus on moderate growth but also operational excellence. And that really fits into the question that you're asking me.
Focus is a little bit around cost structure going forward I know in previous conference calls Derek you've mentioned.
Some inflationary cost pressure is mostly related to turnaround cost, but also a little bit and we'll call it sustaining as well.
Darlene, maybe if you wouldn't mind outlining some of the initiatives that you guys are pursuing to help keep those costs in check or even kind of.
Those costs potentially into this into the future.
Sure. Thanks Seth.
Again, this really just reinforces the direction that we've been going as is our strategic focus on moderate growth, but also operational excellence and that really fits into the question that youre asking about.
Darlene M. Gates: We've got both operating expenses and we've got several initiatives that we've got going, really focusing on our maintenance and reliability programs to drive moving from a reactive to a proactive program. And so we've got several cold ice studies looking at how we can improve our maintenance activities. And then you're very aware that we announced that we didn't have a major turnaround this year.
We've got both on operating expenses, we've got several initiatives that we've got undergoing are really focusing on our maintenance and reliability programs to drive moving from a reactive to a proactive program and so we've got several <unk> studies on looking at how we can improve our maintenance activities and then you're very aware that we have.
Now that we didn't have a major turnaround this year that with an intense focus from our team using risk based analysis of our integrity programs, allowing us to put that into 2025 and spend the time in 2024 to really go after operational improvements on the execution of turnaround so.
Darlene M. Gates: That was an intense focus from our team using risk-based analysis of our integrity programs, allowing us to put that into 2025 and spend the time in 2024 to really go after operational improvements on the execution of a turnaround. So maintenance, as well as the turnarounds. And then I'd also highlight on the capital side of our program; we've got a couple of really exciting developments that are going to be maturing in 2024. A couple areas are our drilling and completions team has been implementing some new technology. They implemented some significant cost reductions in the drilling program, and we're hoping to sustain that into 2024. And our second pad that we will be implementing in 2024 will be rolled out with a new surface pad design. And that will help us take what usually takes us almost two years to do a project like that. With this new surface pad design, we're hoping to drop that down in half.
Maintenance.
As well as the turnaround and then I'd also highlight on the capital side of our program. We've got a couple of really exciting.
Developments that are going to be maturing in 2024.
A couple of areas as our drilling and completions team has been implementing some new technology. They implemented some significant cost reductions in the drilling program and we're hoping to sustain that into 2024.
Our second pad that we will be implementing in 2024, it will be rolled out with a new surface pad design.
And that will help us take what usually from when we started up an investment to putting a pad on production.
US almost two years to do a project like that with this new surface pad design, we're hoping to drop that down in half. So couple opportunities in examples from both an operating side as well as the capital side, some pretty significant work the team is.
Darlene M. Gates: So a couple of opportunities and examples from both an operating side as well as a capital side. Some pretty significant work the team is underway, and we're pretty excited to see how that rolls through both 2024 and then into the future. Great. Appreciate that color and context.
Underway and we're pretty excited to see how that rolls through both 2024, and then into the future operating and capital budgets.
Yes.
Great.
I appreciate that color and context.
Shifting gears, a little bit towards the capital return framework.
Ryan M. Kubik: Shifting gears a little bit towards the capital return framework, I know buybacks have historically been a focus and, from your comments and your answer to the question there, Ryan, seem to continue to be a large focus. I was just curious as to how you guys look at, from a capital allocation perspective, the returns potentially on allocating towards share buybacks versus any of the other possible opportunities that exist within your portfolio set of capital deployment? Thanks, Dennis.
I know buybacks have historically been a focus and from your comments and your answer to the question there Brian seem to continue to be a large focus I was just curious as to.
How do you guys look at.
Our capital allocation perspective, the returns potentially on allocating toward share buybacks versus any of the other possible opportunities that exist within your portfolio set of capital deployment.
Okay.
Thanks, Dennis Yes, I mean, when we look at capital allocation, we obviously look at.
Ryan M. Kubik: Yeah, I mean, when we look at capital allocation, we obviously look at the opportunities within the brownfield projects that we're working on. We've got this third processing train that Darlene and her team are in the process of executing. We are putting in some steam tie-ins into our facilities, and that suggests we see value in some of the brownfield investments to add additional steam. So we are out there analyzing those opportunities as well, and we think they're highly economical. Beyond capital, we will return 100% of free cash flow, obviously, and share buybacks are a great use of those funds as well. When we look at our multiples, where we trade relative to historic levels, where we trade relative to peers, when we look at our free cash flow yield that we're going to be generating here, we see metrics that suggest a value in our own shares. So we'll use some of the funds to buy back that stock and add value to shareholders that way as well. Great, thanks. I'll turn it back on. Hi, good morning.
The opportunities within the brownfield projects that we're working we've got this third processing train that Darlene and team are in the process of executing we are putting in some steam tie ins into our facilities and that suggests we see Val.
Value in some of the brownfield investments to add additional steam. So we are out there analyzing those opportunities as well and we think they are highly economic.
Beyond capital, we will return this 100% of free cash flow, obviously in and share buybacks are a great use of that those funds as well when we look at our multiples, where we trade relative to historic levels, where we trade relative to peers.
When we look at our free cash flow yield that we're going to be generating here, we see metrics that suggest a value in our own shares. So we'll use some of the funds to buy back that stock and add value to shareholders that way as well.
Great. Thanks, I'll turn it back.
Thank you.
Question comes from the line of Neil Mehta at Goldman Sachs. Please go ahead. Your line is open.
Hi, Good morning, this is Nicholas watts or on for Neil Mehta.
Nicolette Slusser: This is Nicolette Slusser on behalf of Neil Mehta. Darlene, congratulations, and Derek, thank you for all the leadership and industry contributions over the years. Our first question would just be around the expected turnaround schedule for 2024. Understand from the deck that all 2024 quarters are expected to exceed 100,000 barrels per day. Can you provide any insight on how this may positively impact pricing realizations over the year without a heavier 2Q turnaround? And then, I know there was some commentary on this from a previous question, but can you provide any details on what is more minor in terms of maintenance this year relative to last? Thank you. I'll start with the turnaround component. What you'll see is we're looking at, you know, every year's turnaround and maintenance sequence. You know, depending on the sequences of your vessels and the activity, our team is going to be doing what I call minor turnarounds. So there'll be shorter sequences throughout the year. So you will see us sit mostly throughout the year around 100,000 barrels a day, higher than we usually do, and really just implementing a smarter program.
Ilene, Congratulations and Derrick. Thank you for all the leadership and industry contributions over the years.
Our first question would just be around the expected turnaround schedule for 2024 understand from the tack that all 2024 quarters are expected to exceed 100000 barrels per day can you provide any insight on how that may positively impact pricing realizations over the year without a heavier <unk> turnaround and then I know there was some commentary on this from <unk>.
<unk> question, but if you can provide any details on what it is were minor in terms of maintenance this year relative to last thank you.
I'll start with the turnaround components.
What Youll see is is we're looking at every year turnaround and maintenance sequence.
Depending on the sequences of your vessels and the activity our team is going to be doing what I call minor turnarounds, so there'll be shorter sequences.
Throughout the year. So you will see us mostly throughout the year around 100000 barrels a day.
Higher than we usually do.
And really just implementing a smarter program and then through the studies work, we will have more information as we go forward of how the turnarounds will be impacted with some of the work that we're doing go forward. Currently we would share that our turnarounds are usually on about a three year cycle and and we have two of those two major turnarounds and then our third.
Darlene M. Gates: And then through the studies work, we'll have more information as we go forward about how the turnarounds will be impacted by some of the work that we're doing. Currently, we would share that our turnarounds are usually on about a three-year cycle. And we have two of those, two major turnarounds. And then in our third year, we'll have what I call minor turnarounds. That's very helpful.
We will have what I call them minor turnarounds.
That's very helpful. Thank you and then again just from the deck here make steam oil ratio appears to be close to about I think 15% below average with Meg closer to about 2.3 can you just walk us through what factors may be contributing to the low relative SLR and any focus is to drive.
Darlene M. Gates: And then again, just from the deck here, Meg's seam oil ratio appears to be close to about, I think, 15% below average, with Meg closer to about 2.3. Can you just walk us through what factors may be contributing to the low relative SOR and any efforts to drive that metric potentially lower over time, though, recognizing that they are already below that? I'll pick that one too.
That metric potentially lower over time, though recognizing you're already below the average.
Yeah, I'll take that one too.
Darlene M. Gates: You know, first, we've got to give a lot of credit to our teams. They've put a lot of focus on understanding our resource base and optimizing the steam in the facility. That's the first part of steam optimization and some of the drills that we've been doing. The second piece really is about the resources.
First we've got to give a lot of credit to our teams they've put a lot of focus on understanding our resource base and are optimizing the steam and the facility. That's the first part is steam optimization and some of the re drills that we have been doing second piece really is about the resource and this is Vic.
Darlene M. Gates: And this is the exciting part of what we're working on. As we look ahead, our winter programs are helping us identify where to place our pumps, and we're seeing really good resources. As we look ahead, higher oil saturations in those pumps, and it allows us to reduce the steam to oil ratio as we look ahead.
Lighting part of what we're working on as we look ahead, our winter programs are helping us identify where to place our pads.
We're seeing really good resources, we look ahead.
Higher oil saturation and those paths and it allows us to reduce the steam to oil ratio as we look ahead.
Darlene M. Gates: For 2024, we'll see the steam-to-oil ratio sit fairly flat to last year with a slight increase, and that's just the timing of the pads and the steaming of the two pads we're starting up. And as we look ahead, the team is targeting a 5-10% reduction in the steam-to-oil ratio as we move forward. And again, that's because of the great resources and opportunities that we have ahead of us. Very clear. Thank you.
For 2024, we will see the steam to oil ratio set fairly flat to last year with a slight increase in not just the timing of the pads and the steaming of the two paths we're starting up.
As we look ahead the team is targeting a 5% to 10% reduction in steam to oil ratio as.
We move forward and again, that's because of the great resource and opportunities that we have ahead of us.
Very clear thank you.
Thank you. Our next question comes from the line of Mineau, how slow hopeful of.
Menno Hulshof: Good morning, everyone, and all the best to Derek and Darlene with the transition. I'll start by digging a bit deeper on the 15,000 barrel per day capacity increase, just looking at the budget of $300 million. $20,000 per daily flow. So the question is, how much of the $300 million total has been locked in? How much contingency do you have in there?
T D. Cohen. Please go ahead your line is open.
Good morning, everyone and all the best to Derek and Darlene with the the transition I'll start by digging a bit deeper on the 15000 barrel per day capacity increase just looking at the budget $300 million.
20000 per daily flowing so that so the question is how much of the $300 million total has been locked in.
Contingency do you have in there and then and then looking at the train itself are there any new efficiency features that set it apart from the the first two trains.
Darlene M. Gates: And then, looking at the train itself, are there any new efficiency features that set it apart from the first two trains? Okay, well, I will take that one as well. So, as I look ahead to this, the third processing train, a team is working very closely right now on the engineering design. So, the $300 million will still be, you know, it's a preliminary number, that estimate that we have. We're in the process right now of doing the detailed engineering, and so we'll get more information as we see how that evolves. We are in the process of working with a Canadian company right now, you know, looking for project execution. And so, when I look at what the team is doing, again, strategic focus on how we execute projects will be an integral part of what we're doing.
Okay.
I will take that one as well so as I look ahead to this.
That third processing train.
Our team is working very closely right now through the engineering designs at the $300 million.
We will still be a preliminary number that estimate that we have we're in the process right now of doing the detailed engineering and so we will get more information as we see how that evolves.
We are in the process of working with a Canadian company right now.
As looking for project execution, and so when I look to what the team again strategic focus on how we execute projects will be an integral part of what we're doing and with that we'll also be bringing in some of the engineering cold eyes on that third processing train. So I expect to see some improvement clearly.
Darlene M. Gates: And with that, we'll also be bringing in some of the engineering cold eyes on that third processing train. So, I expect to see some improvements clearly from the last two, three processing trains technically that we have, but that's still in progress. Okay, thanks for that, Darlene. And then, on the crude marketing side of things, can we get an update on where Meg is currently focused in terms of marketing initiatives, including the build out of export capacity? on the U.S. Gulf Coast.
The last two.
Three processing trains technically that we have and but thats still in progress right now.
Okay. Thanks for that Darlene and then just on the the crude marketing side of things can we get an update on where <unk> is currently focused in terms of marketing initiatives, including the build out of export capacity on.
In the U S Gulf Coast, and I ask that especially because your Gulf coast access should increase pretty significantly with the ramp up of <unk>.
Derek W. Evans: And I ask that especially because your Gulf Coast access should increase pretty significantly with the ramp-up of TMX and falling mainline apportionment. Thank you. So, Menno, it's Derek.
<unk> and falling mainline apportionment. Thank you.
So menno, it's Derek I will take.
Take that question.
Our marketing activities are.
Derek W. Evans: I will take that question. You know, our marketing activities are one of the key value-added aspects of the company. And over the last year, we've been moving about 500,000 barrels a month across the dock on the U.S. coast to Asian markets, and we expect that to continue as we drive forward. And obviously, the key benefit of that is, you know, increasing or increasing the opportunities to pull product away from that North American or U.S. Gulf Coast refinery complex and help tighten up the WCS differential. And that truly is the exciting part about what TMX will do. It'll have the same impact but be larger in terms of pulling, you know, an incremental 500,000 barrels of product away.
One of the key value added aspects of the company.
And over the last year, we've been moving about 500000 barrels a month across the dock and the U S Gulf Coast to Asian markets.
And we expect that to continue as we drive forward now obviously the key benefit of that is.
Increasing.
Our increasing the opportunities to.
Pull product away from that North American or U S Gulf Coast refinery complex and.
Help tighten up the WCS differential and that truly is the exciting part about what <unk> will do it all it will have the same impact but larger in terms of pulling.
An incremental 500000 barrels of product away so.
Derek W. Evans: So, you know, we continue to, you know, diversify our marketing activities. We're happy with the fact that, you know, TMX is coming on and that we'll have 20,000 barrels exiting through Burnaby, and we all have 100,000 barrels in the U.S. Gulf Coast. But that is a fairly significant contribution to the U.S. Gulf Coast.
We continue to.
Diversify our marketing activities, we're happy with the fact that you know.
<unk> is coming on and that will have 20000 barrels exiting through Burnaby.
We have 100000 barrels at.
The U S Gulf coast, but that is a fairly significant contribution in the U S. Gulf U S Gulf Coast. So.
Derek W. Evans: So, you know, our export activities will continue across the dock there and potentially even expand, which should be beneficial not only to Meg but to others that rely on the WCS differential. Appreciate the colors, Eric. I'll turn it back.
Our our export activities will continue across the dock, there and potentially even expand.
Chad should be beneficial not only to Meg, but two others that rely on the WCS differential.
I appreciate the color Eric I'll turn it back.
Thank you just as a reminder, if you do wish to ask a question. Please Darla Star one now. The next question comes from the line of Eric muscle at nine point partners. Please go ahead. Your line is open.
Eric: Good morning, everyone. Derek, congratulations. Darlene as well.
Good morning, everyone.
Eric Congratulations.
Eric: Greg asked my main question. I think investors were just looking for reassurance that the change in leadership didn't signal any strategy shift. But Derek, just on behalf of my clients, I truly want to thank you for an incredible run. If my math is directionally accurate, the stock has almost quadrupled under your leadership. And we remain extremely excited with the prospect of meaningful buybacks in the coming months.
Darlene as well Greg asked my My main question I think investors were just looking for reassurance that the change in leadership didn't signal.
Any strategy shifts, but Derek just on behalf of my clients I truly want to thank you for an incredible run if my math is directionally accurate the stock has almost quadrupled under your leadership.
And we remain extremely excited with the prospect of meaningful buybacks in the coming months. So thank you again.
Operator: So thank you again. Thank you, Eric. Thank you, Mark. And thank you to everybody that joined us this morning for our Q3, our 2023 Q4 annual results conference call. We appreciate you making the time and the effort and appreciate your confidence in us to continue to drive the company forward. So, thank you, everybody. Have a great day.
Thank you Eric.
Okay.
Thank you and there are currently no further questions on the line at this time, so I'll hand, the slope out there for closing comments.
Yeah.
Thank you Mark and thank you for everybody that joined US. This morning for our Q3, our 2023 Q4 annual.
Our results conference call and we appreciate you, making the time and the effort and.
I appreciate.
Sure.
Confidence in us to continue to drive the company forward. So thank you all have a great day.
Thank you. This now concludes the conference. Thank you all very much for attending you may now disconnect your lines.