Full Year 2024 MEG Energy Corp Earnings Call
Speaker Change: With me on this call. This morning Orion to Beck, our Chief Financial Officer Lal you Jetski R. S V P of legal and corporate development and Eric Olson, our SVP of marketing.
Speaker Change: I'd like to remind our listeners that this call contains forward looking information.
Speaker Change: Please refer to the advisories in our disclosure documents filed on SEDAR, plus and on our website for more of these disclaimers.
Speaker Change: For full details on our year end results. Please refer to yesterday's press release.
Speaker Change: 'twenty 'twenty four it was a significant year for Mac, we proudly celebrated our 25th anniversary and our continued maturation as a leading pure play thermal oil producer.
Speaker Change: We are focused on delivering increasing free cash flow per share and sustainable shareholder returns.
Speaker Change: Thanks to our team's unwavering focus on safety operational excellence and disciplined capital allocation, we were able to improve our safety performance achieved record production hit our net debt target instituted a quarterly dividend and sanction our facility expansion project.
Speaker Change: I now want to touch on some key points that speak to our strong financial and operational performance.
Speaker Change: In 'twenty 'twenty four we generated approximately $1 4 billion in adjusted funds flow and 837 million of free cash flow.
Speaker Change: This strong cash generation enabled us to fulfill several key commitments for sure.
Speaker Change: Including.
Speaker Change: Balance sheet strength.
Speaker Change: We reached our U S 600 million net debt target following through with on a focused multiyear deleveraging strategy that began in 2018.
Speaker Change: Return of capital.
Speaker Change: We instituted a sustainable quarterly base dividend of 10 cents per share and repurchased and cancelled 17 million shares over the last three years, we have returned over 1.3 billion to shareholders through share repurchases and dividends.
Speaker Change: Production growth.
Speaker Change: We achieved our fourth straight year of record production at just over 102000 barrels per day delivered out of steam to oil ratio of 2.39, reflecting strong operational efficiency from our Christina Lake asset.
Speaker Change: Improved bitumen realization.
Speaker Change: We benefited from our strategy of maximizing access to tidewater to reach new international customers and improved realized bitumen prices.
Speaker Change: Heavy oil fundamentals significantly improved through 2024 as a T. M X pipeline provided unconstrained egress from the basin.
Speaker Change: W. T I T E W. B differentials narrowed to approximately $16 per barrel in 2024.
Speaker Change: Five dollar improvement over 2020 three.
Speaker Change: In the fourth quarter, specifically the W. T I to WCS discount tightened to $12.56 per barrel from $21.89 in the fourth quarter of 2023.
Speaker Change: This represented a 43% improvement.
Speaker Change: These tighter heavy oil differentials and reduce volatility demonstrates the importance of delivering Canada's energy to global market and its fundamental benefit to Canadian heavy oil pricing.
Speaker Change: It also highlights why continued discussions surrounding diverse market access for Canadian oil and gas remains important.
Brian: Now I'd like to turn the call over to Brian for a discussion of our financial performance.
Brian: Thanks Darlene.
Brian: Meg generated about $1.4 billion of adjusted funds flow for the year.
Brian: Continued focus on cost management again yielded excellent results.
Brian: 'twenty 'twenty four operating expenses net of power revenue, we're top quartile at $6.32 per barrel, including non energy operating costs of $5.39 per barrel.
Brian: Capital investment for the year was $548 million, which included the start of our multiyear production growth strategy.
Brian: After capital expenditures make generated $837 million of free cash flow, enabling us to repay our remaining 2027 notes and repurchased 17 million makes shares or about 6% of our 'twenty to 'twenty three yearend outstanding shares.
Brian: In total including $27 million of dividends.
Brian: We returned $481 million to shareholders in 2024 up from $446 million in 2023.
Brian: Our share repurchase strategy has also enhanced our per share metrics.
Brian: They bring a 5% increase in adjusted funds flow per share.
Brian: In 2025, we expect to deliver strong results.
Brian: Duction guidance is between 95 to 105000 barrels per day, including the approximate 8000 barrel per day impact of our second quarter turnaround.
Non energy operating costs are expected to remain highly competitive at between $5 30 to $5.80 per barrel and.
Brian: Capital expenditures are estimated at $635 million, including 130 million associated with our facility expansion project and $70 million for the turnaround.
Brian: With low leverage and no debt maturities until 2029, we continue our commitment to shareholder returns and makes board of directors has declared our next quarterly dividend of 10 cents per share for payment on April 15 2025.
Brian: With that I'm going to turn the call back to Darlene for closing comments. Thanks.
Darlene: Thanks Ryan.
Darlene: Before I close my remarks, I want to provide perspective on our positioning amid the current market dynamics.
Darlene: We continue to work collaboratively with industry and government to emphasize the importance of integrated North American energy markets and growing Canada's access to global markets.
Darlene: Looking ahead, our value proposition remains compelling and differentiated from back.
Darlene: In 2025 at a U S 70 dollar WG I, we estimate generating one point to $5 billion in adjusted funds flow.
Darlene: With $615 million available for shareholder returns.
Darlene: That's enough to repurchase approximately 7% of our outstanding shares.
Darlene: We have positioned Meg to thrive through various market cycles with our high quality resource base.
Darlene: Operational excellence.
Darlene: Breakeven.
Darlene: Strong balance sheet.
Darlene: This foundation supports our commitment to long term shareholder returns, while providing the resilience to navigate changing market conditions.
Darlene: We remain confident in our strategic direction and are excited about the next future.
Darlene: In closing I want to recognize everyone on the make team for their hard work in delivering on our commitments in 2020.
Darlene: On behalf of makes board of directors and our management team I want to thank our shareholders for your continued support.
Darlene: With that I'll turn the call back over to <unk> and we can begin the Q&A.
Darlene: Okay.
Darlene: Thanks.
Thank you we will now begin the question and answer session.
Darlene: To ask a question you May press Star followed by then a real one I get a telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing any geese do we do all your question. Please press star followed by.
Speaker Change: And then number two and with that our first question comes from the line of Greg Pardy with RBC capital markets. Please go ahead.
Greg Pardy: Thanks. Good morning, Thanks for the rundown of journey and Ryan a couple of quick ones for me. There's just tended to slow the expansion. We're seeing you know a 470 million so up <unk>.
Speaker Change: Is that okay.
Speaker Change: Sex or feed or what have you that's getting lumped in there to adjust that and then can you just really remind us of timelines for the expansion. Please.
Greg Pardy: Sure Greg I'll I'll jump in there that the total cost of the project is 470 million. What you probably are recognizing is the number in the business update that we provided at year end with a go forward number at $440 million. So when you combine that with the $30 million. We spent in 2020.
Greg Pardy: Forward that makes the port 70, so just simple math there.
Greg Pardy: Okay and okay. So that okay. So does that help okay and and then you know timelines for the project are probably what we are got listed out steam boiler Foundation begins and long lead purchases in the first quarter of 2025 into say the second.
Greg Pardy: We're looking at advanced Engineering model reviews rates, that's taking you from the 60% to 90% model reviews and major facility tie ins during the second quarter turnaround.
Greg Pardy: And as you look ahead in the first half of 'twenty six you'll start getting the steam modules are arriving in assembly and steam in service by year end 'twenty six as you move into 2027, that's when the the expansion part of the project the processing part comes into the facility expansion.
Greg Pardy: Okay. That's great. Thanks for that and then maybe just to pivot.
Greg Pardy: Hum.
Greg Pardy: You referenced just diversification in where the barrels are going I'm really curious as to what you're seeing.
Greg Pardy: On the dock are with TNX in terms of appetite for trade to the U S and.
Greg Pardy: And then also just curious whether the pricing conditions, you're seeing globally right now would actually justify.
Greg Pardy: Taking on some small capacity whether that would be or somebody else. It's just just curious whether the math would work at this point.
Okay.
Greg Pardy: Yes.
Eric: Thanks for that Greg its Eric as we look at.
Eric: Operations on <unk>, we're pleased with how that's been operating we continue to see smooth operations with no issues during the winter.
Speaker Change: It has been a positive.
Speaker Change: In terms of the demand for AWP, we continue to see strong global demand for heavy crude.
Speaker Change: With T M X, we've had the opportunity to get AWP into more international customers.
Speaker Change: They're early processing experience with our crude has been great.
Speaker Change: We continue to see that strong demand.
Speaker Change: In terms of the economics around the barrels moving off of <unk>. It does change monthly depending on.
The local demand issues in Asia, what's happening with margins turnaround conditions et cetera.
Speaker Change: I think where you're likely to see spot shipments moving would be.
Speaker Change: More around the time when if.
Speaker Change: If tariffs come into effect.
Speaker Change: That's when you'd see the extra incentive to move a significant amount of spot capacity for now it's largely the contracted volumes that are moving.
Speaker Change: Okay terrific. Thanks, Eric Thanks.
Speaker Change: Youre welcome.
Speaker Change: Yes.
January: And your next question comes from the line of January all with J P. Morgan. Please go ahead.
January: Hi, good morning, Thanks for taking my question.
January: So my first question is on a S O R.
January: You've talked about the SLR for your new well pads coming up quite well.
January: But just looking at the overall it ticked up a bit in 'twenty four relative to 'twenty three.
January: Can you talk about the drivers there and any puts and takes we should think about for 2025 on a store.
Speaker Change: Yeah I'll jump in thanks, John.
January: Two our ratio for 2024.
January: Consistent with what we've been sharing more about the timing steaming the new pad and and you don't get the production back right.
January: Right away so that drives your steam to oil ratio as you move into 2025, you'll see that starting to come down and part of what are the better resource that we've been talking about and the business update as we look to the southeast into the northwest that better resource higher oil saturation will start to drive that steam to oil ratio in a downward trend as well.
January: So again, it's really resource driven that's strong resource a asset that we have will drive the improvements in the steam to oil ratio as we look ahead.
Okay. That's helpful. Thank you and then my follow up is on pathways.
January: Can you just give us the latest on where the industry is in terms of working with the government to find a framework that works for everybody and.
January: How far do you think we are off from from that kind of framework at this point.
January: Okay.
January: I'll jump in again on this one.
January: Pathways.
January: I always bring everybody back pathways is about driving cost and carbon competitiveness, that's really where the conversations are focused on the.
January: The alliance continues to advance the foundational carbon capture and storage project. So we're looking to transport cotwo on the pipeline through multiple oil sands facilities from sequestration and then we injected into the Cold Lake region.
January: It was conversations continue with both.
January: Both federal and provincial and those dialogues continue.
January: It really comes down to the progress of that is around driving that cost competitiveness is getting that to the next steps and so that's where the conversations and the focus continues.
January: There's meetings happening as we speak right now you know that that is the focus of the team and we're still pushing quite hard to be honest.
January: You know and again it comes back to making the oil sands cost and carbon competitive.
Fundamentals don't change.
January: And politics don't change, it's really what is havent were just needing to drive those two components in order to progress that so that's really where we're still focused.
January: Thank you.
January: Okay.
January: And your next question comes from the line of Menno <unk> with TD Securities. Please go ahead.
Menno: Good morning, everyone and thanks for taking my question. My first one is a follow up to greg's on them.
January: And I'm, just going to drill down a little bit here just on U S Gulf Coast access and more specifically your thanks.
January: Export capability, how much was export it off the Gulf coast in the quarter and if tariffs were to take effect on Tuesday is there a scenario where the exports your exports your Gulf coast exports would be it would be.
January: Thank you.
Eric: Thanks, Matt This is Eric I appreciate the question.
Eric: I'm looking back at the quarter, our exports from the Gulf Coast were in the 10% to 20% range.
Eric: As we look ahead to the potential possibility for tariffs certainly our diverse market access strategy. The assets that we have in the Gulf coast position us well to be able to.
Eric: Ramp up those exports very quickly so with the tankage and the dock space. We have we definitely have the ability to move more barrels and so depending on the details behind the executive order based on what we've seen today, we believe that more than half of our sales could be non tariff.
Eric: Yes.
Speaker Change: Terrific. Thanks, Eric I appreciate that and then the second question is on hedging so the the heavy differential it's tighter than a lot of people were expecting and that $13 range last I checked.
Speaker Change: Are you seeing any opportunities to hedge that out and I understand the balance sheet doesn't need it and that that your growth is comfortably funded through free cash but is there any temptation given the tariffs overhang.
Hey, Matt It's Ryan I'll take that one you know you you hit on it we control risk today with our strong balance sheet and we have the capability to kind of weather that volatility. When you think about hedging tariffs you you hit it we would look at hedging the WCS differential.
Speaker Change: That market is very illiquid and Youre limited in what you can actually put in place and how long the duration of those hedges.
Speaker Change: It kind of limits, what you can actually hedge so theres not a lot of appetite to get out there and put a position on because it's just not that meaningful and when you consider the impact of tariffs. We actually think it may be relatively muted. We do expect that you would see a widening in the differential at a 10% tariff you might see a two to $4.
Speaker Change: Per barrel widening in the WCS desk, but we're also seeing a weakening in the Canadian dollar at the same time, that's going to offset that so from a high level perspective, it does reduce the free cash flow, but the impacts are relatively low.
Speaker Change: And you're unlikely to see us get out there and hedged the WCS diff.
Speaker Change: Okay. Thanks, Brian I'll turn it back.
Speaker Change: Thank you and your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.
Neil Mehta: Yeah. Thank you.
Speaker Change: <unk> macro the macro as we're going into a turnaround I believe in the second quarter Darling.
Speaker Change: Curious on what you want to accomplish during that maintenance and how do you ensure that you get through that as effectively as possible.
Speaker Change: Yeah good morning.
Speaker Change: Turnaround I, you know I'll start big picture team.
Speaker Change: Is all over this a highly organised.
I'm energized for this turnaround there in the final preparation phase rates. So the scope is fully defined and integrated enabling that detailed scheduling and resource.
Speaker Change: Planning remains in line with the budget. So no concerns there and it really comes back to the team is doing the general maintenance for a turnaround and it's primarily focused on you know.
Speaker Change: Hum.
Speaker Change: The tenure frequencies regulatory frequencies and the tie ins for the project trade it won't be there kind of a major turnaround.
Speaker Change: Other than that it's just your your normal turnaround activity that you have at this time of year.
Speaker Change: Yeah.
Speaker Change: Alright. Thank you and then the macro it just a follow up as you guys said that about half of your barrels with could probably be exempt from the impact of tariffs.
Speaker Change: In part because of the way you market through the Gulf Coast can you just unpack that a little bit and help us understand all the ways that you can.
Speaker Change: Work around some of these impacts to the extent they go into effect next Tuesday.
Eric: Thanks, Neil it's Eric.
Eric: Thinking about that 50% the drivers behind that are again, the diverse market access that we have so the ability to move barrels through <unk>.
Eric: Through the Gulf Coast.
Eric: Significant volumes potentially through the Gulf coast and in May component around the potential treatment of how our imported.
Eric: <unk> source condensate is handled from a tariff perspective.
Eric: Yeah.
Eric: Okay.
Eric: Alright, Thanks, Eric.
Eric: Welcome.
Speaker Change: And once again, if you would like to ask a question seem to press the star followed by the number one on your telephone keypad. Your next question comes from the line of Dennis Fong with CIBC. Please go ahead.
Dennis Fong: Hi, good morning, and thanks for taking my questions. The first one is just around the U S $600 million net that floor.
Dennis Fong: Obviously, we've seen a lot of volatility even discussed a little bit of the potential impacts of tariffs and.
Dennis Fong: Central weakening Canadian dollar can you just remind us as to obviously the guardrail the methodology behind the U S $600 million net that floor and if that maybe I guess, adjusted if FX materially or CAD materially weakens in the near term.
Dennis Fong: Yeah.
Thanks Dennis.
Dennis Fong: The net debt floor the strategy net debt will move up and down just depending on our cash requirements in working capital you can think of.
Dennis Fong: US maintaining U S $600 million of total debt, that's our only bond outstanding at this point in time, and we're not necessarily managing at this point in time to use $600 million net debt. So we did have a little bit of cash sitting in the bank at the end of the year that was working capital requirements, we had to pay our <unk> 27.
Dennis Fong: David and right at the end of the year, we had a debt payment that was due early in the year, we had share buyback tax that was due early in the year. So we probably held back a little bit more cash than we typically would do.
Dennis Fong: In order to pay those bills. So when you think about net debt, it's just going to rise and fall.
Dennis Fong: As our cash rises and falls and the strategy is still the same when we think about share buybacks. We will look at what cash is in the bank at the end of the period hold back what we need to make payments and run the business and then use the rest to buy back shares so net debt will fluctuate naturally over.
Dennis Fong: Time.
Dennis Fong: Great I appreciate that context.
Dennis Fong: Secondarily can you talk towards a little bit around.
Dennis Fong: Procurement supply chain management.
Dennis Fong: And kind of procedures are bits of execution that you're putting into place that helped really drive or provide confidence around the execution of.
Dennis Fong: The facility expansion project.
Dennis Fong: And the actual development of it obviously understanding that you do have.
Dennis Fong: Several pieces of equipment already on site.
Dennis Fong: Thanks, Dennis good morning.
Dennis Fong: Project itself I know, there's a lot of conversations around project execution with everything going around in the background, we see low project cost and execution risk right now with the tariff rate the U S tariffs we.
Dennis Fong: We have minimal exposure to the U S and the procurement in this project.
Dennis Fong: A large portion of that fabrication is completed in Canada here locally in Alberta, and and we're using existing working with a number of Canadian suppliers right. So that it helps us communicate why the risk is lower for us.
Dennis Fong: The project the complexity of the project is also very integrated into our existing Christina Lake facility and that what that means is it's utilizing similar equipment and processes and capabilities that we've already got.
Dennis Fong: We mentioned we've been spending 25 years running this facility our team's got a lot of expertise and experience.
Dennis Fong: The front end engineering design phase has been complete right. So you understand your scope in your parameters and you're really just moving into that detailed engineering and that's progressing very well.
Dennis Fong: Project with its lower complexity and helps us bring that expertise together.
Dennis Fong: And the fact that we own many of our major vessels once through steam generator.
Dennis Fong: When you put that altogether, we're on track to order any of the remaining equipment in the first half of this year. So teams really bringing in the engineering the design the execution component.
Dennis Fong: A lot of it is done local a lot of it are any of the long leads that are left are re.
Dennis Fong: Really the team's got line of sight to that they've got the contracts in place and really now it's just the execution of that over the next six months.
Dennis Fong: Yes.
Speaker Change: Great really appreciate those incremental details there Charlie I'll turn it back.
Speaker Change: Thank you and I'm showing no further questions at this time I would like to turn it back to Mr. Stern engaged for closing remarks.
Speaker Change: Thank you <unk> and thank you to everybody who joined US. This morning for our year end results conference call. If you have any additional questions. Please contact investor Relations. We look forward to speaking to you again on our first quarter call.
Speaker Change: Thank you and ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Speaker Change: Oh.
Speaker Change: Okay.