Q2 2025 MEG Energy Corp Earnings Call

Jeannie: Good morning, ladies and gentlemen. My name is Jeannie, and I will be your conference operator today. I would like to welcome everyone to MEG Energy Corp.'s second quarter 2025 and six-month results conference call. All lines have been placed on mute to prevent any background noise. After the MEG team's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. I would like to remind our listeners that this call contains forward-looking information. Please refer to the advisories in MEG's disclosure documents filed on SEDAR Plus and on their website for more on these disclaimers. Full details on MEG's second quarter and six months' results are available in yesterday's press release.

Good morning, ladies and gentlemen. My name is Jeanne, and I will be your conference operator today.

I'd like to welcome everyone to Meg energy, second, quarter 2025 and 6 months results conference call.

All lines have been placed on mute to prevent any background noise.

After the Meg teams, remarks there will be a question and answer session.

If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.

If you would like to withdraw your question, please press star 1 again.

I'd like to remind our listeners that this call contains forward-looking information.

Please refer to the advisories in Meigs, disclosure documents filed on Cedar plus and on their website for more on these disclaimers.

Jeannie: At this time, I would like to turn the conference over to Darlene Gates, President and CEO of MEG Energy Corp. Please go ahead.

Full details on Meg's, second quarter, and 6 months results are available in yesterday's, press release.

At this time, I would like to turn the conference over to Darling Gates president and CEO of Meg energy. Please go ahead.

Darlene Gates: Thank you, Jeannie. Good morning, everyone, and thank you for joining us to review MEG Energy Corp.'s Q2 2025 financial and operating results. I will begin today's call by highlighting our financial performance and strategic execution before turning it over to our CFO, Ryan Kubik, for a more detailed look at the numbers. Also joining us this morning are additional members of our senior management team: Tom Gear, our Senior Vice President of Oil Sands; Erik Alson, our Senior Vice President of Marketing; and Lyle Yuzdepski, our Senior Vice President of Corporate Development and Legal. I am incredibly proud to share that the MEG team safely and successfully completed the largest planned turnaround in our company's history.

Thank you, Jeanne. Good morning, everyone, and thank you for joining us to review MEG Energy's second quarter 2025 financial and operating results.

I'll begin today's call by highlighting our financial performance and strategic execution.

Before turning it over to our CFO, Ryan kubek for more detailed. Look at the numbers.

Also, joining us this morning are additional members of our senior management team, Tom gear or senior vice president of oil sands, Eric Olsen our senior vice president of marketing and allow udep ski our, senior vice president of corporate development and legal.

Darlene Gates: What makes this achievement even more impressive is that it was completed while navigating the added complexity of regional wildfire conditions with an unwavering commitment to the safety of our people and the communities we serve. The turnaround was completed on time, on budget, and with exceptional safety performance across all key metrics. In addition, we completed over 150 tie-ins for our facility expansion project, helping to minimize future production interruptions and advance our growth plans. This project, which will add 25,000 barrels per day of production capacity by mid-2027, remains firmly on track and on budget. Thanks to the strength of our asset base and the resilience of our business model, MEG generated $148 million in free cash flow in the first half of the year and returned $220 million to shareholders, repurchasing approximately 3% of shares outstanding.

I'm incredibly proud to share that the mag team safely and successfully completed the largest plan turnaround in our company's history.

What makes this achievement even more impressive is that it was completed while navigating the added complexity of regional wildfire conditions, with an unwavering commitment to the safety of our people and the communities we serve.

The turnaround was completed on time on budget and with exceptional, safety performance, across all key metrics.

In addition, we completed over 150 tie-ins for our facility Expansion Project, helping to minimize future production interruptions and Advance our growth plans.

This project which will add 25,000 barrels per day of production, capacity by mid 2027 remains firmly on track and on budget.

Darlene Gates: At current strip pricing, we are on track to generate over $500 million of free cash flow in 2025. As I mentioned, the wildfires, which impacted communities and operators across the region, caused damage to third-party infrastructure, which delayed our post-turnaround ramp-up by approximately 12 days. Despite this, our team restored production to pre-turnaround levels within two weeks of restart, and July production averaged about 109,000 barrels per day, positioning us for a strong second half. In Q2, bitumen production averaged 63,500 barrels per day, with an average steam-to-oil ratio of 2.38. As expected, the turnaround reduced volumes by approximately 32,000 barrels per day, with wildfires contributing an additional 12,000 barrels per day. Full-year 2025 operating and capital guidance will remain unchanged. Our world-class Christina Lake asset, combined with our strategic growth initiatives, positions us to deliver low-risk, capital-efficient growth, reduce per-barrel costs, and generate significant shareholder returns.

Thanks to the strength of our asset base and the resilience of our business models Meg generated 148 million in free cash flow in the first half of the year and returned 220 million to shareholders repurchasing approximately. 3% of shares outstanding

At current strip pricing, we're on track to generate over $500 million of free cash flow in 2025.

As I mentioned the wildfires which impacted communities and operators across the region caused damage to third-party infrastructure, which delayed our post turnaround ramp up by approximately 12 days.

Despite this, our team restored production to pre-turnaround levels within two weeks of restart, and July production averaged about 109,000 barrels per day, positioning us for a strong second half.

an average 63,500 barrels per day with an average steam to oil ratio of 2.38

As expected, the turnaround reduced volumes by approximately 32,000 barrels per day with wildfires contributing an additional 12,000 barrels per day.

Full year 2025, operating and capital guidance will remain unchanged.

Our world-class Christina Lake asset, combined with our strategic growth initiatives, positions us to deliver low-risk, capital-efficient growth, reduce per barrel costs, and generate significant shareholder returns.

Darlene Gates: Before I turn it over to Ryan, I am pleased to share that MEG's board of directors has approved a 10% increase in our quarterly dividend, raising it to $0.11 per share payable on October 15, 2025. This increase reflects our confidence in the strength and resilience of our business model, our commitment to disciplined capital allocation, and our focus on delivering meaningful returns to shareholders. With that, I will turn it over to Ryan for a more detailed look on our financial results.

Before I turn it over to Ryan.

I'm pleased to share that Meg's board of directors has approved a 10% increase in our quarterly dividend, raising it to 11 cents per share payable on October 15th, 2025,

This increase reflects our confidence in the strength and resilience of our business model, our commitment to disciplined capital allocations, and our focus on delivering meaningful returns to shareholders.

Ryan Kubik: Thanks. As Darlene mentioned, MEG Energy Corp.'s dividend increase is supported by our strong financial performance. With low corporate break-even, MEG Energy Corp. is positioned to sustain and grow that dividend over the long term through disciplined investment and share buybacks. At current strip pricing, we expect to generate over $375 million in free cash flow in the second half of 2025, providing ample flexibility to support our capital allocation priorities. Adjusted funds flow in Q2 of this year was $125 million or $0.49 per share, reflecting the impact of lower bitumen realizations and reduced sales volumes due to the planned turnaround and wildfire-related delays. The WCS heavy oil differential narrowed to US$10.27 per barrel in the quarter, supported by improved pipeline access and strong demand for Canadian heavy crude.

With that, alternate over to Ryan for a more detailed. Look on our financial reserve. Thanks, as Darlene mentioned, makes dividend increases supported by our strong financial performance, and with low corporate Break, Even mag is positioned to sustain and grow that dividend over the long term through disciplined investment and share. Bye.

At current strip pricing, we expect to generate over 375 million in free, cash flow in the second half of 2025, providing ample flexibility to support our Capital allocation priorities.

Adjusted funds flow in the second quarter of this year.

Was 125 million or 49 cents, per share reflecting the impact of lower bitumen realizations, and reduced sales volumes due to the plan turnaround and Wildfire related. Delays.

Ryan Kubik: That differential, however, was more than offset by the WTI benchmark price, which averaged below US$65 per barrel, influenced by global economic uncertainty and increased OPEC Plus supply. Our operating costs and net power revenue were $10.88 per barrel in Q2, including non-energy operating costs of $8.16 per barrel. These per-barrel operating costs will be significantly lower in the second half of this year as production rises and we start up new wells and high-quality resources. Capital expenditures in Q2 totaled $200 million, up from $123 million in Q2 2024, driven by our planned turnaround and continued investment in our facility expansion project. While our share buybacks are temporarily paused due to the unsolicited offer process, our capital return strategy remains unchanged, and we plan to resume share repurchases when able. With that, I am going to turn the call back over to Darlene for closing remarks.

The WCS, heavy oil, differential narrowed to us $10.27 per barrel in the quarter supported by improved pipeline access and strong demand for Canadian heavy crude.

that differential, however, was more than offset by the WTI Benchmark price, which averaged below us, 65 per barrel influenced by global economic uncertainty and increased OPEC plus Supply,

Our operating costs. Net of power Revenue were $10.88 per barrel in the second quarter, including non-energy operating costs of $8.16 per barrel.

These are per barrel. Operating costs will be significantly lower in the second half of this year as production rises and we start up new wells in high-quality resource.

Capital expenditures in Q2 total $200 million up from 123 million in Q2 2024.

Driven by our plan, turnaround and continued investment in our facility Expansion Project.

While our share BuyBacks are temporarily paused due to the unsolicited offer process, our Capital return strategy remains unchanged and we plan to resume share repurchases. When able

Darlene Gates: Thank you, Ryan. I am incredibly proud of how our team delivered this quarter, executing a 250,000-hour turnaround while advancing our strategic growth initiatives and maintaining operational resilience through challenging wildfire conditions. MEG is uniquely positioned to deliver low-risk, capital-efficient growth to 135,000 barrels per day while continuing to reduce per-barrel costs and generate robust free cash flow. Our standalone strategy is compelling, anchored by the strength of our world-class Christina Lake asset and supported by a deep portfolio of attractive growth opportunities at Surmont, Kirby, and May River. As previously announced, our board initiated a strategic review on June 16th to explore whether a superior alternative to our standalone plan exists. That process is ongoing, and we will provide an update ahead of the expiry of the unsolicited bid in mid-September. We will not be commenting further on the review during today's call.

with that, I'm going to turn in the call back over to Darlene for closing remarks.

Executing a 250,000 hour. Turnaround while advancing our strategic growth initiatives and maintaining operational resilience through challenging Wildfire conditions.

Meg is uniquely positioned to deliver low-risk Capital, efficient growth to 135,000 barrels per day while continuing to reduce per barrel costs and generate robust free, cash flow.

Our standalone strategy is compelling, anchored by the strength of our world-class Christina Lake ASA and supported by a deep portfolio of attractive growth opportunities at Surmont, Kirby, and May River.

As previously announced our board, initiated a strategic review on June 16th to explore whether a superior alternative to our Standalone plan exists.

That process is ongoing and we will provide an update ahead of the expiry of the unsolicited dead in mid September.

We will not be commenting further on the review during today's call.

Darlene Gates: I want to thank our shareholders for their continued confidence and engagement. Your support is critical as we navigate this pivotal moment in MEG's journey. With that, we are happy to answer any of your questions.

I want to thank our shareholders for their continued confidence and engagement.

Your support is critical as we navigate this pivotal moment in Meigs Journey.

We're happy to answer any of your questions.

Jeannie: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

Neil Mehta: Yeah, good morning, Darlene and team, and understood on maybe some limitations on the M&A side. I had a couple of questions around projects. The first is just the facility expansion. You said in the release that you are on track for 2027, and you got a lot of tie-ins that were completed during the turnaround. Just your perspective on how that is ramping, what are the critical path items? That is probably the most important project in your docket right now.

And your first question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

Yeah, good morning, darling the team and, and understood on, on on, maybe some limitations on the m&a side. I, I, uh, at a couple questions around, uh, around projects and the first is just the facility expansion. Uh, you said in the release that you're on track for 2 2027, um, and uh, you got a lot of tie-ins, um, that were completed during the turnaround, but just your perspective on, uh, on on how that's ramping, what are the critical path items? Um, that's that's probably the most important project in in your, uh, in your, uh, docket right now.

Darlene Gates: Yeah, thanks, Neil. I will start, and then I will have Tom jump in with some additional commentary. You hit it very well. It is a very strategic, important project in our portfolio, and the team has been executing exceptionally well. The first step for the team was to hit those tie-ins during the turnaround. They delivered that during the timeframe. Turnaround still maintained its cost and schedule. The next steps that they are working on right now is field construction activities are underway. Recently, they completed the steam generator. You might have seen some pictures out there on the steam generator facility that will be going out on the foundation later this quarter. I would also say that they will start some of the modules by later this year. Those will be this year's kind of major milestones.

Yeah, thanks Neil. I'll do I'll start. And then I'll have Tom jump in, um, with the some additional commentary. Uh, you hit it very well. It is a very strategic important project in our portfolio and uh, the team has been executing exceptionally. Well, the first step for the team was to hit those tie-ins during the turnaround. Uh, they delivered that

Uh during the time frame turned around still maintained its uh cost and schedule and uh the next steps uh that they're working on right now is Field construction activities or underway.

Darlene Gates: As we move ahead, really, the steam generation will start next year. Then the facility expansion, the rest of that project will include the third processing chain. Tom, any other commentary you want to throw in to add more color around that?

And recently, they completed the steam generator, you might have seen some pictures out there on the steam generator, uh, you know, facility that'll be going out on the foundation later. This, um, quarter and, uh, and I'd also say that, that, um, they'll start some of the modules, um, by later this year. So those will be this year's kind of major milestones. And as we move ahead really, the steam generation will start uh, next year. And then the facility expansion, uh, the rest of that project will include the third processing chain.

Dennis Fong: Yeah, no, thank you. I think the teams have been progressing this really well. With regard to critical path, all key long lead items have already been purchased. So when you look at that, it is really about field construction at this point through the following year and then into 2027. So it is really just the field execution pieces of this. As Darlene Gates mentioned, we have got module deliveries happening later on. That will be just the assembly of all these components to provide that in-service date in 2027.

Darlene Gates: Maybe, Neil, if I just summarize all of that, it is firmly on track and on budget. We are about 15% completed to date.

Tom any other commentary you want to throw in to add more color around that? Yeah, no. Thank you. Um I think the the teams have been progressing, this really well uh with regard to critical path. Uh, all key long lead, items have already been purchased. So when you look at that, it's really about Field construction at this point through uh, the following year and then into uh, 2027. So it's it's really just the, uh, field execution pieces of this. And as darling mentioned, we've got module deliveries happening later on, and that will be just the Assembly of all these components to uh provide that in service date and uh, 2027.

If a baby meal, if I just summarized all of that, it's firmly on track and on budget. Um, and we're about 15% completed to date.

Neil Mehta: Right. That's very helpful. I know there's limits in terms of what you could say around the strategic review, but Darlene, can you just remind us what you said about timeline around it, if there are any parameters around that, just even if you can reiterate your public comments around that?

It's very helpful and then, uh, I know there's limits in terms of what you could say around the Strategic Review. But, darling, can you just remind us what you've said about the timeline? If there are any parameters around that, just even if you can reiterate your public comments around that.

Darlene Gates: As we noted and you mentioned in the prepared remarks, we're not commenting on the strategic review process on the call today. But what we have said is that the board will be coming back by mid-September with an update to our shareholders.

Neil Mehta: That's perfect. Thank you, Darlene.

Yeah, as we noted and as you mentioned in the prepared remarks, we're not commenting on the strategic review process on the call today. But what we have said is that the board will be coming back by mid-September with an update to our shareholders.

Darlene Gates: Thanks, Neil.

It's perfect. Thank you, darling.

Thanks Neil.

Jeannie: Your next question comes from the line of Dennis Fong with CIBC World Markets. Please go ahead.

Your next question comes from the line of Dennis Fong with CIBC World Market. Please go ahead.

Dennis Fong: Hi, good morning, and thanks for taking my questions. The first one is just around sustaining CapEx and this standalone opportunity set that you highlighted. You discussed an idea of driving sustaining CapEx towards $10 per barrel from $12 beforehand. Can you comment a little bit around, is this predominantly scale? Does this incorporate larger timing between turnarounds or further efficiencies that you see in terms of, obviously, expanded central processing facility footprint?

Hi, good morning and thanks for taking my my questions. Um the the first 1 is just around assisting and capex and and this the stand alone opportunity uh said that you highlighted. Um you you discussed an idea of of kind of driving steaming capex towards ten dollars per barrel from uh $12 beforehand. Can you comment a little bit around? Um is this predominantly scale? Does this incorporate larger timing between turnarounds or um further efficiencies that you see in terms of obviously expanded uh uh central processing facility for uh footprint?

Darlene Gates: Good morning, Dennis. I will start, and then I will ask the team to jump in again with any other commentary they want to add here. As you know, the sustaining capital as we move forward is a combination of many different things, starting with turnarounds for sure. Extending them from three years to four years is clearly the path that the team has laid out for us after this successful turnaround. That is the first component. Another major component is just around the development plan that the team has laid out. They have got most of the infrastructure as they start to develop down to the southeast and also to the northwest. Once you make that primary investment of the infrastructure, then you are tying off, you are tying into that infrastructure with the additional paths.

Darlene Gates: It allows you to get a very capitally efficient program because you are making those investments today and then benefiting from those with additional paths. Ryan, Tom, any other comments?

Infrastructure as they start to develop down to the southeast and also to the Northwest. And once you make that, uh, primary investment of the infrastructure, then you're tying off, you're tying into that infrastructure with the additional paths. Allows you to get a very Capital efficient program because you're making those Investments today and then benefiting from those with additional pounds.

Ryan Kubik: Other than, you know, we are expecting sustaining capital will stay right around the $450 million level where it is today. So you do get that economy of scale as production rises with our SEP. You are spreading that relatively fixed cost base over more barrels, bringing the per-barrel cost down a couple of dollars per barrel.

Ryan Tommy at other comments.

Other than, uh, you know, we are expecting sustaining, Capital will, stay right around the 40050 million dollar level where it is today. And so you do get that economy of scale as production Rises with our fep, you're spreading that relatively fixed cost base over more barrels, bringing the per barrel cost down a couple of dollars per barrel.

Neil Mehta: Great.

Great.

Jeannie: There are no further questions at this time. I will now turn the call back over to Darlene Gates for closing remarks.

There are no further questions at this time. I will now turn the call back over to Darling gates for closing remarks.

Darlene Gates: Thank you, Jeannie, and thank you to everybody that joined us this morning for our Q2 results conference call. If you have any additional questions, please contact Investor Relations. We look forward to speaking to you all soon.

Thank you, Jeanne. And thank you to everybody that joined us this morning for our second quarter results conference call. If you have any additional questions, please contact investor relations. We look forward to speaking to you all soon.

Jeannie: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect