RE:NEWS: $1.61 billion CASH completion of sale "Our goal was to surface attractive value and terms that allow us to substantially pay down debt, pursue highly economic growth projects and ensure our future transportation and storage needs are met, all while protecting MEG's competitive cost position. We expect to more than offset the incremental transportation costs related to this transaction as we bring on additional barrels."
Upon closing, the net cash proceeds from the Transaction will be used to repay approximately C$1.225 billion of MEG's senior secured term loan and to fully fund the Company's $275 millionhighly economic 13,000 bpd brownfield expansion at the Phase 2B facility.
MEG intends to increase its 2018 capital budget from $510 million to $700 million to fund approximately 70% of the Phase 2B brownfield expansion in 2018. The expansion includes the addition of incremental steam capacity at the Phase 2B facility and two well pads and is expected to generate returns of approximately 30% at current strip prices. Production is anticipated to begin ramping up in the second half of 2019 to reach the full brownfield expansion capacity of 13,000 bpd in 2020. MEG's average and exit production guidance for 2018 remains unchanged.
The Transaction comprises the sale of Access Pipeline for total consideration of $1.4 billion, and the sale of Stonefell for $210 million. 2018 annualized costs related to the Transaction are approximately $80 million for the transportation of diluted bitumen, $25 million for condensate transport, and $15 million for blend storage at Stonefell. As a result of the Transaction, MEG expects its net cash costs to increase by approximately $50 million on an annualized basis, comprised of an increase in transportation and storage costs of approximately $120 million, offset by a reduction in interest costs of approximately $70 million.
"With the resources and technology that are at our disposal, we have the ability to deliver low-cost, continuous growth which improves the overall profitability and sustainability of the business as we add incremental barrels," commented Bill McCaffrey. "The divestiture of our midstreamassets strengthens our financial position while providing sufficient liquidity to allow MEG to complete its high return growth projects. Looking forward to 2020, we anticipate our debt to EBITDA to come into the range of 2 to 3 times while generating free cash flow at current prices."
Future growth beyond 113,000 bpd, which will drive cash costs per barrel down further, will incorporate MEG's proprietary reservoir enhancement technologies, adding 10 to 15% per annum of production growth over the medium term at very attractive capital cost intensities.
"We look forward to working with Wolf in the years to come to meet our ongoing transportation and storage needs," added Bill McCaffrey. "Wolf has proven to be a very reliable partner in our Access Pipeline joint venture over the last two years, and this transaction will enable us to work together in even closer partnership."
https://www.megenergy.com/news-room/article/meg-energy-announces-sale-access-pipeline-and-stonefell-terminal-161-billion