MEG Energy Corp T.MEG

Alternate Symbol(s): MEGEF

Energy Oil & Gas E&P

MEG Energy Corp. is a Canada-based energy company focused on in-situ thermal oil production in the southern Athabasca oil region of Alberta, Canada. The Company is engaged in the development of enhanced oil recovery projects that utilize steam-assisted gravity drainage extraction methods to improve the economic recovery of oil. It transports and sells thermal oil (AWB) to customers throughout North America and internationally. The Company owns a 100% interest in over 410 square miles of mineral leases in the southern Athabasca oil region of Alberta, Canada and is primarily engaged in sustainable in situ thermal oil production at its Christina Lake Project. Christina Lake Project is a multi-phased project, located 150 kilometers south of Fort McMurray in northeast Alberta. It comprised of approximately 200 square kilometers of leases.

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Post by retiredcfon Dec 02, 2024 8:45am

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Post# 36340408

TD

ADDRESSING TWO KEY INVESTOR QUESTIONS FOLLOWING 2025 BUDGET & BUSINESS UPDATE

THE TD COWEN INSIGHT

Below we address 2 key client questions following MEG's 2025 Budget (note) and Business Update (note). Conclusions: 1) there's no reason to expect existing CL prod'n to be negatively impacted as it executes on the expansion to 135mbbl/d; 2) while 2025 prod'n guidance fell 4% short, quarterly prod'n (ex-Q2) should avg. ~105mbbl/d and, normalized for planned downtime, 2025 prod'n should grow 5% y/y.

Impact: POSITIVE

Question #1: How much could the CL Facility Expansion Project (FEP) disrupt existing base prod'n?

Key takeaway: It shouldn't at all, since the CL Facility Expansion Project (FEP), which boosts capacity to 135mbbl/d (from 110mbbl/d), triggers no change to MEG's longstanding steam optimization strategy.

MEG has no intention of prematurely transitioning steam to new well pads prior to on-streaming of its new once-through-steam-generator (OTSG). Investors therefore shouldn't expect any prod'n 'air-pockets' through project development.

Timing of steaming of new well pads will be determined using MEG's steam forecast. As pads transition from SAGD to eMSAGP (employs non-condensable gas injection), steam consumption on legacy pads falls, and becomes available for new pads. Its eMSAGP depletion strategy is considered a proven, differentiated approach to maximizing thermal efficiency, while maintaining reservoir pressure and driving down SORs.

Question #2: What are the various puts & takes on 2025 prod'n guidance landing 4% below consensus?

2025 guidance was set at 95-105mbbl/d (100mbbl/d midpoint), below prior Street consensus of 104mbbl/d. Q2/25 will see a major CL Phase 2B turnaround (up to 8mbbl/ d annual impact vs. 6mbbl/d in 2022/2023). In addition, a 10-year regulatory inspection will be done alongside strategic FEP tie-ins and an interval study (facilitates the transition to once-every-4-year turnarounds, from 3). Note CL Phase 2B processes two-thirds of volumes. The last time Phase 2B underwent a turnaround (2022), Q2 prod'n averaged ~67mbbl/d, and 95mbbld annualized. In our view, a larger-than-normal turnaround points to higher potential variability. We therefore consider a conservative, wider-than- normal guidance range appropriate.
Ex-Q2/25, 2025 quarterly prod'n is expected to average ~105mbbl/d, with an H2/25 acceleration as two higher reservoir-quality pads ramp. Normalized for turnarounds, 2025 volumes are expected to grow a respectable 5% y/y.

Bottom-line: We do not expect CL base prod'n to be negatively impacted through FEP development, CL vols should avg. ~105mbbl/d (ex-Q2), and 2025 vols should grow 5% y/y on a normalized basis.