MEG Energy Corp T.MEG

RBC

[retiredcf]

October 29, 2024

MEG Energy Corp.
3Q Preview—100% Payout is Now!

TSX: MEG | CAD 25.08 | Outperform | Price Target CAD 35.00

Sentiment: Neutral

MEG Energy will report its third-quarter results after market close on Tuesday, November 5. We look forward to a financial/ operational update following the achievement of its US$600 million net debt target announced on October 1, which saw an increase in shareholder returns to 100% of free cash flow.

MEG is our favorite intermediate producer and is on our Global Energy Best Ideas List.

Conference Call

• Time: 8:30 am ET, Wednesday, November 6 • Dial in: 888-510-2154

3Q Preview

RBC vs. Consensus (Analyst Survey): RBC sits above Street Consensus on FFO/share (high-end of range) while in-line on production and capital spending.

Noteworthy Factors

• Our third-quarter outlook for MEG incorporates bitumen production of 103,100 bbl/d, up 3% sequentially amid light turnaround activity. We suspect MEG drew bitumen inventories of roughly 1,000-2,000 bbl/d in the third quarter, which should equate to sales exceeding production.

• Our estimates include bitumen realizations of approximately $83/bbl in the third-quarter.

• We peg MEG’s net debt (company definition) at $754 million (US$552 million before FX translation impacts) as of September

  30, below the company’s US$600 million net debt target which the company announced it had achieved on October 1. As such, MEG is now distributing 100% of free cash flow to shareholders through share repurchases and its base dividend.

• We peg MEG’s third-quarter all-in operating costs at $6.14/bbl (excluding estimated power sales of $13 million), with a royalty rate of 24% (on estimated net revenue).

• We forecast MEG’s capital spending at $150 million in the third-quarter amid common share repurchases of circa $108 million.

• All said, we peg MEG’s third-quarter FFO/share at $1.39 ($372 million).