Bullboard - Stock Discussion Forum 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... see more

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MEG Energy Corp > TD

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Post by retiredcf on Nov 26, 2024 8:38am

TD

Have a $36.00 target. GLTA

SANCTIONS CL GROWTH TO 135MBBL/ D; ANNUAL CAPEX CEILING OF $650MM THROUGH 2027

THE TD COWEN INSIGHT

As part of its 2025 budget, MEG sanctioned Christina Lake (CL) capacity growth to 135mbbl/d by 2027 (from 110mbbl/d) at a total cost of $440mm. Importantly, 2025-2027 budgets and base dividends, are funded down to US$53/bbl WTI with annual spending not exceeding $650mm. 2025 prod'n guidance was light at 100mbbl/d (Street—104mbbl/d). Therefore, we could see a modest negative share price reaction.

Event: Announces 2025 guidance and outlook through 2030; sanctions CL Facility Expansion Project (FEP).

Impact: MIXED
$635mm 2025 budget represents 15% y/y increase, but in-line with Street ($638mm) and a touch below TD at $650mm: Sustaining capex of $435mm ($11.92/bbl on 100mbbl/d) is supplemented with $70mm of turnaround costs ($505mm total) and $130mm of FEP spend.

The spend profile has been a focal point for investors since mid-year, with mgmt guiding to a multi-year ceiling of $650mm in early Q3. This was addressed in the release with 2026/2027 capex set at $650mm, then falling into the $450mm range in 2028+ (largely sustaining capital). FEP (details below) is expected to drive a FCFPS CAGR of 22% through 2030 (flat US$70/bbl WTI, US$13/bbl heavy diff) and a PPS CAGR of 20% (5% in absolute terms).

We fully expected sanctioning of CL capacity growth to 125mbbl/d, with a decent chance of approving 135mbbl/d; MEG elected to pursue the latter: Capacity growth to 135mbbl/d by 2027 is expected to cost $440mm spread over three years ($17,600/bbl/d, increasing to ~$25,000/bbl/d after factoring in well capital required to fill the plant).

2025 prod'n guidance of 95-105mbbl/d (midpoint 100mbbl/d; -5% y/y) falls short of Street/TD at 104/105mbbl/d, respectively: Note 2025 prod'n guidance reflects a major planned turnaround in Q2. Given an annual impact of up to 8mbbl/d, the 2025 no turnaround' midpoint is 108mbbl/d (vs. Street 2024 prod'n at 103mbbl/d, with no turnaround impact but impacted by cold weather/fires). Prod'n should ramp into YE25 with a well pad expected to be brought online in Q3, and a second in Q4.

During the 2025 turnaround, MEG will add tie-ins for FEP. Following the turnaround, the cycle is to be extended to four years, from three years currently.
2025 non-energy opex guidance of $5.30-$5.80bbl/d is up 6% y/y at the midpoint, but we do not consider this concerning as it is largely due to lower y/y volumes.
MEG remains fully committed to returning 100% of FCF through its recently instated dividend (1.5% yield) and buybacks through 2030.

We plan to review our financial and operating estimates following tomorrow's Business Update Presentation at 8:30ET.