MEG Energy Corp T.MEG

RBC

[retiredcf]

November 25, 2024

MEG Energy Corp.
Announces 2025 Budget & Longer-Term Outlook

TSX: MEG | CAD 26.02 | Outperform | Price Target CAD 34.00

Sentiment: Neutral

MEG announced its 2025 budget which points towards about 4% lower mid-point production of 100,000 bbl/d (95,000-105,000 bbl/d) at an SOR of approximately 2.26x amid in-line capital spending of $635 million vis-a-vis Street consensus. The company also expects $650 million of annual capital spending in 2026-27 before moving to sustaining capital levels of circa $450 million in 2028-30.

Business Update Conference Call

• Time: Tuesday, November 26 at 8:30am ET • Dial-in: 1-888-510-2154

Details

• Included within the $635 million of capital spending is $435 million of sustaining capital (a decrease of 3% vs. last year), turnaround costs of $70 million and capital directed towards facility expansion of $130 million.

• MEG has received Board approval for the final investment decision to proceed with a multi-year facility expansion project to boost productive capacity by 25,000 bbl/d at an estimated cost of $440 million over three years at a flowing barrel capital efficiency of $25,000/bbl/d (inclusive of capital to fill expanded plant capacity).

• Sustaining capital reflects planned turnaround activity, increased pad drilling, and investment in field infrastructure to advance production from undeveloped areas.

• MEG’s 2025 production guidance incorporates major turnaround activity in the second-quarter (8,000 bbl/d annual production impact) and the startup of two well pads, with the first pad on-stream in the third-quarter and the second in the fourth-quarter. Following the completion of the 2025 turnaround, MEG will be able to implement four-year turnaround cycles (vs. three-year cycles previously) on each phase of its operation.

• Under its multi-year investment plan, the company also framed annual capital spending of $650 million in 2026-27 (in-line with RBC at $650 million in 2026), declining to sustaining capital levels of circa $450 million in the 2028-30 timeframe.

• Following the achievement of its US$600 million net debt target on October 1, MEG is now allocating 100% of free cash flow to shareholder returns, inclusive of its $0.40 annualized common dividend (1.5% yield) and share repurchases. Our outlook in 2025 factors in $99 million in dividends paid alongside $540 million in share buybacks.

• MEG had approximately $3.9 billion of available Canadian tax pools as of September 30, 2024, including $2.5 billion of non- capital losses which are immediately deductible. Under a US$70/bbl WTI price assumption, the company does not anticipate being cash taxable until 2027.

  • The company pegs its 2025 non-energy operating costs at $5.30- $5.80/bbl (5% above at the mid-point vs. RBC at $5.30/bbl).

  • The company has about 120,000 bbl/d of (blend) tidewater access via its 100,000 bbl/d of capacity on the USGC Flanagan South/Seaway pipeline and 20,000 bbl/d of contracted capacity on the Trans Mountain Pipeline Expansion (TMX).