Post by
retiredcf on Nov 26, 2024 9:02am
CIBC
Also have a $32.00 target. GLTA
EQUITY RESEARCH
November 25, 2024 Flash Research
MEG ENERGY CORP.
2025 Budget: In Line With Our Expectation
MEG Energy provided 2025 capital and operational guidance which were in
line with our expectations and consensus. Key takeaways include a major
turnaround in Q2/25 that is expected to impact full-year production by up to 8
MBbl/d, and FID of the multi-year expansion project (~$440 million over three
years) which is expected to add 25 MBbl/d of capacity (to 135 MBbl/d in
2027). Additional details will be provided in the Business Update scheduled
for November 26, 2024.
Net-net, we view this guidance and the business update as mostly in line,
albeit the lower-bound of 2025 production guidance is moderately below
expectations and concerns around cost-creep (and scope-creep) on capital
spending with the expansion may be alleviated with the clarity provided in the
presentation.
Key Takeaways
• Approval of 25 MBbl/d facility expansion. MEG’s Board of Directors
approved the final investment decision to proceed with the 25 MBbl/d
expansion project bringing Christina Lakes production capacity to 135
MBbl/d in 2027. The company estimates a total cost of $440 million over
the next three years, which is in line with our current estimates.
• Production guidance. 2025 guidance range of 95 to 105 MBbl/d is in
line with our estimate of 102 MBbl/d and consensus of 104 MBbl/d. The
2025 guidance includes major turnaround activities in Q2 (full-year
impact of 8 MBbl/d) and the startup of two new well pads in 2025 with
expected ramp-up of Q3 and Q4.
• 2025 capex budget. Spending guidance of $635 million, including $505
million sustaining capital and $130 million growth capital towards the
Facility Expansion Project, is in line with our estimate and consensus of
$643 million. Out of the $505 million sustaining capital, $420 million will
be allocated to well pad and redevelopment, $70 million to turnaround
(including expansion tie-ins), and $15 million to corporate. MEG
anticipates 2025 non-energy operating cost to be between $5.30/Bbl -
$5.80/Bbl which is modestly above our estimate of $5.00/Bbl.
• Shareholders return. MEG will continue to return 100% of free cash
flow to shareholders.
• Pathways Alliance. MEG along with its peers continue to progress pre-
work for the project. The Alliance continues to work collaboratively with
both the federal and Alberta Government on the necessary policy and
co-financing frameworks required to move the project forward.
• Valuation. MEG Energy trades at a P/RNAV ratio of 100%, a 2025E
EV/DACF of 5.6x and a 2025E FCF yield of 10% vs. the large-cap group
at 89%, 5.6x and 12%, respectively.