MEG Energy reports 24% growth in funds from operations per share in the first quarter of 2025

2025-05-06

TSX - Toronto Stock Exchange · Oil · Bitumen · Natural Gas · Natural Gas Liquids · Canada

Canada NewsWire

CALGARY, AB , May 6, 2025 /CNW/ - MEG Energy Corp. (TSX: MEG) ("MEG" or the "Corporation") reported its first quarter 2025 operational and financial results. 1

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"The work we've done over the past few years establishes a strong financial foundation and lays the groundwork for the next phase of production growth. MEG is in an enviable position to deliver substantial growth in free cash flow per share even through uncertain commodity price environments," said Darlene Gates , President and Chief Executive Officer of MEG. "We remain focused on disciplined spending, operational excellence, and delivering value to our shareholders. We'll continue to navigate market dynamics with agility and prudence, ensuring we're well-positioned for long-term success."

Highlights:

Delivered first quarter production of 103,224 bbls/d at a leading 2.28 steam-oil ratio ("SOR"); Generated funds from operations ("FFO") of $380 million ( $1.47 per share), an increase of 24% from Q1 2024; Reported free cash flow ("FCF") of $223 million ( $0.86 per share) after funding $157 million of capital expenditures; Returned $185 million of capital to shareholders: Repurchased and cancelled 6.7 million shares, or 3% of total shares outstanding at December 31, 2024 , for $159 million ; and Paid a quarterly cash dividend of $26 million , or $0.10 per share, on January 15, 2025 ;

Incurred non-energy operating costs of $5.84 per barrel and energy operating costs net of power revenue of $2.06 per barrel; The Corporation's 2025 operating and capital guidance remains unchanged; and On May 6, 2025 , the Corporation's Board of Directors declared a quarterly base dividend of $0.10 per share for payment on July 15, 2025 , to shareholders of record on June 16, 2025 .

| | | 1 All financial figures are in Canadian dollars ($ or C$) and all references to barrels are per barrel of bitumen unless otherwise noted. The Corporation's Non-GAAP and Other Financial Measures are detailed in the Advisory section of this news release. They include: cash operating netback, bitumen realization net of transportation and storage expense, operating expenses net of power revenue, energy operating costs net of power revenue, non-energy operating costs, energy operating costs, funds from operations and free cash flow. |

The following table summarizes selected operational and financial information of the Corporation for the periods noted. All dollar amounts are stated in Canadian dollars ($ or C$) unless otherwise noted and all per barrel operational and financial results are based on bitumen sales volumes:

| | 2025 | 2024 | | | | | ($millions, except as indicated) | Q1 | Q4 | Q3 | Q2 | Q1 | | Operational results: | | | | | | | Bitumen production - bbls/d | 103,224 | 100,139 | 103,298 | 100,531 | 104,088 | | Per share, diluted | 0.04 | 0.03 | 0.04 | 0.03 | 0.03 | | Steam-oil ratio | 2.28 | 2.40 | 2.36 | 2.44 | 2.37 | | Bitumen sales - bbls/d | 102,126 | 100,821 | 105,255 | 93,140 | 105,534 | | Business environment: | | | | | | | WTI - US$/bbl | 71.42 | 70.27 | 75.09 | 80.57 | 76.96 | | Differential - WTI:WCS - Edmonton - US$/bbl | (12.67) | (12.56) | (13.55) | (13.61) | (19.31) | | AWB - Edmonton - US$/bbl | 57.77 | 56.82 | 60.62 | 65.99 | 55.96 | | | | | | | | | C$ equivalent of 1 US$ – average | 1.4350 | 1.3991 | 1.3636 | 1.3684 | 1.3488 | | Financial results: | | | | | | | Bitumen realization after net transportation

and storage expense (1) - $/bbl | 65.98 | 62.62 | 65.61 | 73.84 | 60.10 | | | | | | | | | Non-energy operating costs (2) - $/bbl | 5.84 | 5.61 | 5.18 | 5.63 | 5.18 | | Energy operating costs net of power revenue (1) - $/bbl | 2.06 | 0.90 | 0.64 | 0.99 | 1.19 | | Operating expenses net of power revenue (1) - $/bbl | 7.90 | 6.51 | 5.82 | 6.62 | 6.37 | | Cash operating netback (1) - $/bbl | 46.30 | 41.09 | 41.35 | 47.14 | 39.99 | | | | | | | | | Royalties | 108 | 132 | 169 | 162 | 128 | | | | | | | | | Funds from operations (3) | 380 | 340 | 362 | 354 | 329 | | Per share, diluted | 1.47 | 1.29 | 1.34 | 1.30 | 1.19 | | Capital expenditures | 157 | 172 | 141 | 123 | 112 | | Free cash flow (3) | 223 | 168 | 221 | 231 | 217 | | Per share, diluted | 0.86 | 0.64 | 0.82 | 0.85 | 0.78 | | Weighted average common shares outstanding - diluted | 258 | 263 | 269 | 272 | 276 | | | | | | | | | Debt repayments - US$ | — | — | 100 | 53 | 105 | | Share repurchases - C$ | 159 | 151 | 108 | 68 | 127 | | Dividends paid - C$ | 26 | 27 | — | — | — | | | | | | | | | Revenues | 1,162 | 1,147 | 1,265 | 1,373 | 1,364 | | | | | | | | | Net earnings | 211 | 106 | 167 | 136 | 98 | | Per share, diluted | 0.82 | 0.40 | 0.62 | 0.50 | 0.36 |

| (1) Non-GAAP financial measure - please refer to the Advisory section of this news release. | | (2) Supplementary financial measure - please refer to the Advisory section of this news release. | | (3) Capital management measure - please refer to the Advisory section of this news release. |

Financial Results

FFO in the first quarter of 2025 was $380 million compared to $329 million in the same period of 2024. The 16% increase was mainly driven by a higher cash operating netback and a lower interest expense due to reduced debt levels.

On a diluted per-share basis, FFO increased 24%, to $1.47 , in the first quarter of 2025 from $1.19 in the comparative 2024 period reflecting the combined impact of increased FFO and the reduced number of shares outstanding as a result of share repurchases.

Cash operating netback increased to $46.30 per barrel during the first quarter of 2025 from $39.99 per barrel in the same period of 2024, mainly reflecting a higher bitumen realization after net transportation and storage expense and lower royalties partially offset by higher operating expenses net of power revenue.

Bitumen realization after net transportation and storage expense increased 10%, to $65.98 per barrel, in the first quarter of 2025 from $60.10 per barrel in the same period of 2024. The benefits from a US$6.64 per barrel narrower WTI:WCS differential, the positive impact of a weaker Canadian dollar, higher price realization associated with diverse market access and lower diluent expense were partially offset by a lower average WTI price and higher net transportation and storage expense.

After funding capital expenditures of $157 million , MEG generated $223 million of FCF which was used to return $185 million to shareholders. During the first quarter of 2025, the Corporation repurchased and cancelled 3% of total shares outstanding at December 31, 2024 , or 6.7 million shares, for $159 million and paid $26 million of dividends.

First quarter net earnings were $211 million in 2025, compared to $98 million in 2024, driven by higher FFO, lower depletion and depreciation expense and a reduced unrealized foreign exchange loss partially offset by higher deferred income tax expense.

Operational Results

Average first quarter 2025 bitumen production was 103,224 barrels per day at 2.28 SOR, compared to 104,088 barrels per day in the same period of 2024 at a 2.37 SOR. The lower SOR reflects improved reservoir quality and optimized design of recent wells.

Per barrel non‐energy operating costs were $5.84 in the first quarter of 2025, compared to $5.18 in the same period of 2024, primarily reflecting expected increases in process treating costs and services as a result of new well pads.

Energy operating costs net of power revenue rose to $2.06 per barrel in the first quarter of 2025 from $1.19 per barrel in the comparative 2024 period. The benefit associated with a weaker AECO natural gas price was more than offset by a lower realized power price. Revenue from the sale of excess power generated by the Corporation's cogeneration facilities offset 34% of energy operating costs in the first quarter of 2025 compared to 69% in the comparative 2024 period.

Capital expenditures increased to $157 million in the first quarter of 2025, from $112 million in the same period of 2024, primarily reflecting the planned investment in the Facility Expansion Project and field and facility infrastructure costs.

Capital Allocation Strategy

The Corporation intends to return 100% of free cash flow to shareholders through a combination of share repurchases and payment of a quarterly base dividend while preserving balance sheet quality and managing working capital cash requirements.

On May 6, 2025 , the Corporation's Board of Directors declared a quarterly base dividend of $0.10 per share for payment on July 15, 2025 , to shareholders of record on June 16, 2025 . Declaration of dividends is at the discretion of the Board of Directors. All dividends paid by MEG are designated as eligible dividends for Canadian federal income tax purposes.

On March 6, 2025 , the Toronto Stock Exchange approved the renewal of the Corporation's normal course issuer bid ("NCIB"). Pursuant to the NCIB, MEG may, at its discretion, purchase and cancel up to a maximum of 22,535,791 common shares of the Corporation. The NCIB became effective on March 11, 2025 , and will terminate on March 10, 2026 or such earlier time as the NCIB is completed or terminated at the option of MEG.

Outlook

The Corporation's 2025 operating and capital guidance released on November 25, 2024 remains unchanged.

Funds from Operations Sensitivity

MEG's production is composed entirely of crude oil, and FFO is highly correlated with crude oil benchmark prices and light-heavy oil differentials. The following table provides an annual sensitivity estimate to the most significant market variables.

| (1) | Each sensitivity is independent of changes to other variables. | | (2) | Assumes mid-point of 2025 production guidance, US$70.00/bbl WTI, ~US$13.00/bbl Edmonton/PADD II WTI:WCS discount, C$1.35/US$ F/X rate, condensate purchased at 100% of WTI, and one bbl of bitumen per 1.42 bbls of blend sales (1.42 blend ratio). | | (3) | Assumes 1.3 GJ/bbl of bitumen, 64% of 150 MW of power generation sold externally and a 25.0 heat rate (every $0.50/GJ change in AECO natural gas price changes the power price by C$12.50/MWh). |

Conference Call

A conference call will be held to review MEG's first quarter 2025 results on May 7, 2025 , at 6:30 a.m. Mountain Time ( 8:30 a.m. Eastern Time ). To participate, please dial the North American toll-free number 1-888-510-2154, or the international call number 1-437-900-0527.

A recording of the call will be available by 12:00 p.m. Mountain Time ( 2:00 p.m. Eastern Time ) on the same day at https://www.megenergy.com/investors/presentations-events/ .

ADVISORY

Basis of Presentation

MEG prepares its financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards") and presents financial results in Canadian dollars ($ or C$), which is the Corporation's functional currency.

Non-GAAP and Other Financial Measures

Certain financial measures in this news release are non-GAAP financial measures or ratios, supplementary financial measures and capital management measures. These measures are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-GAAP and other financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS.

Funds from Operations and Free Cash Flow

Funds from operations and free cash flow are capital management measures and are defined in the Corporation's consolidated financial statements. Funds from operations and free cash flow are presented to assist management and investors in analyzing operating performance and cash flow generating ability. Net cash provided by (used in) operating activities is an IFRS measure in the Corporation's consolidated statement of cash flow. Funds from operations is calculated as net cash provided by (used in) operating activities before the net change in non-cash working capital items. Free cash flow is presented to assist management and investors in analyzing performance by the Corporation as a measure of financial liquidity and the capacity of the business to return capital to shareholders. Free cash flow is calculated as funds from operations less capital expenditures.

The following table reconciles Net cash provided by (used in) operating activities to FFO and FCF:

| | Three months ended March 31 | | | ($millions) | 2025 | 2024 | | Net cash provided by (used in) operating activities | $ 296 | $ 317 | | Net change in non-cash working capital items | $ 84 | $ 12 | | Funds from operations | $ 380 | $ 329 | | Capital expenditures | (157) | (112) | | Free cash flow | $ 223 | $ 217 |

Cash Operating Netback

Cash operating netback is a non-GAAP financial measure, or ratio when expressed on a per barrel basis. Its terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. This non-GAAP financial measure should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS.

Cash operating netback is a financial measure widely used in the oil and gas industry as a supplemental measure of a company's efficiency and its ability to generate cash flow for debt repayment, dividends, capital expenditures, or other uses. The per barrel calculation of cash operating netback is based on bitumen sales volumes.

Revenues is an IFRS measure in the Corporation's consolidated statement of earnings and comprehensive income which is the most directly comparable primary financial statement measure to cash operating netback. A reconciliation from revenues to cash operating netback has been provided below:

| | Three months ended March 31 | | | ($millions) | 2025 | 2024 | | Revenues | $ 1,162 | $ 1,364 | | Diluent expense | (458) | (456) | | Transportation and storage expense | (166) | (130) | | Purchased product | (30) | (304) | | Operating expenses | (82) | (86) | | Realized gain (loss) on commodity risk management | — | (4) | | Cash operating netback | $ 426 | $ 384 |

Blend Sales and Bitumen Realization

Blend sales and bitumen realization are non-GAAP financial measures, or ratios when expressed on a per barrel basis, and are used as measures of the Corporation's marketing strategy by isolating petroleum revenue and costs associated with its produced and purchased products and excludes royalties. Their terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-GAAP financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS. Blend sales per barrel is based on blend sales volumes and bitumen realization per barrel is based on bitumen sales volumes.

Revenues is an IFRS measure in the Corporation's consolidated statement of earnings and comprehensive income, which is the most directly comparable primary financial statement measure to blend sales and bitumen realization. A reconciliation from revenues to blend sales and bitumen realization has been provided below:

| | Three months ended March 31 | | | | | | 2025 | 2024 | | | | ($millions, except as indicated) | | $/bbl | | $/bbl | | Revenues | $ 1,162 | | $ 1,364 | | | Power and transportation revenue | (11) | | (26) | | | Royalties | 108 | | 128 | | | Petroleum revenue | 1,259 | | 1,466 | | | Purchased product | (30) | | (304) | | | Blend sales | 1,229 | $ 92.48 | 1,162 | $ 83.58 | | Diluent expense | (458) | (8.51) | (456) | (10.00) | | Bitumen realization | $ 771 | $ 83.97 | $ 706 | $ 73.58 |

Net Transportation and Storage Expense

Net transportation and storage expense is a non-GAAP financial measure, or ratio when expressed on a per barrel basis. Its terms are not defined by IFRS and therefore may not be comparable to similar measures provided by other companies. This non-GAAP financial measure should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS. Per barrel amounts are based on bitumen sales volumes.

It is used as a measure of the Corporation's marketing strategy by focusing on maximizing the realized AWB sales price after transportation and storage expense by utilizing its network of pipeline and storage facilities to optimize market access.

Transportation and storage expense is an IFRS measure in the Corporation's consolidated statements of earnings and comprehensive income.

Power and transportation revenue is an IFRS measure in the Corporation's consolidated statement of earnings and comprehensive income, which is the most directly comparable primary financial statement measure to transportation revenue. A reconciliation from power and transportation revenue to transportation revenue has been provided below.

| | Three months ended March 31 | | | | | | 2025 | 2024 | | | | ($millions, except as indicated) | | $/bbl | | $/bbl | | Transportation and storage expense | $ (166) | $ (18.07) | $ (130) | $ (13.55) | | | | | | | | Power and transportation revenue | $ 11 | | $ 26 | | | Less power revenue | (10) | | (25) | | | Transportation revenue | $ 1 | $ 0.08 | $ 1 | $ 0.07 | | | | | | | | Net transportation and storage expense | $ (165) | $ (17.99) | $ (129) | $ (13.48) |

Bitumen Realization after Net Transportation and Storage Expense

Bitumen realization after net transportation and storage expense is a non-GAAP financial measure, or ratio when expressed on a per barrel basis. Its terms are not defined by IFRS and therefore may not be comparable to similar measures provided by other companies. This non-GAAP financial measure should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS. Per barrel amounts are based on bitumen sales volumes.

It is used as a measure of the Corporation's marketing strategy by focusing on maximizing the realized AWB sales price after net transportation and storage expense by utilizing its network of pipeline and storage facilities to optimize market access.

| | Three months ended March 31 | | | | | | 2025 | 2024 | | | | ($millions, except as indicated) | | $/bbl | | $/bbl | | Bitumen realization (1) | $ 771 | $ 83.97 | $ 706 | $ 73.58 | | Net transportation and storage expense (1) | (165) | (17.99) | (129) | (13.48) | | Bitumen realization after net transportation and storage expense | $ 606 | $ 65.98 | $ 577 | $ 60.10 |

| (1) Non-GAAP financial measure as defined in this section. |

Operating Expenses net of Power Revenue and Energy Operating Costs net of Power Revenue

Operating expenses net of power revenue and energy operating costs net of power revenue are both non-GAAP financial measures, or ratios when expressed on a per barrel basis. Their terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-GAAP financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS. Per barrel amounts are based on bitumen sales volumes.

Operating expenses net of power revenue is used as a measure of the Corporation's cost to operate its facilities at the Christina Lake project after factoring in the benefits from selling excess power to offset energy costs.