MEG Energy announces 2024 fourth quarter and full-year results

2025-02-27

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

Canada NewsWire

CALGARY, AB , Feb. 27, 2025 /CNW/ - MEG Energy Corp. (TSX: MEG) ("MEG" or the "Corporation") reported its fourth quarter and full-year 2024 operational and financial results. 1

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"This was a significant year in the history of our company. MEG achieved several key milestones in 2024, including our fourth straight year of record production, hitting our net debt target and establishing a program to return 100% of our free cash flow to shareholders including an inaugural base dividend," said Darlene Gates , President & Chief Executive Officer of MEG. "MEG is now positioned to grow production and free cash flow per share through share buybacks and our Facility Expansion Project."

2024 Highlights:

Generated funds flow from operating activities ("FFO") of $1.4 billion or $5.13 per share, and free cash flow ("FCF") of $837 million or $3.10 per share; Record bitumen production of 102,012 bbls/d, within guidance, at a 2.39 steam-oil ratio ("SOR"); Continued to deliver top-quartile non-energy operating cost of $5.39 per barrel, consistent with our guidance, and energy operating costs net of power revenue of $0.93 per barrel; Leveraged Trans Mountain Expansion Project startup and our marketing expertise to access new international customers and improve bitumen realization; Achieved our targets for debt reduction and balance sheet strength, reducing net debt to $702 million ( US$488 million ) as at December 31, 2024 , positioning MEG to deliver enhanced capital returns to shareholders going forward; Returned $481 million in capital to shareholders through a combination of share buybacks and the initiation of a sustainable quarterly dividend of $0.10 per share: Spent $454 million to repurchase and cancel 17.0 million shares, or 6.2% of shares outstanding at the beginning of the year, and Paid $27 million in dividends;

Continued improvements in workplace safety performance, driving a reduction in Total Recordable Incident Rate to 0.24 in 2024, from 0.46 in 2022; and Made a positive Final Investment Decision ("FID") on the Facility Expansion Project ("FEP"), which is expected to add 25,000 barrels per day of production capacity, bringing total production capacity to approximately 135,000 barrels per day in 2027, at an anticipated capital cost of $470 million .

| _ | | 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, adjusted funds flow, free cash flow and net debt. |

| | Three months ended December 31 | Year ended December 31 | | | | ($millions, except as indicated) | 2024 | 2023 | 2024 | 2023 | | Operational results: | | | | | | | | | | | | Bitumen production - bbls/d | 100,139 | 109,112 | 102,012 | 101,425 | | Per share, diluted | 0.03 | 0.04 | 0.14 | 0.13 | | Steam-oil ratio | 2.40 | 2.28 | 2.39 | 2.27 | | Bitumen sales - bbls/d | 100,821 | 112,634 | 101,198 | 101,086 | | | | | | | | Benchmark pricing: | | | | | | | | | | | | WTI - US$/bbl | 70.27 | 78.32 | 75.72 | 77.62 | | Differential - WTI:WCS - Edmonton - US$/bbl | (12.56) | (21.89) | (14.76) | (18.71) | | AWB - Edmonton - US$/bbl | 56.82 | 54.53 | 59.84 | 56.83 | | | | | | | | Financial results: | | | | | | | | | | | | Bitumen realization after net transportation

and storage expense (1) - $/bbl | 62.62 | 63.52 | 65.31 | 62.46 | | | | | | | | Non-energy operating costs (2) - $/bbl | 5.61 | 4.64 | 5.39 | 5.01 | | Energy operating costs net of power

revenue (1) - $/bbl | 0.90 | 1.46 | 0.93 | 0.95 | | Operating expenses net of power

revenue (1) - $/bbl | 6.51 | 6.10 | 6.32 | 5.96 | | | | | | | | Cash operating netback (1) - $/bbl | 41.09 | 38.65 | 42.25 | 43.36 | | | | | | | | General & administrative expense -

$/bbl of bitumen production volumes | 1.85 | 1.89 | 1.95 | 1.86 | | | | | | | | Royalties | 132 | 186 | 591 | 456 | | | | | | | | Funds flow from operating activities | 340 | 358 | 1,385 | 1,476 | | Per share, diluted | 1.29 | 1.27 | 5.13 | 5.13 | | Adjusted funds flow (3) | 340 | 358 | 1,385 | 1,402 | | Per share, diluted (3) | 1.29 | 1.27 | 5.13 | 4.87 | | Capital expenditures | 172 | 104 | 548 | 449 | | Free cash flow (3) | 168 | 254 | 837 | 953 | | Per share, diluted (3) | 0.64 | 0.90 | 3.10 | 3.31 | | Weighted average common shares

outstanding – diluted | 263 | 282 | 270 | 288 | | | | | | | | Debt repayments - US$ | — | 128 | 258 | 322 | | Share repurchases - C$ | 151 | 219 | 454 | 446 | | Dividends paid - C$ | 27 | — | 27 | — | | | | | | | | Revenues | 1,147 | 1,444 | 5,149 | 5,653 | | | | | | | | Net earnings | 106 | 103 | 507 | 569 | | Per share, diluted | 0.40 | 0.37 | 1.87 | 1.98 | | | | | | | | Long-term debt | 858 | 1,124 | 858 | 1,124 | | Net debt - US$ (3) | 488 | 730 | 488 | 730 |

| (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. |

Fourth Quarter Results

Bitumen production averaged 100,139 barrels per day at a SOR of 2.40 compared to 109,112 barrels per day at a SOR of 2.28 for the same period in 2023. The decrease in production and increase in SOR primarily reflect the timing of new well starts and a one-time, unplanned outage during the fourth quarter of 2024.

FFO and adjusted funds flow ("AFF") were $340 million in the fourth quarter of 2024, compared to $358 million in the same period of 2023, mainly reflecting reduced sales volumes, partially offset by lower diluent expense, royalties and interest expense.

On a diluted per-share basis, AFF increased to $1.29 per share in the fourth quarter of 2024 from $1.27 per share in the comparative 2023 period due to the decrease in the number of shares outstanding as a result of share buybacks.

Fourth quarter net earnings were $106 million in 2024, compared to $103 million in 2023, reflecting lower depletion and depreciation expense in 2024 and an onerous contract expense that was recognized in 2023, largely offset by an unrealized foreign exchange loss on long-term debt and higher deferred income tax expense.

The Corporation returned $178 million in capital to shareholders during the quarter, with $151 million allocated for the repurchase of 5.9 million shares and $27 million used for payment of dividends.

Full-Year Financial Results

MEG generated $1,385 million of FFO and AFF in 2024 compared to $1,476 million and $1,402 million , respectively, in 2023, driven by a lower cash operating netback partially offset by lower interest expense due to debt reduction. The lower 2024 cash operating netback mainly reflects higher royalty expense, partially offset by the benefit of a narrower WTI:AWB differential.

Bitumen realization after net transportation and storage expense increased by 5% to $65.31 per barrel in 2024, primarily driven by narrower WTI:AWB differentials, lower diluent expense and the positive impact of a weaker Canadian dollar, partially offset by a lower average WTI price and lower price realization associated with diverse market access. With respect to WTI:AWB differentials, they averaged about $5.00 per barrel narrower in 2024 versus 2023, reflecting the impact of TMX startup mid-year.

Capital expenditures increased to $548 million in 2024, from $449 million in 2023, reflecting planned investments in the FEP and field development, partially offset by the decreased scope of turnaround activities.

After funding capital expenditures, MEG generated $837 million of 2024 free cash flow, which was used to redeem $351 million ( US$258 million ) of outstanding 7.125% senior unsecured notes, repurchase and cancel $454 million , or 17.0 million common shares, at a weighted-average price of $26.77 per share, and pay $27 million of base dividends.

Net earnings in 2024 were $507 million , versus $569 million in 2023, reflecting an unrealized foreign exchange loss on long-term debt, increased deferred tax and depletion and depreciation expenses and lower AFF, partially offset by an unrealized gain on risk management and an onerous contract expense recognized in 2023.

Full-Year Production and Operating Results

Average 2024 bitumen production was 102,012 barrels per day at a SOR of 2.39, compared to 101,425 barrels per day in 2023 at a SOR of 2.27. The production increase is due to reduced 2024 turnaround activities, partially offset by cold weather impacts, the timing of new well start-ups and planned facility maintenance. The increase in the SOR primarily reflects planned timing of steam injection in new well starts.

Per barrel non‐energy operating costs were $5.39 in 2024 versus $5.01 per barrel in 2023 primarily reflecting an expected increase in labour costs, treating chemical costs, compliance costs and property taxes.

Energy operating costs net of power revenue were $0.93 per barrel in 2024 compared to $0.95 per barrel in 2023. The benefit associated with a weaker AECO natural gas price was largely offset by lower power revenue.

FEP Progress

On November 25, 2024 , MEG announced that the Corporation's Board of Directors had made a positive FID on the FEP, which is expected to add 25,000 barrels per day of production capacity, bringing total production capacity to approximately 135,000 barrels per day in 2027, at an anticipated capital cost of $470 million .

This organic growth project is expected to be entirely self-funded and builds upon the upfront work to delineate the Corporation's reserves. The FEP is expected to deliver significant value for shareholders, with a greater than 50% estimated internal rate of return at US$70 per barrel WTI pricing.

In 2024, the Corporation completed front-end engineering and design and other activities totaling $30 million in capital expenditures. Updates on FEP progress will be provided regularly.

Capital Allocation Strategy

In 2024, the Corporation completed its multi-year debt reduction strategy and initiated a program of increased capital returns to shareholders with 100% of free cash flow allocated to share buybacks and the initiation of a sustainable common share dividend.

MEG's inaugural cash dividend of $0.10 per share was paid on October 15, 2024 . On November 5, 2024 , the Corporation's Board of Directors declared a $0.10 per share dividend that was paid on January 15, 2025 , to shareholders of record at the close of business on December 16, 2024 .

On February 27, 2025 , the Corporation's Board of Directors declared a quarterly dividend of $0.10 per share for payment on April 15, 2025 , to shareholders of record on March 20, 2025 .

All dividends paid by MEG are designated as eligible dividends for Canadian federal income tax purposes. Declaration of dividends is at the discretion of the Board of Directors and will continue to be evaluated on a quarterly basis.

The Company intends to renew its normal course issuer bid for a one-year period upon its expiration on March 10, 2025 , which will allow the repurchase of up to an additional 10% of MEG's public float. 2

2025 Guidance

Full-year 2025 production guidance includes the impact of a turnaround in the second quarter, with an estimated annualized production impact of 8,000 barrels per day. The full-year production guidance also reflects the startup of two new well pads in the second half of the year, supporting capacity for future production.

The Corporation's $635 million capital expenditure program for 2025 includes $70 million for planned turnaround activities and $130 million for the multi-year FEP. The remaining $435 million expenditure is attributable to normal course sustaining and maintenance activities.

| | | 2 As defined by the Toronto Stock Exchange |

Adjusted Funds Flow Sensitivity

MEG's production is composed entirely of crude oil, and AFF 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). |

Pathways Alliance

MEG, along with its Pathways Alliance peers, continues to progress pre-work on the proposed foundational carbon capture and storage project, which will transport CO2 via pipeline from multiple oil sands facilities to be stored permanently underground in the Cold Lake region of Alberta . Pathways Alliance continues to work collaboratively with both the federal and Alberta Governments on the necessary policy and co-financing frameworks required to move the project forward.

Conference Call

A conference call will be held to review MEG's 2024 results on February 28, 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 p.m. Mountain Time ( 2 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.

Adjusted Funds Flow and Free Cash Flow

Adjusted funds flow and free cash flow are capital management measures and are defined in the Corporation's consolidated financial statements. Adjusted funds flow and free cash flow are presented to assist management and investors in analyzing operating performance and cash flow generating ability. Funds flow from operating activities is an IFRS measure in the Corporation's consolidated statement of cash flow. Adjusted funds flow is calculated as funds flow from operating activities excluding items not considered part of ordinary continuing operating results. By excluding non-recurring adjustments, the adjusted funds flow measure provides a meaningful metric for management and investors by establishing a clear link between the Corporation's cash flows and cash operating netback. 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 repay debt and return capital to shareholders. Free cash flow is calculated as adjusted funds flow less capital expenditures.

The following table reconciles FFO to AFF to FCF:

| | Three months ended December 31 | Year ended December 31 | | | | ($millions) | 2024 | 2023 | 2024 | 2023 | | Funds flow from operating activities | $ 340 | $ 358 | $ 1,385 | $ 1,476 | | Adjustments: | | | | | | Impact of cash-settled SBC units subject to equity price risk management | — | — | — | 13 | | Realized equity price risk management gain | — | — | — | (87) | | Adjusted funds flow | 340 | 358 | 1,385 | 1,402 | | Capital expenditures | (172) | (104) | (548) | (449) | | Free cash flow | $ 168 | $ 254 | $ 837 | $ 953 |

Net Debt

Net debt is a capital management measure and is defined in the Corporation's consolidated financial statements. Net debt is an important measure used by management to analyze leverage and liquidity. Net debt is calculated as long-term debt plus current portion of long-term debt less cash and cash equivalents.

The following table reconciles the Corporation's current and long-term debt to net debt:

| As at | December 31, 2024 | December 31, 2023 | | Long-term debt | $ 858 | $ 1,124 | | Cash and cash equivalents | (156) | (160) | | Net debt - C$ | $ 702 | $ 964 | | Net debt - US$ | $ 488 | $ 730 |

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 December 31 | Year ended December 31 | | | | ($millions) | 2024 | 2023 | 2024 | 2023 | | Revenues | $ 1,147 | $ 1,444 | $ 5,149 | $ 5,653 | | Diluent expense | (411) | (471) | (1,682) | (1,691) | | Transportation and storage expense | (177) | (148) | (625) | (600) | | Purchased product | (99) | (334) | (958) | (1,400) | | Operating expenses | (72) | (82) | (290) | (334) | | Realized gain (loss) on commodity risk management | (7) | (9) | (29) | (28) | | Cash operating netback | $ 381 | $ 400 | $ 1,565 | $ 1,600 |

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 a measure 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: