MEG Energy Corp. announced its 2022 capital investment plan and operational guidance. Highlights include:
MEG Energy announces 2022 capital investment plan, further debt repayment and go-forward capital allocation strategy (CNW Group/MEG Energy Corp.)
2022 capital budget of $375 million;
2022 production guidance of 94,000 to 97,000 barrels per day (bbls/d) which takes into account a planned major turnaround expected to impact full year production by approximately 6,000 bbls/d;
2022 non-energy operating costs and general and administrative ("G&A") expense guidance of $4.50 to $4.80 per barrel and $1.70 to $1.85 per barrel, respectively;
Concurrent with this press release, MEG has issued a notice to redeem US$225 million (approximately $285 million) of MEG's 6.50% senior secured second lien notes due January 2025; and
Due to the positive rate of change in expected future free cash flows resulting from the current commodity price environment, MEG intends to begin allocating a portion of free cash flow generated to shareholder returns in 2022 while continuing to prioritize ongoing debt reduction.
2022 Capital Investment Summary
Approximately 15% of the $310 million sustaining and maintenance capital will be directed toward turnaround activities planned for the second quarter of 2022 with the remainder directed toward the drilling, completing and tying in of new SAGD and infill wells.
Optimization capital of $50 million represents the remainder of the previously announced $125 million of incremental well capital necessary to allow the Corporation to fully utilize the Christina Lake central plant facility's oil processing capacity of approximately 100,000 bbls/d, prior to any impact from scheduled maintenance activity or outages.
The $15 million of capital investment targeted to field infrastructure, regulatory, corporate and other represents capital necessary to maintain MEG's business that is not directly associated with sustaining and maintenance of production at Christina Lake.
Budgeted capital costs reflect approximately 10% year over year impact from observed inflationary and supply chain pressures.
In the current commodity price environment, total capital investment represents approximately 35% of MEG's estimated full year 2022 adjusted funds flow.
MEG announced today that the Corporation has issued a notice to redeem US$225 million (approximately $285 million) of MEG's 6.50% senior secured second lien notes due January 2025 at a redemption price of 101.625%, plus accrued and unpaid interest to, but not including, the redemption date. The redemption is expected to be completed on or about January 18, 2022.
Debt reduction over the last four years now totals approximately US$1.8 billion. Continued debt reduction remains a core focus of the Corporation.
Ongoing Debt Repayment and Intention to Initiate Capital Return to Shareholders
MEG expects to exit 2021 with net debt of US$1.9 billion. Until the corporation reaches its near-term net debt target of US$1.7 billion, 100% of free cash flow generated will continue to go toward debt repayment. In the current commodity price environment MEG expects to reach this near-term target early in the second quarter of 2022.
Upon reaching its near-term net debt target, MEG intends to increase shareholder returns through the implementation of a share buyback program. MEG expects to allocate approximately 25% of free cash flow generated to shareholder returns, with the remaining free cash flow applied to ongoing debt reduction until the Corporation's net debt balance reaches US$1.2 billion. At current production levels, this net debt target implies a net debt to EBITDA multiple of less than 2 times at a long-term US$50 per barrel WTI price. Assuming a US$70 per barrel WTI price, MEG expects to reach this net debt target in early 2023, at which time the Corporation expects to increase the percentage of free cash flow returned to shareholders while continuing to further strengthen its balance sheet.
MEG's 2022 production and operational guidance reflects the impact of a scheduled 30-day turnaround in the second quarter at its Christina Lake Phase 2B facility which is expected to impact full year production by approximately 6,000 bbls/d.
MEG has capacity to ship 100,000 bbls/d of AWB blend sales, on a pre-apportionment basis, to the U.S. Gulf Coast market via its committed capacity on the Flanagan South and Seaway Pipeline systems ("FSP"). MEG expects to sell approximately two-thirds of its full year 2022 AWB blend sales volumes into the U.S. Gulf Coast via FSP with the remainder being sold into the Edmonton market. MEG expects full year 2022 total transportation costs to average between US$7.50 to US$8.00 per barrel of AWB blend sales.
MEG has not entered into any WTI or WTI:WCS differential hedges for 2022.