MEG Energy Corp.

morning my name is colin and i'll be your conference operator today at this time i would like to welcome everyone to the mag energy's 2024 q1 results conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there'll be a question and answer session if you'd like to ask a question during this time simply press star then the number one on your telephone keypad if you'd like to withdraw your question please press star followed by two Thank you. Mrs. Darlene Gates, CEO, you may begin your conference.

Good morning, everyone, and thank you for joining us to review Meg Energy's first quarter 2024 financial and operating results. With me on this call are Ryan Kubik, our Chief Financial Officer, Lyle Yudepski, our Senior Vice President of Legal and Corporate Development, and Eric Alton, our Senior Vice President of Marketing. I'd like to remind our listeners that this call contains forward-looking information. Please refer to the advisories in our disclosure documents filed on CDAR and our website. I'll keep my remarks brief today. If you'd like further detail on our first quarter results, please refer to yesterday's press release. MegEnergy is a leader in sustainable, innovative, and responsible energy development. and I'm excited and grateful to lead this organization in my new capacity as president and CEO. On behalf of the entire board and management team, I want to thank Derek Evans for his contributions to the organization over the past six years. MAG has a bright future ahead and will maintain its focus on safety, operational excellence, and shareholder returns. I'm confident that we'll leverage the unique strengths of our assets and the talents of our people to continue delivering long-term value for shareholders. This was demonstrated in our strong first quarter safety, operating, marketing, and financial performance. Despite record cold weather and increased drilling activity in the quarter, we achieved a total recordable injury rate of 0.22 and no lost time incidents. First quarter production averaged 104,000 barrels per day, which was delivered at a top-tier steam-to-oil ratio of 2.37. Our 2024 redevelopment and infill program kicked off to a strong start. We also began steaming the first of our two-well pad program, which is scheduled to start up in the second quarter and will reach peak production later this year. We are performing planned maintenance in the second quarter and expect production to average around 100,000 barrels per day, but our significantly reduced turnaround scope spread more evenly throughout the year will help achieve our 2024 production guidance of 102,000 to 108,000 barrels per day. Operating expenses net of power revenue in the first quarter averaged an industry-leading $6.37 per barrel, which included non-energy operating costs of $5.18 per barrel. Low natural gas and favorable power prices continue to benefit our business, with power revenues offsetting 68% of energy operating costs. Capital investments for the quarter totaled $112 million, directed towards drilling activity on SAGD pads and our short cycle redevelopment and info program. Engineering and design work on our growth plans is also progressing well, with a final investment decision and associated ramp up in expenditures expected in the second half of the year. On the revenue side, we continue to realize strong value for our bitumen, Average first quarter bitumen realization after net transportation and storage expense was $60 per barrel, which represents a 38% increase over the same period in 2023, despite higher mainland apportionment. In the second quarter, our marketing strategy with access to the U.S. Gulf Coast increased our Edmonton realized blend sales price after net transportation and storage expense by U.S. $1.54 per barrel relative to Edmonton AWB index. These price improvements, along with strong operational performance, generated $329 million of adjusted funds flow for the quarter. After $112 million in capital expenditures, Meg generated $217 million of free cash flow. That free cash flow facilitated the repayment of U.S. $105 million in senior notes and the repurchase of Canadian $127 million or 4.7 million bank shares. Our net debt at the end of the quarter was US $687 million, and we're on track to reach our US $600 million net debt target in the third quarter. At that point, we'll transition to returning 100% of free cash flow to shareholders. In March, we renewed our normal course issuer bid for another year, which facilitates that continued return of capital to our shareholders. As announced last week, the Trans Mountain pipeline expansion is approved for operation. This marks a significant milestone, not just for MEG, but also for Alberta. This pipeline provides excess transportation capacity out of Canada for the first time in many years, which should narrow and reduce the volatility of our heavy oil differential. The Pathways Alliance continues to advance its proposed foundational carbon capture and storage project. The alliance is in discussions with the federal and Alberta provincial governments on different fiscal and policy tools for large-scale projects such as ours. This support will help us to de-risk the investments needed to build a competitive clean economy and help meet Canada's climate goals. Regulatory applications to the Alberta Energy Regulator began in mid-March, seeking approvals for the Pathways CO2 Transportation Network and Storage Hub. Formal consultation and engagement with Indigenous groups along the proposed CO2 transportation corridor and storage network began in the fall of 2023. Those discussions alongside meetings with communities and landowners continues to take place. The recent federal budget also signaled several important measures that could potentially help get the Pathways project to final investment decisions, but more work is necessary. Lastly, I am excited to share that Bob Rooney is standing for election to Meg's board of directors at the corporation's annual shareholders meeting later today. Mr. Rooney is currently an executive advisor with Enbridge and has over 40 years of energy sector experience in strategic planning, capital allocation, corporate finance, and governance. The board and I are looking forward to officially welcoming another remarkably qualified Canadian oil and gas industry veteran onto our team. As I bring my remarks to a close, I want to emphasize my commitment to the vision and strategic direction that our team has established in recent years. With favorable price fundamentals and unprecedented egress capacity, Meg is well positioned to continue delivering long-term value to our shareholders. I am excited to move Meg forward into its next chapter. I'm confident in our ability to execute the 2024 plans with our teams. On behalf of MAG's Board of Directors and our management team, I want to thank you for your continued support. With that, I'll turn the call back over to Colin to begin the Q&A.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you'd like to ask a question, please press star followed by 1. If you'd like to withdraw your question, press star followed by 2. If you're using a handset, please lift the handset before pressing any keys. Your first question comes from Greg Party from RBC Capital Markets. Greg, please go ahead.