MEG Energy Corp.

Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MEG Energy's 2024 Q2 Resolve conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, followed by the two. Thank you. Mrs. Darlene Gates, CEO, you may begin your conference.

Thank you, Joelle. Good morning, everyone, and thank you for joining us to review Meg Energy's second quarter 2024 financial and operating results. With me on this call this morning are Ryan Kubik, our Chief Financial Officer, Lai-Yu Zdebski, our Senior Vice President of Legal and Corporate Development, and Eric Olson, 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. For further detail on our second quarter results, please refer to yesterday's press release. I'd like to begin today by providing an update on our wildfire situation. Last week, we proactively evacuated non-essential personnel from the site, and continue to operate our Christina Lake facility with a reduced and essential workforce. To date, the wildfire has not directly impacted our facility and production remains steady. I'm pleased to share that we have started to return evacuated workers to site as of today. I want to express my appreciation for our dedicated team for their ongoing efforts in ensuring safe and continuous operation of Christina Lake. They also exemplified collaboration with our industry partners and communities. I want to recognize Alberta Forestry and Parks for their selfless support in ensuring the safety of our people and communities. Thank you for everything that they are doing to help keep us all safe and their ongoing efforts. Moving on to business results. I'm proud of Meg's strong safety, operating and financial performance in the second quarter of 2024. which demonstrates the team's continuous focus on operational excellence. These business results mean that Meg expects to reach its US $600 million net debt target in the third quarter, and I'm pleased to announce that Meg's board of directors has approved an inaugural quarterly cash dividend of $0.10 per share. This announcement is the culmination of a robust multi-year debt repayment and capital allocation strategy. and highlights MEG's maturation as a senior Canadian oil producer. Further to our longstanding commitment, shareholder returns will rise to 100% of free cash flow with an emphasis on continued share buybacks and a quarterly base dividend. This dividend equates to an approximate 1.5% annual yield at MEG's current share price, a level that is positioned to grow through disciplined capital allocation. The dividend will be payable on October 15, 2024 to shareholders of record at the close of business on September 17, 2024. Meg recorded $354 million of adjusted funds flow in the second quarter, and after funding $123 million in capital expenditures, we generated $231 million of free cash flow. That free cash flow facilitated the repayment of US $53 million in senior notes and allowed for the repurchase of 68 million or 2.2 million mixed shares. Year to date, we have repaid U.S. $158 million of debt and repurchased 7 million shares, totaling $195 million of share repurchases. Net debt as of June 30th was U.S. $634 million. Another milestone in the second quarter was the startup of the Trans Mountain Expansion Pipeline. MAG began shipping on our 20,000 barrel per day contracted capacity of Canada's West Coast to Canada's West Coast, and our first cargo left the dock in June. This was an important milestone, which removed long-standing Western Canadian transportation constraints, which we believe will lead to narrower and less volatile Canadian heavy oil differentials improving Meg's net backs and profitability. This was evident in the tightening of the WCF to WTI differential of US $5.70 per barrel in Q2 relative to the first quarter of 2024. Our second quarter average bitumen realization after net transportation and storage expense of $74 per barrel represents a 28% increase over the same period in 2023. On our operating front, bitumen production for the quarter averaged approximately 100,500 barrels per day, representing a 17% increase over the second quarter of 2023. This improved performance was driven by continued strong results from our recent PsyD pads and reduced turnaround scope. We converted the first group of wells from our newest pad to production late in the quarter, and they are ramping up in line with expectations. Our second quarter steam-to-oil ratio of 2.44 reflects planned circulation of steam to these new wells. As we move into the second half of 2024, we anticipate higher production volumes with the addition of these new wells coming on. This, coupled with the startup of a second pad late in the year, positions us for a strong exit to 2024. Operating expenses net of power revenue in the second quarter averaged an industry-leading $6.62 per barrel. We continue to benefit from low natural gas prices and power revenues, offsetting 54% of energy operating costs during the quarter. This results in $0.99 per barrel of energy operating costs net of power revenues. Capital investments in the quarter totaled $123 million primarily directed towards drilling activity on site deep pads and our short cycle redevelopment and infill program. Engineering and design work on our facility expansion plan continues to progress with a final investment decision expected later in the year. On our 2024 capital and operating guidance, it remains unchanged. Now to a brief update on the Oil Tanks Pathways Alliance. Regulatory applications to the Alberta Energy Regulator seeking approvals for pathways CO2 transportation network and storage hubs are continuing, and the front-end engineering and design on the proposed 400-kilometer CO2 transportation line is now more than 75% complete. Formal consultation and engagement with Indigenous groups along with the proposed CO2 transportation corridor and storage network continues. And the Pathways Alliance continues to work actively with both the federal and Alberta governments on the necessary policy and co-financing frameworks required to move the project forward. Lastly, I'd like to welcome Mike McAllister to make Board of Directors effective July 1st. Mr. McAllister brings over 40 years of energy industry experience, having helped several executives and technical... overseeing operations, development, marketing, and corporate services. His experience and expertise will be of significant benefit to our board as we execute our strategic initiative. 2024 has been a milestone year for Meg as we reach the culmination of our balance sheet improvement strategy and the TMX startup diversifies market access and offers the potential for improved netbacks on all our productions. With our commitment to returning 100% to free cash flow to shareholders, introduction of a base dividend, and our transition to self-funded moderate organic growth production, MAG has solidified its position as a leading pure plate oil investment. 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 it back over to Joelle to begin the Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Greg Party with RBC. Your line is now open.