Delivering Profitable Growth. Investor Presentation

Transcription

1 Delivering Profitable Growth Investor Presentation JANUARY 2012

2 Disclaimer This presentation is not, and under no circumstances is to be construed to be a prospectus, offering memorandum, advertisement or public offering of any securities of MEG Energy Corp. ( MEG ). Neither the United States Securities and Exchange Commission (the SEC ) nor any other state securities regulator nor any securities regulatory authority in Canada or elsewhere has assessed the merits of MEG s securities or has reviewed or made any determination as to the truthfulness or completeness of the disclosure in this document. Any representation to the contrary is an offence. Recipients of this presentation are not to construe the contents of this presentation as legal, tax or investment advice and recipients should consult their own advisors in this regard. MEG has not registered (and has no current intention to register) its securities under the United States Securities Act of 1933, as amended (the U.S. Securities Act ), or any state securities or blue sky laws and MEG is not registered under the United States Investment Act of 1940, as amended. The securities of MEG may not be offered or sold in the United States or to U.S. persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available. Without limiting the foregoing, please be advised that certain financial information relating to MEG contained in this presentation was prepared in accordance with Canadian generally accepted accounting principles, which differ from generally accepted accounting principles in the United States and elsewhere. Accordingly, financial information included in this document may not be comparable to financial information of United States issuers. The information concerning petroleum reserves and resources appearing in this document was derived from a report of GLJ Petroleum Consultants Ltd. dated as of December 31, 2010, which has been prepared in accordance with the Canadian Securities Administrators National Instrument entitled Standards of Disclosure for Oil and Gas Activities ( NI ) at that time. The standards of NI differ from the standards of the SEC. The SEC generally permits U.S. reporting oil and gas companies in their filings with the SEC, to disclose only proved, probable and possible reserves, net of royalties and interests of others. NI , meanwhile, permits disclosure of estimates of contingent resources and reserves on a gross basis. As a consequence, information included in this presentation concerning our reserves and resources may not be comparable to information made by public issuers subject to the reporting and disclosure requirements of the SEC. There are significant differences in the criteria associated with the classification of reserves and contingent resources. Contingent resource estimates involve additional risk, specifically the risk of not achieving commerciality, not applicable to reserves estimates. There is no certainty that it will be commercially viable to produce any portion of the resources. The estimates of reserves and future net revenue from individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Further information regarding the estimates and classification of MEG s reserves and resources is contained within the Corporation s public disclosure documents on file with Canadian securities regulatory authorities, and in particular, within MEG s annual information form dated February 24, 2011 (the AIF ). MEG s public disclosure documents, including the AIF, may be accessed through the SEDAR website ( at MEG s website ( or by contacting MEG s investor relations department. Anticipated netbacks are calculated by adding anticipated revenues and other income and subtracting anticipated royalties, operating costs and transportation costs from such amount. Delivering Profitable Growth l 2

3 Disclosure Advisories Forward-Looking Statements Certain statements contained in this presentation constitute forward-looking statements. These statements relate to future events or MEG s future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words anticipate, plan, contemplate, continue, estimate, expect, intend, propose, might, may, will, shall, project, should, could, would, believe, predict, forecast, pursue, potential and capable and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this presentation should not be unduly relied upon. These statements speak only as of the date of this presentation. In addition, this presentation may contain forwardlooking statements and forward-looking information attributed to third party industry sources. In particular, this presentation contains forward-looking statements pertaining to the following: the reserve and resource potential of MEG s assets; the bitumen production and production capacity of MEG s assets; MEG s growth strategy and opportunities; MEG s capital expenditure programs and future capital requirements; the estimated quantity of MEG s proved reserves, probable reserves and contingent resources; MEG s projections of commodity prices, costs and netbacks; MEG s estimates of future interest and foreign exchange rates; MEG s environmental considerations, including water usage and greenhouse gas emissions; MEG s blending capability for its bitumen diluent blend; the timing and size of certain of MEG s operations and phases, including its planned bitumen development projects, and the levels of anticipated production; supply and demand fundamentals for crude oil, bitumen blend, natural gas, condensate and other diluents; MEG s access to adequate pipeline capacity; MEG s access to third-party infrastructure; industry conditions including with respect to project development; potential future markets for MEG s products; the planned construction of MEG s facilities; MEG s drilling plans; MEG s plans for, and results of, exploration and development activities; the use of the proceeds of the public offering; the expected application timeframe for the Surmont Project and for the Growth Properties; the timing for receipt of various regulatory approvals, including receipt of various regulatory approvals for the Christina Lake Project, Surmont Project and Growth Properties; MEG s treatment under governmental regulatory and royalty regimes and tax laws; and MEG s future general and administrative expenses. The forward-looking statements contained in this presentation are based on certain assumptions including: future crude oil, bitumen blend, natural gas, condensate and other diluent prices; MEG s ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which MEG conducts and will conduct its business; MEG s ability to market production of bitumen blend successfully to customers; MEG s future production levels; the applicability of technologies for the recovery and production of MEG s reserves and resources; the recoverability of MEG s reserves and resources; operating costs; future capital expenditures to be made by MEG; future sources of funding for MEG s capital programs; MEG s future debt levels; geological and engineering estimates in respect of MEG s reserves and resources; the geography of the areas in which MEG is conducting exploration and development activities; the impact of increasing competition on MEG; and MEG s ability to obtain financing on acceptable terms. In addition, information and statements in this presentation relating to reserves and resources are deemed to be forward-looking information and statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and that the reserves and resources described can be profitably produced in the future. The forward-looking statements included in this presentation are expressly qualified by this cautionary statement and are made as of the date of this presentation. MEG does not undertake any obligation to publicly update or revise any forward-looking statements except as required by applicable securities laws. For more information regarding forwardlooking statements, please see Risk Factors and Regulatory Matters within the AIF. Market Data This presentation contains statistical data, market research and industry forecasts that were obtained from government or other industry publications and reports or based on estimates derived from such publications and reports and management s knowledge of, and experience in, the markets in which MEG operates. Government and industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Often, such information is provided subject to specific terms and conditions limiting the liability of the provider, disclaiming any responsibility for such information, and/or limiting a third party s ability to rely on such information. None of the authors of such publications and reports has provided any form of consultation, advice or counsel regarding any aspect of, or is in any way whatsoever associated with, MEG. Further, certain of these organizations are advisors to participants in the oil sands industry, and they may present information in a manner that is more favourable to that industry than would be presented by an independent source. Actual outcomes may vary materially from those forecast in such reports or publications, and the prospect for material variation can be expected to increase as the length of the forecast period increases. While management believes this data to be reliable, market and industry data is subject to variations and cannot be verified due to limits on the availability and reliability of data inputs, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any market or other survey. Accordingly, the accuracy, currency and completeness of this information cannot be guaranteed. None of MEG, its affiliates or the underwriters has independently verified any of the data from third party sources referred to in this presentation or ascertained the underlying assumptions relied upon by such sources. Delivering Profitable Growth l 3

4 Highlights World-class oil resource opportunity Strong initial development results Well-defined, staged growth plan Marketing strategy offers unique cost and revenue advantage Strong financial position Management has a proven track record 100% ownership of over 900 sections of oil sands leases Steam-assisted gravity drainage ( SAGD ) technology 1.9B barrels of 2P reserves and 3.7B barrels of contingent resources (best estimate) Pre-tax PV 10%: $12.1B of 2P reserves and $13.3B of contingent resources (best estimate) Christina Lake Phase 2 industry-leading ramp-up within 9 months to full production rates Christina Lake produced 25,450 bbls/d at steam-to-oil ratio ( SOR ) of 2.5 for the nine months ending September 30, 2011* MEG plans for 260,000 bbls/d of production capacity by 2020 at Christina Lake and Surmont Significant additional development opportunities at Surmont and Growth Properties 50% ownership of the Access Pipeline; 100% ownership of the Stonefell Terminal project, a 900,000 barrel storage facility Ability to access multiple markets for blended bitumen sales and condensate supply Cash and short-term investments of $1.8B provide funding for 35,000 bbls/d Christina Lake Phase 2B project as of September 30, 2011 Undrawn revolver capacity of US$500 million Significant expertise in all aspects of oil sands exploration and development Team that designed and built existing phases is executing future phases *Year-to-date production included the impact of a 3-week planned shutdown in September for plant maintenance Delivering Profitable Growth l 4

5 MEG s Oil Sands Leases* 100% of MEG s land position is situated in the southern Athabasca region of Alberta Christina Lake Lease Holdings 51,200 acres 2P Reserves 1,919 MMbbls Contingent Resources (best est.) 1,061 MMbbls 2P Reserves PV-10%(1) $12,131 $MM Contingent Resources PV-10%(1) $2,821 $MM Surmont Lease Holdings Evaluated 20,480 acres Contingent Resources (best est.) 837 MMbbls Resources PV-10%(1) $3,511 $MM Growth Properties Lease Holdings Evaluated 192,000 acres Lease Holdings Unevaluated 289,280 acres Total Lease Holdings 481,280 acres Contingent Resources (best est.) 1,818 MMbbls Resources PV-10%(1) $6,934 $MM Based on GLJ Reserve Report dated December 31, Contingent resources (best estimate) PV-10% calculated on a before-tax basis. * Lease holdings as of December 31, 2010 Delivering Profitable Growth l 5

6 Converting Resources to Reserves Identified 1.9 billion barrels of 2P reserves and 3.7 billion barrels of contingent resources best estimate to-date* 2P Reserves Christina Lake Only (mmbbls) Contingent Resources (best estimate) (mmbbls) CAGR = 42% CAGR = 10% As at 12/31/10, PV 10% of 2P reserves was $12.1B and $13.3B of contingent resources (best estimate) * Based on GLJ Reserve Report dated December 31, 2010 Delivering Profitable Growth l 6

7 Production and SOR Performance Industry-leading ramp-up and SOR performance Delivering Profitable Growth l 7

8 Christina Lake Phase 2B Project progress update Phase 2B development continues to progress to plan Detailed engineering approximately 84% complete All major equipment has been ordered Module fabrication and major mechanical contracts have been awarded Procurement 85% complete Commenced construction on the foundations for major equipment Overall construction approximately 22% complete On track for 2013 start-up *As of September 30, 2011 Delivering Profitable Growth l 8

9 Growth Strategy 260,000 bbls/d of production capacity by 2020 at Christina Lake and Surmont* Christina Lake Project Phase 1 and 2 averaged 25,450 bbls/d of bitumen for the nine months ending September 30, ** Production guidance for 2011 is 25,000-27,000 bbls/d. Regulatory approvals received for 35,000 bbls/d Phase 2B project Construction of Phase 2B is 22% complete with initial production planned for 2013 Phase 3 application submitted in 2008, approval expected in 2012 Phase 3 expected to expand Christina Lake production capacity to ~210,000 bbls/d by 2020 Surmont Project Plan to file regulatory application for a multi-phase 100,000 bbls/d project in 2012 MEG is utilizing experience gained at Christina Lake Access Pipeline to be extended to Surmont Growth Properties 1.8 billion barrels of contingent resources (best estimate) - Only 40% of the acreage has been evaluated by GLJ to date Substantial exploration and development potential * Assuming an initial 50,000 bbls/d project at Surmont ** Year-to-date production included the impact of a 3-week planned shutdown in September for plant maintenance. Delivering Profitable Growth l 9

10 Staged Development Plan Staged development to mitigate risk and incorporate technological improvements Christina Lake Phase 2B Phase 3A Phase 3B Phase 3C Surmont Timing and sizes of future project phases is subject to further refinement and will be dependent on a number of factors including the timing and terms of regulatory approvals, the implementation of improving technologies and capturing efficiencies associated with the standardization of project phase sizes. Christina Lake Phase 3 is a 150,000 bbls/d, multi-phased project. Surmont is estimated to be a 100,000 bbls/d, multi-phased project. Plans to develop the Growth Properties are currently being evaluated. The construction schedule does not include initial procurement and site clearing activities. Delivering Profitable Growth l 10

11 Cogeneration 85 MW facility generates steam and electricity for operations, while surplus electricity is sold to the grid Benefits: Produces heat used for steam generation - Existing 85 MW cogen facility produces approximately 70% of the steam for Phase 1 and 2 SAGD - Results in more efficient use of natural gas - Provides an offset to GHG emissions Produces electricity used in operations - Phases 1 and 2 combined utilize ~10-12 MW Surplus sold into Alberta power pool - Partially offsets natural gas and power costs - Partial hedges against fuel price changes - Revenue generated from power sales had offset more than 80% of MEG s energy operating costs during the nine months ended September 30, 2011 Delivering Profitable Growth l 11

12 Marketing Strategy Access Pipeline and Stonefell Terminal offer MEG a unique cost and revenue advantage Access Pipeline 345 km dual pipeline (50/50 JV with Devon Energy) Current capacity (net): 78,000 bbls/d blended bitumen and 35,000 bbls/d condensate - Planned additional pumping stations can increase capacity to 118,000 bbls/d and 76,500 bbls/d (net), respectively - Future expansion plans to meet growing needs at Christina Lake, Surmont and the Growth Properties Provides access to multiple markets for upgrading/refining as well as condensate supply Stonefell Terminal 900,000 barrel storage facility being constructed in Alberta s Industrial Heartland, northeast of Edmonton Ability to source blend feedstocks and diluent from nearby pipeline systems to aggregate streams and improve blend quality to increase netbacks Diluent storage allows MEG to opportunistically acquire and store diluent for effective cost control Blend storage mitigates impact of periodic export pipeline restrictions Delivering Profitable Growth l 12

13 Strong Cash Operating Netbacks Low-cost structure delivers high netbacks MEG does not upgrade its bitumen. Rather, our end product, Access Western Blend (AWB), is a bitumen blend that is sold at a discount relative to WTI. C$ per barrel unless specified 2010 YTD 2011 WTI US$79.52 US$95.48 WTI-blend differential 23% 25% Efficient plant utilization enables MEG to spread the fixed costs over production volumes which are currently above design capacity. As a result, our non-energy operating cost per barrel is amongst the top decile in the industry. Cogeneration generates power revenue that partially offsets our energy operating costs and provides a hedge against natural gas prices. Bitumen realization $51.76 $55.02 Transportation & selling ($1.61) ($1.47) Royalties ($2.13) ($3.07) Non-energy op costs ($14.39) ($11.03) Energy op costs ($6.47) ($5.35) Power revenue $3.76 $4.43 Cash operating netback $30.92 $38.53 Delivering Profitable Growth l 13

14 Financial Snapshot Funded beyond Christina Lake Phase 2B expansion C$ billion unless specified As of September 30, 2011 Liquidity Cash and short-term investments $1.8 Undrawn line of credit $ $2.3 Capital Requirements Remaining capital investment for Phase 2B* $0.9 *As of September 30, 2011, MEG had incurred approximately $500 million of the total $1.4 billion estimated cost to complete the Christina Lake Phase 2B project. Delivering Profitable Growth l 14

15 2012 Capital Budget and Operational Guidance Capital Investment Summary Growth Christina Lake Phase 2B Christina Lake Phase 3 Christina Lake enhancement opportunities Drilling and seismic Regulatory Infrastructure Access Pipeline Stonefell Terminal Field infrastructure Sustaining and Maintenance Other Total $ millions ,370 Operational Guidance Production Non-energy operating costs 26,000 to 28,000 bpd $10 12 per bbl Delivering Profitable Growth l 15

16 Investment Summary Pure play in situ producer exploiting high quality in situ resources using proven SAGD technology 1.9 billion barrels of 2P reserves and 3.7 billion barrels of best estimate contingent resources identified Well-defined, staged growth plan to take production capacity to ~260,000 bbls/d by 2020 representing 30% compounded annual growth Industry-leading production ramp-up and top-decile operating performance to-date Access Pipeline and Stonefell Terminal offer unique cost and revenue advantages Strong financial position to fund next phase of growth Management has a proven track record Delivering Profitable Growth l 16

17 Stock Price Performance Delivering Profitable Growth l 17

18 Appendices Delivering Profitable Growth l 18

19 Compelling Valuation versus Peers Oil Sands 2P Reserves and Contingent Resources (best estimate) (mmbbls) Price to Net Asset Value Suncor Imperial CNRL Nexen Cenovus Athabasca* MEG Husky SilverBirch Southern Pacific Connacher Ivanhoe Cenovus Imperial Husky Nexen Suncor MEG Athabasca SilverBirch Southern Pacific Ivanhoe Connacher Source: RBC Capital Markets. Share prices, NAV and the number of shares outstanding were calculated as of September 27, The methods used to calculate NAV were as determined by RBC Capital Markets. * Best estimate contingent resources for Athabasca excludes carbonates Delivering Profitable Growth l 19

20 Christina Lake Delineation Wells 88 delineation wells drilled in 2011 Christina Lake 80 sections 614 vertical wells 533 wells cored Phase 2B Area Phase 1 Area Wabiskaw / McMurray cores 2011 delineation wells Delivering Profitable Growth l 20

21 Surmont Delineation Wells 4 delineation wells drilled in 2011 Surmont 32 sections 98 vertical wells 47 wells cored MEG Oil Sands Leases Wabiskaw / McMurray cores 2011 delineation wells Delivering Profitable Growth l 21

22 Growth Properties Delineation Wells 50 delineation wells drilled in 2011 Growth Properties 752 sections 535 vertical wells 129 wells cored Delivering Profitable Growth l 22

23 Investor Relations Contacts For further information please contact: John Rogers VP, Investor Relations Helen Kelly Director, Investor Relations