TSE:MEG MEG Energy Q2 2023 Earnings Report C$20.18 -0.28 (-1.37%) As of 04:00 PM Eastern Earnings HistoryForecast MEG Energy EPS ResultsActual EPSC$0.47Consensus EPS C$0.35Beat/MissBeat by +C$0.12One Year Ago EPSN/AMEG Energy Revenue ResultsActual Revenue$1.29 billionExpected Revenue$1.16 billionBeat/MissBeat by +$134.64 millionYoY Revenue GrowthN/AMEG Energy Announcement DetailsQuarterQ2 2023Date7/27/2023TimeN/AConference Call DateFriday, July 28, 2023Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress ReleaseEarnings HistoryCompany ProfilePowered by MEG Energy Q2 2023 Earnings Call TranscriptProvided by QuartrJuly 28, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the MEG Energy's 2023 Q2 Results Conference Call. Speaker 100:00:22Q2. Operator00:00:25From the question queue. Mr. Derek Evans, CEO, you may begin your conference. Speaker 200:00:34Thank you, Sylvie. Good morning, everyone, and thank you for joining us to review MEG Energy's 2023 Q2 operating and financial results. With me on the call this morning are Ryan Kubik, our Chief Financial Officer Darlene Gates, our Chief Operating Officer and Lyle Yuzdebski, our General Counsel and Corporate Secretary. 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 SEDAR and on our website. Speaker 200:01:07I will keep my remarks brief today and refer listeners to yesterday's press release for more detail. Our top priority at MEG is our focus on health, safety and the environment that ensures nobody gets hurt, eliminates serious incidents and delivers operational excellence. I'm extremely proud of the safety, operating and financial performance delivered by our team. Their focus on plant reliability, steam utilization and ongoing well optimization have all contributed to a strong operational quarter. I want to congratulate and thank the MEG team on the execution of a safe and successful second quarter turnaround despite the challenging labor market and ongoing supply chain constraints. Speaker 200:02:00Before I turn the call over to Darlene and Ryan to 86,000 barrels a day, a 28% increase over Q2 2022. In the quarter. Our bitumen realization after net transportation and storage expense of $57.64 was a 33% increase over the Q1 and was primarily driven by an almost US10 dollars per barrel improvement in the WCS differential since Q1. These excellent operational results enable our ongoing commitment to debt reduction and share buybacks. In the first half of twenty twenty three, we have repurchased US126 million dollars or CAD171 million of the outstanding 7.8 senior unsecured notes. Speaker 200:03:02Share buybacks in the same period totaled $169,000,000 through the repurchase and cancellation of 8,000,000 shares. Free cash flow remained allocated at 50% to debt reduction and 50% to share buybacks. Once the US600 $1,000,000 debt repayment target is achieved, MEG will return 100% of free cash flow to shareholders. We anticipate achieving the $600,000,000 debt target mid-twenty 24. I will now ask Darlene Gates, our COO, to speak to the operating results and ask Ryan Kubik, our CFO, to talk to our financial results. Speaker 200:03:43Before I open the call to questions, I'll provide an update on the Pathway Alliance's efforts this quarter. Darlene, over to you. Speaker 300:03:52Thank you, Derek, and good morning, everyone. Our top priority at MEG remains health, safety and environmental performance. This quarter, we continued to advance our operations excellence and safety leadership development program. It is our approach to continuous improvement that enables us to be a leader in responsible and sustainable energy development. Production of 86,000 barrels per day in the 2nd quarter was delivered at a top tier steam oil ratio of 2.25 and includes the completion of a major turnaround. Speaker 300:04:25This resulted in a quarterly production impact of approximately 20,000 barrels per day. Operating expenses net of power revenue averaged $6.63 per barrel in the 2nd quarter. This is a 48% reduction from the same period last year. The completion of our second our scheduled turnaround was a key milestone in the quarter. It was the largest in our history in terms of work hours at just over 220,000 hours and was completed on schedule with 0 recordable injuries and 0 recordable spills. Speaker 300:05:00Increased turnaround costs in the 2nd quarter reflect a larger planned turnaround scope, sound work, inflationary pressures on labor costs and supply chain challenges. I want to take this opportunity to thank our maintenance, operations and contractor crews for their commitment to delivering and executing a safe turnaround. Moving forward, we are focused on optimizing second half production, which is forecasted to be approximately 105,000 barrels per day. 3rd quarter volumes will be impacted by planned facility and infrastructure and field infrastructure projects required to distribute high pressure steam to the fields the future well pads. This will be partially offset by the start up of infill and redevelopment wells drilled earlier this year. Speaker 300:05:48Steam injection to our newest pad in the Q3 will also commence and ramp up to its full production by year end. We expect a strong finish to the year again with an exit rate of 110,000 barrels a day. With that, I'll turn it over to Ryan to provide the Q2 financial results. Speaker 400:06:05Thanks, Darlene. MEG's cash operating netback in the Q2 of this or $0.96 per share. As Darlene mentioned, our production averaged 86,000 barrels per day during the quarter and with significantly improved differential since the start of the year, our Q2 bitumen realization after net transportation and storage expense was $57.64 per barrel. Non energy operating costs averaged $5.66 per barrel in the 2nd quarter, consistent with 5 $0.65 per barrel in Q2 2022. Energy operating costs net of power revenue, however, declined to $0.97 per barrel from $7.32 per barrel in Q2 last year, reflecting low 2023 natural gas prices. Speaker 400:07:06In addition, we continue to enjoy strong power revenue from our cogeneration facilities, which offset 75% of energy operating costs in the current quarter. Our Christina Lake project reached post payout royalty status this quarter, resulting in an increase in the effective royalty rate to 13% of bitumen realization after net transportation and storage expense. After funding $149,000,000 of capital expenditures, about 45% of which was related to the turnaround, MEG generated $129,000,000 of free cash flow. That free cash flow was used to buy 3,100,000 MEG shares for $66,000,000 and repay US40 $1,000,000 of senior notes in Q2. We ended the quarter with just under US1 $1,000,000,000 of net debt and still forecast reaching our US600 million dollars net debt target around mid next year at current oil prices. Speaker 400:08:09With production forecast average about 105,000 barrels per day in the second half of this year, We've maintained our 100,000 to 105,000 barrel per day annual guidance range, but we'll trend to the low end of that range. Per barrel operating costs and G and A guidance is also unchanged, but will trend to the top end of those ranges under the current production forecast. With rising second half production and continued strong oil prices, MEG is now positioned to generate even more free cash flow in second half of this year for share buybacks and debt reduction. Thanks. And with that, I'm going to hand it back to Derek. Speaker 200:08:50Thanks, Ryan. Before we move on to questions, I'd like to share an update on the Pathways Alliance. MEG along with its Pathway Alliance PIERs is progressing pre work on the proposed foundational carbon capture and storage project, which will transport CO2 by a pipeline from multiple oil sands facilities to be stored safely and permanently in the Cold Lake region of Alberta. During the Q2 of 2023, the Alliance continued to evaluate its proposed storage hub and is working to obtain a carbon sequestration agreement from the government of Alberta by year end 2023. In addition, the alliance continued to advance engineering and field work related to the proposed CCS project in order to support a regulatory application anticipated in the Q4 of 2023 for the CCS network. Speaker 200:09:40Formal consultation with about 25 indigenous groups along the proposed CO2 transportation and storage network corridor has commenced and follows early engagement with these groups over the last 2 years. The 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. The government of Alberta recently recognized that a coordinated approach with the federal government and industry is needed to compete with the United States, Europe and others for investment in wide scale carbon capture and storage deployment, which is essential to achieve emissions reductions goals. The Alberta and federal governments are in discussions relating to the formation of a bilateral working group to incentivize Carbon Capture and Storage and Other Emissions Reduction Technologies. As I bring my remarks to a close, I once again want to extend my thanks to our team for their commitment and perseverance. Speaker 200:10:45I'm proud of what we've been able to accomplish and confident in our future and our commitment to sustainable, innovative and responsible energy development. On behalf of MEG's Board of Directors and our management team, Want to thank you for your continued support. With that, I'll now turn the call back over to Sylvie to begin the Q and A. Operator00:11:05Thank you, sir. You will hear a 3 tone prompt acknowledging your request. And your first question will be from Menuhuschulth at TD Securities. Please go ahead. Speaker 500:11:34Thanks and good morning everyone. So you touched on this in your opening remarks, but can you elaborate on what drove the decision to adjust the outlook to the low end of the production guidance range. And I guess more specifically, what's changed in the plan relative to the beginning of the year? And then finally, and I think the answer So the last part is no, but is there any sort of a knock on effect into 2024? Speaker 300:12:00Thanks, Meno. It's Arlene. I'll take that one. When I look at what's changed, our planned facility and field infrastructure projects, As I mentioned, required tie in and that limits our steam availability to the field. If you look at we were in the turnaround, our hope was to bring that into the turnaround scope, so it didn't impact production in Q3, Q4. Speaker 300:12:23And we were not able to do that based on some of the supply chain challenges that we were experiencing. That's really the key difference when I look at what's different from the second half to what we were hoping to achieve and versus what is in the plan now. Speaker 500:12:39Okay. Thank you. And so if you look to similarly on G and A and OpEx the higher end of the range, I'm assuming a lot of that is volumetric, but it sounds like there's a bit of an inflationary component in there as well. Speaker 300:12:52Yes. We're managing the inflationary pressure, but for sure, it's really more of the production impact that you're seeing that's driving that metric. Speaker 500:13:00Okay. And then finally, could we just get a refresh on your expectations for the trajectory for sustaining capital on a dollar per barrel basis and maybe the base decline in the SOR over the next couple of years as well? Speaker 600:13:18So, I'll take that. Speaker 200:13:20I mean, I think you should expect our sustaining capital will be somewhere in $402,000,000 $425,000,000 on a go forward basis, absent any adjustment for inflation that may be required. And I think as we think about some of the pressures we've seen on G and A and operating costs, The single biggest inflationary pressure is coming from the people cost of all those business, which we have Seeing sustained and unrelenting pressure in that regard. Speaker 500:14:02And then the base decline in the SOR? Speaker 200:14:05Sorry, yes, base decline is relatively stable in that Probably closer to 15% range and the SOR continues on its It's a downward trajectory. I think Darlene talked about the fact that we're looking to exit An exit rate of $110,000 which would indicate that our SOR will be somewhere in the 2.2 range at exit. Speaker 500:14:38Thanks, Derek. I'll turn it back. Speaker 400:14:40Thanks, Mao. Operator00:14:42Thank you. Next question will be from Greg Pardy at RBC Capital Markets. Please go ahead. Speaker 600:14:48Hey, yes, thanks. Good morning. Thanks for the rundown. If I guess it's probably a question directed towards on the ops side. But if we fast forward to year end when you're at 110,000 When you look at how much field capacity you have, how much horsepower there is to actually produce bitumen in the field and then compare that with what the processing facility can kind of take right now, which I think is 110,000 barrels a day. Speaker 600:15:19What does that balance look like? And then what is the plan or is there a plan to debottleneck the facility and what would that involve? Speaker 200:15:29I'll take that one, Greg. It's Derek. I think this year we've have figured out and really hit the top end of the facility capacity, which is really in that 110,000 to 100, A little over 110,000 barrels a day. So fundamentally, we can achieve that When we're bringing on new wells, new pads, which is what we're planning on doing as we move through the second half of the year At low steam oil ratios. But as we've talked about in the past, we're going to have to add a third processing train To the facility, and we've talked about not doing that until we hit our $600,000,000 debt target. Speaker 200:16:16But Once we got there, it's somewhere in the neighborhood of $250,000,000 to $300,000,000 to move that field productive capacity or not field, facility productive capacity from 110,000 to about 125,000 BOEs a day and will take somewhere in the neighborhood of 3 years to do that. So I've talked pretty well exclusively about the facility. Obviously, as we would have As we're investing to put that 3rd processing train in place, we would also incumbent in that 250 300 is the new well pads that we would be drilling to fill that production and grow that production to that level as well. Speaker 600:17:07Okay. Thanks for that. And then I'll maybe just completely shift gears on you a little bit, but Just curious what you're seeing in the Gulf Coast right now as it relates to AWS and WCS vis a vis WTI? Are you sending cargoes To China, India right now, like what's the international appetite? And then I think just more broadly, what happens What's your view, I guess, on spreads with TMX next year? Speaker 200:17:36So A bunch of questions in that question. So let me start with where we see the differential today. No, that WCS differential appears to be in that $15.50 in Edmonton, quite a move from The $10 that we saw earlier. We think part of the rationale or the reason for that is that There was a lot of production off offline in that July August period and BP Whiting probably They moved their turnaround up from September into August, and we think that really impacted the amount of crude that there was a, I would call a semi distressed situation in terms of having a lot more heavy oil on the market, which really pushed that differential down. And I think it's a very good indication of what's going to happen in PADD to those differentials once we bring TMX on. Speaker 200:18:46So Good color there as we think about what TMX may do in terms of bringing differentials down. I think as we look to that differential going forward For the remainder of the year, I think we're pretty comfortable that it's widened out as much as it's going to and already has some what we would call winter effects in it as where we've got more condensate in product going forward. Typically, you see it widened out through the Q4. Speaker 600:19:21Okay, Derek. And Just Don, sorry, just oblige me if you wouldn't mind, but just where's WCS and AWS kind of trading in the Gulf right now? Speaker 200:19:31It's about 5th in the Gulf, AWB is trading in, I think it was at 5.45, $5.60 range yesterday. So WCA would be probably about a $1.5 lower than that. Speaker 600:19:48Okay. Thanks very much. Speaker 200:19:50Thank you. Operator00:19:52And your next question will be from Neil Mehta at Goldman Sachs. Please go ahead. Speaker 700:19:58Hey, good morning. This is Nicolette Seltzer on for NeoNida. Thanks for taking the time. So a couple of questions here just on the cost side of things. I think 2Q CapEx is just a little bit higher than maybe what some were initially anticipating and probably just a function of turnaround and maintenance in the quarter, but I know full year Is unchanged at that $450,000,000 Can you just comment if there's anything else we should have been looking out for in the 2Q CapEx? Speaker 700:20:21And then If it is just maintenance, the 3Q, 4Q, any type of color you can share there? Speaker 200:20:29Darlene, why don't you? Speaker 300:20:30Okay. So Absolutely, driven by the timing of the turnaround. So you got that absolutely correct. And then as we look ahead, no new signpost, Right. We've built the capital profile at 450 with the room for the inflation and some of those surprises and we're managing through that. Speaker 300:20:49So no upward vector on our capital profile. Speaker 700:20:55Great. Thank you. And then a quick follow-up here is just on the OpEx side of things. And I'm not sure if there's ever been kind of a longer term OpEx per barrel target you guys have put out there. But is there any sort of drivers we should be looking towards as you approach that 110,000 barrel per day exit rate towards the end of the year? Speaker 300:21:14No, we've maintained again, the team has done an outstanding job of managing and driving efficiencies and how they're running the business. And so What you see today is really what our sustained rate is and what the team is able to achieve. Speaker 700:21:29Very helpful. Thanks so much for taking the time. Speaker 400:21:32Thank you. Thanks. Operator00:21:33Thank you. And your next question will be from John Royall at JPMorgan. Please go ahead. Speaker 100:21:47Hi. This is Alejandra Magana for John Royall. Thanks for taking question. I know this has been discussed at recent conferences and we were just curious about your latest thoughts $600,000,000 is still the right net debt floor? Speaker 200:22:04Absolutely, let me take that question. Yes, the net debt floor is US600 million dollars We have no plans to go lower than US600 million dollars And once we hit that US600 million dollars target, which we anticipate will be mid Next year, we are going to go to 100% return of free cash flow to shareholders. Speaker 100:22:33Okay. Thank you. That's very clear. And any updated thoughts on mainline apportionment from here? Speaker 200:22:41We think mainline apportionment is going to be de minimis in terms of actual published numbers and in terms of economic impact On the barrels, again, de minimis. Speaker 100:22:56Great. Thank you. Speaker 600:22:58Thank you. Operator00:23:00Thank you. And at this time, Mr. Evans, it appears we have no further questions. Please proceed. Speaker 200:23:06Thank you, Sylvie, and thank you to everybody that joined us this morning for our Q2 results conference call. We're excited about what we were able to achieve this quarter and look forward to updating you on our operational performance and return of capital program when we release our Q3 results in November. Enjoy the remainder of your summers. Thank you. Operator00:23:26Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallMEG Energy Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release MEG Energy Earnings HeadlinesMEG Energy price target lowered to C$24 from C$28 at National BankApril 26 at 11:23 PM | markets.businessinsider.comMEG Energy Corp.'s (TSE:MEG) largest shareholders are individual investors with 50% ownership, institutions own 50%April 24, 2025 | finance.yahoo.comTrump’s betrayal exposed Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 28, 2025 | Porter & Company (Ad)MEG Energy Announces First Quarter of 2025 Results and Conference CallApril 23, 2025 | finance.yahoo.comMEG Energy price target lowered to C$30 from C$33 at ScotiabankApril 12, 2025 | finance.yahoo.comMEG Energy price target lowered to C$28 from C$32 at CIBCApril 11, 2025 | markets.businessinsider.comSee More MEG Energy Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like MEG Energy? 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There are 8 speakers on the call. Operator00:00:00Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the MEG Energy's 2023 Q2 Results Conference Call. Speaker 100:00:22Q2. Operator00:00:25From the question queue. Mr. Derek Evans, CEO, you may begin your conference. Speaker 200:00:34Thank you, Sylvie. Good morning, everyone, and thank you for joining us to review MEG Energy's 2023 Q2 operating and financial results. With me on the call this morning are Ryan Kubik, our Chief Financial Officer Darlene Gates, our Chief Operating Officer and Lyle Yuzdebski, our General Counsel and Corporate Secretary. 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 SEDAR and on our website. Speaker 200:01:07I will keep my remarks brief today and refer listeners to yesterday's press release for more detail. Our top priority at MEG is our focus on health, safety and the environment that ensures nobody gets hurt, eliminates serious incidents and delivers operational excellence. I'm extremely proud of the safety, operating and financial performance delivered by our team. Their focus on plant reliability, steam utilization and ongoing well optimization have all contributed to a strong operational quarter. I want to congratulate and thank the MEG team on the execution of a safe and successful second quarter turnaround despite the challenging labor market and ongoing supply chain constraints. Speaker 200:02:00Before I turn the call over to Darlene and Ryan to 86,000 barrels a day, a 28% increase over Q2 2022. In the quarter. Our bitumen realization after net transportation and storage expense of $57.64 was a 33% increase over the Q1 and was primarily driven by an almost US10 dollars per barrel improvement in the WCS differential since Q1. These excellent operational results enable our ongoing commitment to debt reduction and share buybacks. In the first half of twenty twenty three, we have repurchased US126 million dollars or CAD171 million of the outstanding 7.8 senior unsecured notes. Speaker 200:03:02Share buybacks in the same period totaled $169,000,000 through the repurchase and cancellation of 8,000,000 shares. Free cash flow remained allocated at 50% to debt reduction and 50% to share buybacks. Once the US600 $1,000,000 debt repayment target is achieved, MEG will return 100% of free cash flow to shareholders. We anticipate achieving the $600,000,000 debt target mid-twenty 24. I will now ask Darlene Gates, our COO, to speak to the operating results and ask Ryan Kubik, our CFO, to talk to our financial results. Speaker 200:03:43Before I open the call to questions, I'll provide an update on the Pathway Alliance's efforts this quarter. Darlene, over to you. Speaker 300:03:52Thank you, Derek, and good morning, everyone. Our top priority at MEG remains health, safety and environmental performance. This quarter, we continued to advance our operations excellence and safety leadership development program. It is our approach to continuous improvement that enables us to be a leader in responsible and sustainable energy development. Production of 86,000 barrels per day in the 2nd quarter was delivered at a top tier steam oil ratio of 2.25 and includes the completion of a major turnaround. Speaker 300:04:25This resulted in a quarterly production impact of approximately 20,000 barrels per day. Operating expenses net of power revenue averaged $6.63 per barrel in the 2nd quarter. This is a 48% reduction from the same period last year. The completion of our second our scheduled turnaround was a key milestone in the quarter. It was the largest in our history in terms of work hours at just over 220,000 hours and was completed on schedule with 0 recordable injuries and 0 recordable spills. Speaker 300:05:00Increased turnaround costs in the 2nd quarter reflect a larger planned turnaround scope, sound work, inflationary pressures on labor costs and supply chain challenges. I want to take this opportunity to thank our maintenance, operations and contractor crews for their commitment to delivering and executing a safe turnaround. Moving forward, we are focused on optimizing second half production, which is forecasted to be approximately 105,000 barrels per day. 3rd quarter volumes will be impacted by planned facility and infrastructure and field infrastructure projects required to distribute high pressure steam to the fields the future well pads. This will be partially offset by the start up of infill and redevelopment wells drilled earlier this year. Speaker 300:05:48Steam injection to our newest pad in the Q3 will also commence and ramp up to its full production by year end. We expect a strong finish to the year again with an exit rate of 110,000 barrels a day. With that, I'll turn it over to Ryan to provide the Q2 financial results. Speaker 400:06:05Thanks, Darlene. MEG's cash operating netback in the Q2 of this or $0.96 per share. As Darlene mentioned, our production averaged 86,000 barrels per day during the quarter and with significantly improved differential since the start of the year, our Q2 bitumen realization after net transportation and storage expense was $57.64 per barrel. Non energy operating costs averaged $5.66 per barrel in the 2nd quarter, consistent with 5 $0.65 per barrel in Q2 2022. Energy operating costs net of power revenue, however, declined to $0.97 per barrel from $7.32 per barrel in Q2 last year, reflecting low 2023 natural gas prices. Speaker 400:07:06In addition, we continue to enjoy strong power revenue from our cogeneration facilities, which offset 75% of energy operating costs in the current quarter. Our Christina Lake project reached post payout royalty status this quarter, resulting in an increase in the effective royalty rate to 13% of bitumen realization after net transportation and storage expense. After funding $149,000,000 of capital expenditures, about 45% of which was related to the turnaround, MEG generated $129,000,000 of free cash flow. That free cash flow was used to buy 3,100,000 MEG shares for $66,000,000 and repay US40 $1,000,000 of senior notes in Q2. We ended the quarter with just under US1 $1,000,000,000 of net debt and still forecast reaching our US600 million dollars net debt target around mid next year at current oil prices. Speaker 400:08:09With production forecast average about 105,000 barrels per day in the second half of this year, We've maintained our 100,000 to 105,000 barrel per day annual guidance range, but we'll trend to the low end of that range. Per barrel operating costs and G and A guidance is also unchanged, but will trend to the top end of those ranges under the current production forecast. With rising second half production and continued strong oil prices, MEG is now positioned to generate even more free cash flow in second half of this year for share buybacks and debt reduction. Thanks. And with that, I'm going to hand it back to Derek. Speaker 200:08:50Thanks, Ryan. Before we move on to questions, I'd like to share an update on the Pathways Alliance. MEG along with its Pathway Alliance PIERs is progressing pre work on the proposed foundational carbon capture and storage project, which will transport CO2 by a pipeline from multiple oil sands facilities to be stored safely and permanently in the Cold Lake region of Alberta. During the Q2 of 2023, the Alliance continued to evaluate its proposed storage hub and is working to obtain a carbon sequestration agreement from the government of Alberta by year end 2023. In addition, the alliance continued to advance engineering and field work related to the proposed CCS project in order to support a regulatory application anticipated in the Q4 of 2023 for the CCS network. Speaker 200:09:40Formal consultation with about 25 indigenous groups along the proposed CO2 transportation and storage network corridor has commenced and follows early engagement with these groups over the last 2 years. The 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. The government of Alberta recently recognized that a coordinated approach with the federal government and industry is needed to compete with the United States, Europe and others for investment in wide scale carbon capture and storage deployment, which is essential to achieve emissions reductions goals. The Alberta and federal governments are in discussions relating to the formation of a bilateral working group to incentivize Carbon Capture and Storage and Other Emissions Reduction Technologies. As I bring my remarks to a close, I once again want to extend my thanks to our team for their commitment and perseverance. Speaker 200:10:45I'm proud of what we've been able to accomplish and confident in our future and our commitment to sustainable, innovative and responsible energy development. On behalf of MEG's Board of Directors and our management team, Want to thank you for your continued support. With that, I'll now turn the call back over to Sylvie to begin the Q and A. Operator00:11:05Thank you, sir. You will hear a 3 tone prompt acknowledging your request. And your first question will be from Menuhuschulth at TD Securities. Please go ahead. Speaker 500:11:34Thanks and good morning everyone. So you touched on this in your opening remarks, but can you elaborate on what drove the decision to adjust the outlook to the low end of the production guidance range. And I guess more specifically, what's changed in the plan relative to the beginning of the year? And then finally, and I think the answer So the last part is no, but is there any sort of a knock on effect into 2024? Speaker 300:12:00Thanks, Meno. It's Arlene. I'll take that one. When I look at what's changed, our planned facility and field infrastructure projects, As I mentioned, required tie in and that limits our steam availability to the field. If you look at we were in the turnaround, our hope was to bring that into the turnaround scope, so it didn't impact production in Q3, Q4. Speaker 300:12:23And we were not able to do that based on some of the supply chain challenges that we were experiencing. That's really the key difference when I look at what's different from the second half to what we were hoping to achieve and versus what is in the plan now. Speaker 500:12:39Okay. Thank you. And so if you look to similarly on G and A and OpEx the higher end of the range, I'm assuming a lot of that is volumetric, but it sounds like there's a bit of an inflationary component in there as well. Speaker 300:12:52Yes. We're managing the inflationary pressure, but for sure, it's really more of the production impact that you're seeing that's driving that metric. Speaker 500:13:00Okay. And then finally, could we just get a refresh on your expectations for the trajectory for sustaining capital on a dollar per barrel basis and maybe the base decline in the SOR over the next couple of years as well? Speaker 600:13:18So, I'll take that. Speaker 200:13:20I mean, I think you should expect our sustaining capital will be somewhere in $402,000,000 $425,000,000 on a go forward basis, absent any adjustment for inflation that may be required. And I think as we think about some of the pressures we've seen on G and A and operating costs, The single biggest inflationary pressure is coming from the people cost of all those business, which we have Seeing sustained and unrelenting pressure in that regard. Speaker 500:14:02And then the base decline in the SOR? Speaker 200:14:05Sorry, yes, base decline is relatively stable in that Probably closer to 15% range and the SOR continues on its It's a downward trajectory. I think Darlene talked about the fact that we're looking to exit An exit rate of $110,000 which would indicate that our SOR will be somewhere in the 2.2 range at exit. Speaker 500:14:38Thanks, Derek. I'll turn it back. Speaker 400:14:40Thanks, Mao. Operator00:14:42Thank you. Next question will be from Greg Pardy at RBC Capital Markets. Please go ahead. Speaker 600:14:48Hey, yes, thanks. Good morning. Thanks for the rundown. If I guess it's probably a question directed towards on the ops side. But if we fast forward to year end when you're at 110,000 When you look at how much field capacity you have, how much horsepower there is to actually produce bitumen in the field and then compare that with what the processing facility can kind of take right now, which I think is 110,000 barrels a day. Speaker 600:15:19What does that balance look like? And then what is the plan or is there a plan to debottleneck the facility and what would that involve? Speaker 200:15:29I'll take that one, Greg. It's Derek. I think this year we've have figured out and really hit the top end of the facility capacity, which is really in that 110,000 to 100, A little over 110,000 barrels a day. So fundamentally, we can achieve that When we're bringing on new wells, new pads, which is what we're planning on doing as we move through the second half of the year At low steam oil ratios. But as we've talked about in the past, we're going to have to add a third processing train To the facility, and we've talked about not doing that until we hit our $600,000,000 debt target. Speaker 200:16:16But Once we got there, it's somewhere in the neighborhood of $250,000,000 to $300,000,000 to move that field productive capacity or not field, facility productive capacity from 110,000 to about 125,000 BOEs a day and will take somewhere in the neighborhood of 3 years to do that. So I've talked pretty well exclusively about the facility. Obviously, as we would have As we're investing to put that 3rd processing train in place, we would also incumbent in that 250 300 is the new well pads that we would be drilling to fill that production and grow that production to that level as well. Speaker 600:17:07Okay. Thanks for that. And then I'll maybe just completely shift gears on you a little bit, but Just curious what you're seeing in the Gulf Coast right now as it relates to AWS and WCS vis a vis WTI? Are you sending cargoes To China, India right now, like what's the international appetite? And then I think just more broadly, what happens What's your view, I guess, on spreads with TMX next year? Speaker 200:17:36So A bunch of questions in that question. So let me start with where we see the differential today. No, that WCS differential appears to be in that $15.50 in Edmonton, quite a move from The $10 that we saw earlier. We think part of the rationale or the reason for that is that There was a lot of production off offline in that July August period and BP Whiting probably They moved their turnaround up from September into August, and we think that really impacted the amount of crude that there was a, I would call a semi distressed situation in terms of having a lot more heavy oil on the market, which really pushed that differential down. And I think it's a very good indication of what's going to happen in PADD to those differentials once we bring TMX on. Speaker 200:18:46So Good color there as we think about what TMX may do in terms of bringing differentials down. I think as we look to that differential going forward For the remainder of the year, I think we're pretty comfortable that it's widened out as much as it's going to and already has some what we would call winter effects in it as where we've got more condensate in product going forward. Typically, you see it widened out through the Q4. Speaker 600:19:21Okay, Derek. And Just Don, sorry, just oblige me if you wouldn't mind, but just where's WCS and AWS kind of trading in the Gulf right now? Speaker 200:19:31It's about 5th in the Gulf, AWB is trading in, I think it was at 5.45, $5.60 range yesterday. So WCA would be probably about a $1.5 lower than that. Speaker 600:19:48Okay. Thanks very much. Speaker 200:19:50Thank you. Operator00:19:52And your next question will be from Neil Mehta at Goldman Sachs. Please go ahead. Speaker 700:19:58Hey, good morning. This is Nicolette Seltzer on for NeoNida. Thanks for taking the time. So a couple of questions here just on the cost side of things. I think 2Q CapEx is just a little bit higher than maybe what some were initially anticipating and probably just a function of turnaround and maintenance in the quarter, but I know full year Is unchanged at that $450,000,000 Can you just comment if there's anything else we should have been looking out for in the 2Q CapEx? Speaker 700:20:21And then If it is just maintenance, the 3Q, 4Q, any type of color you can share there? Speaker 200:20:29Darlene, why don't you? Speaker 300:20:30Okay. So Absolutely, driven by the timing of the turnaround. So you got that absolutely correct. And then as we look ahead, no new signpost, Right. We've built the capital profile at 450 with the room for the inflation and some of those surprises and we're managing through that. Speaker 300:20:49So no upward vector on our capital profile. Speaker 700:20:55Great. Thank you. And then a quick follow-up here is just on the OpEx side of things. And I'm not sure if there's ever been kind of a longer term OpEx per barrel target you guys have put out there. But is there any sort of drivers we should be looking towards as you approach that 110,000 barrel per day exit rate towards the end of the year? Speaker 300:21:14No, we've maintained again, the team has done an outstanding job of managing and driving efficiencies and how they're running the business. And so What you see today is really what our sustained rate is and what the team is able to achieve. Speaker 700:21:29Very helpful. Thanks so much for taking the time. Speaker 400:21:32Thank you. Thanks. Operator00:21:33Thank you. And your next question will be from John Royall at JPMorgan. Please go ahead. Speaker 100:21:47Hi. This is Alejandra Magana for John Royall. Thanks for taking question. I know this has been discussed at recent conferences and we were just curious about your latest thoughts $600,000,000 is still the right net debt floor? Speaker 200:22:04Absolutely, let me take that question. Yes, the net debt floor is US600 million dollars We have no plans to go lower than US600 million dollars And once we hit that US600 million dollars target, which we anticipate will be mid Next year, we are going to go to 100% return of free cash flow to shareholders. Speaker 100:22:33Okay. Thank you. That's very clear. And any updated thoughts on mainline apportionment from here? Speaker 200:22:41We think mainline apportionment is going to be de minimis in terms of actual published numbers and in terms of economic impact On the barrels, again, de minimis. Speaker 100:22:56Great. Thank you. Speaker 600:22:58Thank you. Operator00:23:00Thank you. And at this time, Mr. Evans, it appears we have no further questions. Please proceed. Speaker 200:23:06Thank you, Sylvie, and thank you to everybody that joined us this morning for our Q2 results conference call. We're excited about what we were able to achieve this quarter and look forward to updating you on our operational performance and return of capital program when we release our Q3 results in November. Enjoy the remainder of your summers. Thank you. Operator00:23:26Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending.Read morePowered by