1. business and industrial
2. business operations
3. business plans

REALIZING
THE POTENTIAL
INVESTOR
INVESTOR PRESENTATION
PRESENTATION
January
2015
JULY 2014
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
effective as of December 31, 2013, which has been prepared in accordance with the Canadian Securities Administrators National Instrument 51-101 entitled
Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) at that time. The standards of NI 51-101 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 51-101, 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, resources and future net revenue from individual properties may not reflect the same
confidence level as estimates of reserves, resources 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 most recent annual information form (the “AIF”). MEG’s public disclosure documents,
including the AIF, may be accessed through the SEDAR website (www.sedar.com), at MEG’s website (www.megenergy.com), 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.
INVESTOR PRESENTATION 2015
2
Disclosure Advisories
Forward-Looking Statements
This document may contain forward-looking information including but not limited to: expectations of future production, revenues, expenses, cash flow, operating costs,
steam-oil ratios (“SORs”), pricing differentials, reliability, profitability and capital investments; estimates of reserves and resources; the anticipated reductions in
operating costs as a result of optimization and scalability of certain operations; and the anticipated sources of funding for operations and capital investments. Such
forward-looking information is based on management's expectations and assumptions regarding future growth, results of operations, production, future capital and other
expenditures, plans for and results of drilling activity, environmental matters, business prospects and opportunities.
By its nature, such forward-looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from
those anticipated. These risks include, but are not limited to: risks associated with the oil and gas industry, for example, the securing of adequate supplies and access to
markets and transportation infrastructure; the availability of capacity on the electrical transmission grid; the uncertainty of reserve and resource estimates; the
uncertainty of estimates and projections relating to production, costs and revenues; health, safety and environmental risks; risks of legislative and regulatory changes to,
amongst other things, tax, land use, royalty and environmental laws; assumptions regarding and the volatility of commodity prices and foreign exchange rates; risks and
uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the expansion of MEG’s projects; risks and
uncertainties related to the timing of completion, commissioning, start-up, of MEG’s future phases, expansions and projects; and the operational risks and delays in the
development, exploration, production, and the capacities and performance associated with MEG's projects.
Although MEG believes that the assumptions used in such forward-looking information are reasonable, there can be no assurance that such assumptions will be
correct. Accordingly, readers are cautioned that the actual results achieved may vary from the forward-looking information provided herein and that the variations may
be material. Readers are also cautioned that the foregoing list of assumptions, risks and factors is not exhaustive.
Further information regarding the assumptions and risks inherent in the making of forward-looking statements can be found in MEG’s annual information form (“AIF”)
dated March 5, 2014, along with MEG's other public disclosure documents. Copies of the AIF and MEG's other public disclosure documents are available through the
SEDAR website which is available at www.sedar.com.
The forward-looking information included in this document is expressly qualified in its entirety by the foregoing cautionary statements. Unless otherwise stated, the
forward-looking information included in this document is made as of the date of this document and the Corporation assumes no obligation to update or revise any
forward-looking information to reflect new events or circumstances, except as required by law.
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.
INVESTOR PRESENTATION 2015
3
Realizing the Potential
2015
•
Targeted 2015 annual production volumes of 78,000 to 82,000 bpd, 19% above
2014’s upwardly revised guidance
•
Ongoing reservoir and plant efficiency measures, supporting a non-energy operating
cost target of $8 to $10 per barrel in 2015, taking into account two maintenance
turnarounds
•
Hub and spoke marketing strategy targets access to highest-priced markets in the
most cost-effective manner
INVESTOR PRESENTATION 2015
4
High Quality 100%-Owned Oil Sands Assets
2.9 billion barrels 2P and 3.7 billion barrels contingent resources*
identified to-date
Christina Lake
Phase 1, 2 and 2B currently in production
2014 production guidance 65,000 to 70,000 bpd
Regulatory approvals in place for 210,000 bpd
2P Reserves.............................................. 2,260 MMbbls
Contingent Resources*............................... 946 MMbbls
2P Reserves PV-10%................................... $18,991 MM
Resources* PV-10%...................................... $3,320 MM
Lease Holdings……………………………………….. 51,200 acres
Surmont
Submitted regulatory application in 2012
for 120,000 bpd, multi-phased project
Christina Lake
Surmont
Growth Properties
* Best-estimate contingent resources
Based on GLJ Reserve Report dated effective as of December 31, 2013.
Present values of estimated future net cash flows do not represent the
fair market value of reserves or resources.
INVESTOR PRESENTATION 2015
2P Reserves ................................................ 637 MMbbls
Contingent Resources*............................... 404 MMbbls
2P Reserves PV-10%..................................... $2,031 MM
Resources* PV-10%...................................... $3,302 MM
Lease Holdings .......................................... 20,480 acres
Growth Properties
Contingent Resources*............................ 2,303 MMbbls
Resources* PV-10% ..................................... $7,386 MM
Lease Holdings – Evaluated...................... 218,240 acres
Lease Holdings – Unevaluated................. 330,880 acres
5
Geology Confirms High Quality Reservoirs
Core hole drilling identifies similar characteristics
at Christina Lake and Surmont
Average Pay
Thickness
Bitumen
Saturation
(metres)
(%)
Christina Lake
Phase 1
26
Christina Lake
Phase 2
Porosity
Permeability
(%)
(millidarcies)
72
34
3,000 - 7,000
25
80
34
3,000 - 7,000
Christina Lake
Phase 2B
28
75
33
3,000 - 7,000
Christina Lake
Phase 3A
23
79
32
3,000 - 7,000
Surmont
26
76
34
3,000 - 7,000
INVESTOR PRESENTATION 2015
6
RISER – the right way to grow
A three-part initiative
Reduce the steam-oil-ratio of our
existing operations using our
proprietary eMSAGP technology
Redeploy freed-up steam to new,
pre-drilled SAGD wells to further
increase production
Debottleneck central facilities to
handle increased throughput
INVESTOR PRESENTATION 2015
7
Benefits of the RISER Initiative
The RISER initiative focuses investment on projects which
are expected to generate the highest returns and lead
to near-term production and cash flow gains
Anticipated Benefits
•
Lower capital cost
•
Lower operating costs
•
Higher production
•
Higher recoveries
•
Lower greenhouse gas emissions
INVESTOR PRESENTATION 2015
8
Phase 1 eMSAGP Performance
Christina Lake Pad A
Steam injection reduced by
55% since the implementation
of eMSAGP
A3N*
A2N
A3N*
A3
Phase 1
SAGD wells
A2N
A2
A1N
A1
Infill
wells
A7N*
Infill wells
INVESTOR PRESENTATION 2015
NCG/steam co-injection
9
Strong Cash Operating Netbacks
Low-cost structure and hub-and-spoke
marketing strategy delivers high netbacks
Business Environment
2014 YTD
WTI US$/bbl
99.61
AECO C$/mcf
4.80
FX C/US$
1.09
Differential – WTI/Blend %
26%
Diluent price – % of WTI
101%
Netbacks
Blend sales
Cost of diluent
80.49
(13.47)
Bitumen realization
67.02
Transportation
(1.22)
Royalties
(4.86)
Operating costs – non-energy
(8.59)
Operating costs – energy
(6.71)
Power sales
Cash operating netback
2.54
48.18
C$ per barrel unless specified
INVESTOR PRESENTATION 2015
10
Marketing Strategy
MEG’s Hub & Spoke strategy focuses on diversifying market access,
bypassing pipeline congestion to get to world-priced markets
HUB
•
•
Access Pipeline
50%-owned: dual
dilbit/condensate
pipeline
Stonefell Terminal
100%-owned
Pipeline
•
•
U.S. Midwest accessible via existing pipelines
U.S. Gulf Coast accessible via secured capacity
on Flanagan/Seaway
Rail
•
•
Direct pipe-to-rail connection from Stonefell
to 3rd party rail- loading terminal
Broad access to North American markets
Barge
•
INVESTOR PRESENTATION 2015
Pipe-to-barge access to U.S. Gulf Coast
and Louisiana
11
Canadian & U.S Crude Oil Pipelines and Proposals
Source: Canadian Association of Petroleum Producers
INVESTOR PRESENTATION 2015
12
North American Rail Network
Source: Rail Association of Canada
INVESTOR PRESENTATION 2015
13
Rail Loading Terminals in Western Canada
Nearly 1 million bpd of rail offloading capacity,
further expandable to 1.4 million bpd
Rail Capacity from Western Canada
INVESTOR PRESENTATION 2015
Source: Canadian Association of Petroleum Producers
14
Financing Philosophy
Conservative principles provide flexibility
through various market conditions
•
Pre-funding of capital programs
•
Maintain significant liquidity at all times
•
All debt is free of maintenance financial covenants
•
Significant internal funding capability over the next few years
•
Debt maturities aligned to long-term nature of growth strategy
INVESTOR PRESENTATION 2015
15
Financial Snapshot
Liquidity
As of September 30, 2014
Cash and cash equivalents
0.78
Undrawn revolving credit facility (revolver)
2.80 (1)
Letters of credit outstanding under the line of credit
0.00 (2)
3.58 (1)(2)
Outstanding Debt
Senior secured term loan due 2020
1.42
6.5% Senior unsecured notes due 2021
0.84
6.375% Senior unsecured notes due 2023
0.90
7.0% Senior unsecured notes due 2024
1.12
4.28
Book Value of Equity
4.89
In C$ billions, assume US$1 = C$1.1208
S&P ratings on MEG’s outstanding debt are BBB- and BB for the senior secured term loan and our three senior unsecured notes
respectively, as of September 30, 2014.
Moody’s ratings on MEG’s outstanding debt are Ba1 and B1 for the senior secured term loan and our three senior unsecured notes
respectively, as of September 30, 2014.
(1)
(2)
Pro forma undrawn line of credit reflects US$500M upsize in November 2014.
In December 2014, MEG implemented a stand-alone US$500 million Letter of Credit facility guaranteed by Export Development Canada
(EDC). Letters of Credit issued under this facility do not consume revolver capacity. All letters of credit issued under the revolver have
now been moved to the EDC Letter of Credit facility.
INVESTOR PRESENTATION 2015
16
Debt Maturity Schedule
No debt maturity until 2020
$1,197*
US$ in millions
$1,000
Term loan*
Senior unsecured notes
2014
2015
2016
2017
$800
$750
2018
2019
2020
2021
2022
2023
2024
2025
* Projected amortized term loan balance at maturity in 2020. The term loan amortizes at $13 million per year.
INVESTOR PRESENTATION 2015
17
APPENDICES
Rail Loading Terminals in Western Canada
Major* existing and proposed crude loading terminals
* Facilities with less than 15,000 b/d are not shown.
** Capacities of facilities are not exactly comparable due to differences within factors used to
determine capacity such as terminal operating hours, available car spots, contracts in place.
Source: Canadian Association of Petroleum Producers
INVESTOR PRESENTATION 2015
19
Enhanced Modified Steam and Gas Push (eMSAGP)*
A combination of proven technologies to reduce SOR
•
Non-condensable gas (NCG) and infill wells are proven technologies,
typically carried out as a wind-down process after 6 - 8 years of SAGD operations
•
Early application of eMSAGP has the potential to significantly reduce
SORs while accelerating bitumen production and increasing ultimate recoveries
*Steam and Gas Push (SAGP) was invented by the late Dr. Roger Butler, who also invented the SAGD process.
INVESTOR PRESENTATION 2015
20
Christina Lake Delineation Wells
80 delineation wells drilled during the winter of 2014
6 Miles
MEG Oil Sands Leases
Christina Lake
80 sections
964 vertical wells drilled to June 30th 2014
831 wells cored to June 30th 2014
Phase 2
Phase 1
Wabiskaw / McMurray cores
Phase 2B
2014 delineation wells
CVE Christina Lake
INVESTOR PRESENTATION 2015
21
Surmont Delineation Wells
8 delineation wells drilled during the winter of 2014
5 miles
South Surmont
25 sections
138 vertical wells drilled to June 30th 2014
89 wells cored to June 30th 2014
MEG
Oil Sands
Leases
Wabiskaw / McMurray cores
2014 delineation wells
INVESTOR PRESENTATION 2015
22
Comparing Crudes – Wells to Wheels
SAGD with cogeneration produces one of the lowest
greenhouse gas intensity barrels in the industry
Conventional*
In Situ
Unconventional*
114
104
Unit Measurement (g/MJ)
106
105
102
102
102
98
96
INVESTOR PRESENTATION 2015
SAGD Dilbit
SOR 2.4
with Cogen
SAGD Dilbit
SOR 3.0
Arab Medium,
Saudi
Kiruk,
Iraq
Bachaquero,
Venezuela
Maya,
Mexico
Mars,
Gulf Coast
Bonny Light,
Nigeria
Kern River,
California
*Source: Jacobs
Consultancy, “Life
Cycle Assessment of
North America and
Imported Crudes”
July 2009.
23
Notes:
INVESTOR PRESENTATION 2015
Investor Relations Contacts
Helen Kelly
Director, Investor Relations
403.767.6206
[email protected]
John Rogers
VP, Investor Relations and External Communications
403.770.5335
[email protected]
www.megenergy.com/investors