MEG Energy Corp. (TSX:MEG) today reported first quarter 2018 operating and financial results. Highlights include: 

• Record first quarter production volumes of 93,207 barrels per day (bpd), reflecting the continued ramp-up of MEG's eMSAGP growth initiative at Christina Lake Phase 2B; 
• First quarter non-energy operating costs of $4.55 per barrel and net operating costs of $5.98 per barrel; 
• The repayment of approximately $1.225 billion of MEG's senior secured term loan from the majority of the $1.5 billion net cash proceeds received from the sale of the company's interest in the Access Pipeline and Stonefell Terminal. The remaining $275 million is allocated towards fully funding MEG's previously announced 13,000 bpd brownfield expansion at Christina Lake Phase 2B; 
• Total cash capital investment of $148 million, mainly directed towards advancing the company's objective to reach 113,000 bpd in 2020; and 
• Cash and cash equivalents of $675 million. MEG's four-year covenant-lite US$1.4 billion credit facility remains undrawn. 

MEG's growth is proceeding on schedule and on budget, with the eMSAGP implementation expected to be completed later this year bringing production to 100,000 bpd by early 2019. The company anticipates the Phase 2B brownfield expansion to increase production capacity to approximately 113,000 bpd in 2020. MEG continues to target 2018 average production of 85,000 to 88,000 bpd and 2018 exit production of 95,000 to 100,000 bpd. The 2018 average production guidance takes into account a planned maintenance turnaround at Christina Lake Phase 2B scheduled for the second quarter. 

"Taking into consideration the market dynamics in the first quarter of 2018, MEG delivered solid operating and financial results," said Bill McCaffrey, President and Chief Executive Officer. "We were able to effectively mitigate pipeline apportionment issues by utilizing the network of storage and rail facilities we have available to us, and we continue to have good access to the Gulf Coast via the Flanagan South and Seaway pipeline systems, which enables us to sell a significant percentage of our barrels at world prices." 

MEG's current contract of 50,000 bpd of transportation capacity on Flanagan South and Seaway will double to 100,000 bpd in mid-2020, moving approximately two-thirds of the company's forecast blend sales volume to the Gulf Coast and world pricing. This combination of growing pipeline access and continued optionality around rail advances MEG's strategy of reliable and diversified access to the broadest possible markets. 

Net operating costs per barrel for the first quarter of 2018 were 29% lower than in the first quarter of 2017, while non-energy operating costs per barrel decreased 13% over the same time period. The ongoing reduction in net operating costs and non-energy operating costs in the first quarter of 2018 is primarily a result of efficiency gains and continued cost management. 

Vision 20/20 

"The implementation of eMSAGP and the brownfield expansion on Phase 2B are key components for achievement of MEG's Vision 20/20," said Bill McCaffrey. "Following the implementation of these two phases of growth, we will have decreased our overall cash costs by approximately $3 per barrel from current levels, improved our balance sheet metrics, and positioned the company to grow thereafter while generating free cash flow." 

Capital investment during the first quarter of 2018 totalled $148 million. The majority of the capital was dedicated towards the drilling of new infills and well pairs as the implementation of eMSAGP continued on Phase 2B. The brownfield expansion on Phase 2B commenced during the quarter and is proceeding on schedule. Construction of the eMVAPEX pilot was also advanced. 

"Vision 20/20, once completed, will enable MEG to enter a new chapter. From a stronger operating and financial foundation, we will be in an improved position to respond to changing market conditions," said McCaffrey. "It is with this clear vision in mind that this is the right time for me to retire. With Management and the Board fully aligned on this vision, I am confident that MEG has the internal bench strength and the technical and financial capabilities to successfully carry out this transition."  

Adjusted Funds Flow and Earnings 

MEG realized adjusted funds flow from operations of $83 million for the first quarter of 2018 compared to adjusted funds flow from operations of $43 million in the same quarter of 2017. This 93% increase primarily reflects increased bitumen sales volumes and a reduction in net interest expense primarily due to realized gains on the company's interest rate swap contract. 

The company recorded a first quarter 2018 operating loss of $18 million compared to an operating loss of $79 million for the same period in 2017. The decrease in the operating loss was primarily the result of higher bitumen sales volumes. Bitumen sales averaged 91,608 bpd for the first quarter of 2018 compared to 74,703 bpd for the same time period in 2017.