Mr. Derek Evans reports

MEG ENERGY ANNOUNCES FIRST QUARTER 2023 FINANCIAL AND OPERATING RESULTS

MEG Energy Corp. has released its first quarter 2023 operational and financial results.

All financial figures are in Canadian dollars and all references to barrels are per barrel of bitumen unless otherwise noted.

"In Q1, our Christina Lake operations delivered strong bitumen production at an industry-leading steam-oil ratio and with an operating cost structure that was positively impacted by low natural gas and higher power prices," said Derek Evans, president and chief executive officer. "These strong operating results enabled our ongoing commitment to debt reduction with $117-million of debt repaid in the quarter as well as share buybacks of $103-million. All of this was achieved with our focus on health, safety and the environment that ensures nobody gets hurt, eliminates serious incidents and delivers operational excellence."

Highlights include:

• Bitumen production of 106,840 barrels per day (bbl/d) at a 2.25 steam-oil ratio (SOR);
• Adjusted funds flow (AFF) of $274-million or 94 cents per share, and $348-million of funds flow from operating activities (FFO);
• Free cash flow (FCF) of $161-million, after $113-million of capital expenditures;
• Debt repayment of $86-million (U.S.) (approximately $117-million (Canadian)). Net debt declined to $1.0-billion (U.S.) (approximately $1.4-billion (Canadian)) at the end of the first quarter of 2023;
• MEG returned $103-million to shareholders through the buyback and cancellation of 4.9 million shares at a weighted average price of $20.88 per share;
• Operating expenses net of power revenue of $6.13 per barrel; power revenue offset 76 per cent of energy operating costs, resulting in energy operating costs net of power revenue of $1.36 per barrel and non-energy operating costs of $4.77 per barrel;
• On March 8, 2023, the Toronto Stock Exchange approved the renewal of the corporation's normal course issuer bid (NCIB). Pursuant to the bid, MEG will purchase for cancellation, from time to time, as it considers advisable, up to a maximum of 28,596,214 common shares of the corporation. The bid became effective on March 10, 2023, and will terminate on March 9, 2024, or such earlier time as the bid is completed or terminated at the option of MEG;
• On April 14, 2023, S&P Global Ratings raised the corporation's long-term issuer credit rating to BB minus and a stable outlook from B plus and affirmed the issue-level rating on the corporation's senior unsecured notes at BB minus.

Financial results

AFF and FFO in the first quarter of 2023 declined to $274-million and $348-million, respectively, from $559-million and $587-million in the same period of 2022, mainly reflecting a 48-per-cent decrease in cash operating netback. Higher 2023 bitumen sales volumes were more than offset by lower realized prices relative to the first quarter of 2022.

Cash operating netback per barrel in 2023 declined 51 per cent from the first quarter of 2022 to $34.32. Bitumen realization after net transportation and storage expense decreased to $43.40 per barrel in the first three months of 2023, mainly reflecting a lower West Texas Intermediate (WTI) benchmark price, wider WTI:AWB (Access Western Blend) differentials partially offset by a weaker Canadian dollar. The impact of lower bitumen realization after net transportation and storage expense on cash operating netback per barrel was partially offset by reduced royalties and operating expenses net of power revenues.

The corporation sold 56 per cent and 58 per cent of its blend sales volumes in the USGC market during the first quarters of 2023 and 2022, respectively. Average heavy oil apportionment on the Enbridge mainline system was 12 per cent and 10 per cent in those periods.

FCF was $161-million in the first quarter of 2023, compared with $471-million in the same period of 2022, driven by the lower AFF and an increase in capital spending to $113-million from $88-million. Higher 2023 capital expenditures reflect increased drilling activity.

Net earnings were $81-million and $362-million in the first quarters of 2023 and 2022, respectively. The 2023 decline mainly reflects a lower cash operating netback partially offset by reduced income tax expense.

Operating results

Bitumen production rose approximately 6 per cent in the first quarter of 2023 to 106,840 bbl/d from 101,128 bbl/d in the same period of 2022. Higher 2023 production was delivered at a 2.25 SOR, a 7-per-cent reduction from 2.43 in the first quarter of 2022. The elevated production performance was driven by a focus on optimized well spacing, enhanced completion designs, a capital-efficient well redevelopment program and targeted facility enhancements.

Non-energy operating costs of $4.77 per barrel of bitumen sales in the first quarter of 2023 were consistent with $4.74 per barrel during the same period of 2022.

Energy operating costs net of power revenue decreased to $1.36 per barrel in the first quarter of 2023 from $4.24 per barrel in the comparable period of 2022, reflecting a 78-per-cent increase in realized power prices and weaker AECO natural gas prices. Power revenue offset 76 per cent and 38 per cent of energy operating costs in the first quarters of 2023 and 2022, respectively.

General and administrative expense in the first quarter of 2023 rose to $18-million or $1.94 per barrel of production from $14-million or $1.61 per barrel in the comparable period of 2022, reflecting increased staff costs.

Debt repurchases and share buybacks

The $161-million of first quarter 2023 FCF and a portion of available cash were used for debt repurchases and share buybacks. The corporation repurchased $86-million (U.S.) (approximately $117-million) of outstanding 7.125 per cent senior unsecured notes at a weighted average price of 102.2 per cent. Share buybacks totalled $103-million through the repurchase and cancellation of 4.9 million shares at a weighted average price of $20.88 per share.

Capital allocation strategy

Approximately 50 per cent of 2023 FCF is being allocated to debt reduction, with the remainder applied to share buybacks. This allocation will remain until $600-million (U.S.) of net debt is achieved. The corporation exited the first quarter of 2023 with net debt of $1.0-billion (U.S.).

Sustainability and Pathways Alliance update

MEG, along with its Pathways peers, is progressing prework on the proposed foundational carbon capture and storage project, which will transport carbon dioxide (CO2) via pipeline from multiple oil sands facilities to be stored safely and permanently in the Cold Lake region of Alberta.

On March 28, 2023, the Canadian federal government announced measures in its 2023 budget to provide greater policy certainty to support and incentivize investment in clean technologies, including carbon capture, utilization and storage (CCUS) projects, which are critical to meeting Canada's emissions reduction goals. The government indicated a clearer legislative timeline for the previously announced investment tax credit (ITC) for CCUS. In addition, the federal government committed that contracts for difference would be implemented by the Canada Growth Fund to backstop the future price of, for example, carbon or hydrogen, providing price and revenue predictability that helps to derisk major projects that reduce Canada's emissions. The Public Sector Pension Investment Board (PSP Investments) will be mandated to manage the assets of the Canada Growth Fund to allow the start of investing this year. The federal government also committed to consulting on the development of a broad-based approach to carbon contracts for difference that aim to make carbon pricing more predictable and to complement individualized contracts for difference offered by the Canada Growth Fund.

For further details on the corporation's approach to environmental, social and governance (ESG) matters, please refer to the corporation's 2021 ESG report and its 2022 ESG performance data supplement, available in the sustainability section of the corporation's website and the most recently filed annual information form (AIF) on SEDAR.

Adjusted funds flow sensitivity

MEG's production is consisted entirely of crude oil and AFF is highly correlated with crude oil benchmark prices and light-heavy oil differentials. The attached table provides an annual sensitivity estimate to the most significant market variables.

Conference call

A conference call will be held to review MEG's first quarter 2023 operating and financial results at 6 a.m. Mountain Time (8 a.m. Eastern Time) on May 2, 2023. To participate, please dial the North American toll-free number 1-888-390-0546 or the international call number 1-416-764-8688.

A recording of the call will be available by 12 p.m. Mountain Time (2 p.m. Eastern Time) on the same day on the company's website.

About MEG Energy Corp.

MEG is an energy company focused on sustainable in situ thermal oil production in the southern Athabasca oil region of Alberta, Canada. MEG is actively developing innovative enhanced oil recovery projects that utilize steam-assisted gravity drainage extraction methods to improve the responsible economic recovery of oil as well as lower carbon emissions. MEG transports and sells thermal oil (AWB) to customers throughout North America and internationally. MEG's common shares are listed on the Toronto Stock Exchange under the symbol MEG.

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