Mr. Derek Evans reports

MEG ENERGY ANNOUNCES THIRD QUARTER 2023 FINANCIAL AND OPERATING RESULTS

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

"Increased bitumen production and strong bitumen realizations resulted in over $400-million of free cash flow in the quarter allowing us to advance our debt reduction and return of capital strategy while continuing to deliver safe and reliable operations," said Derek Evans, chief executive officer. "At current oil prices we expect to reach our $600-million (U.S.) net debt target in mid-2024, at which point our return of capital to shareholders will rise from 50 per cent to 100 per cent of free cash flow, and at the same time, we will be well positioned to sanction highly economic projects for modest production growth over the next few years. MEG's financial turnaround and current business strength has been governed by the board of directors led over the last few years by Ian Bruce as chair. His business insight, support and kindness will be greatly missed."

Third quarter 2023 highlights include:

• Funds flow from operating activities (FFO) and adjusted funds flow (AFF) of $492-million, or $1.71 per share. Year-to-date FFO and AFF totalled $1,118-million and $1,044-million, or $3.85 and $3.60 per share, respectively.
• Bitumen production of 103,726 barrels per day (bbl/d) at a 2.28 steam-oil ratio (SOR) reflecting the corporation's continued focus on short-cycle redevelopment programs, enhanced completion designs and optimized well spacing. Year-to-date bitumen production averaged 98,835 bbl/d.
• Bitumen realization after net transportation and storage expense of $84.75 per barrel reflecting the corporation's strategic market access together with supportive supply/demand fundamentals for its Access Western Blend (AWB) product. Bitumen realization after net transportation and storage expense in the first nine months of 2023 was $62.04 per barrel.
• Free cash flow (FCF) of $409-million after $83-million of capital expenditures. Year-to-date FCF totalled $699-million after $345-million of capital expenditures.
• Debt repayment of $68-million (U.S.) (approximately $92-million) during the third quarter of 2023 and $194-million (U.S.) (approximately $263-million) year to date. Net debt declined to $885-million (U.S.) (approximately $1.2-billion) at the end of the third quarter of 2023.
• MEG returned $58-million to shareholders during the third quarter of 2023 through the buyback and cancellation of 2.3 million shares at a weighted average price of $25.40 per share. Year-to-date buybacks totalled 10.3 million shares, returning $227-million to shareholders.
• Operating expenses net of power revenue of $5.11 per barrel. Power revenue more than offset energy operating costs, resulting in a recovery of energy operating costs net of power revenue of four cents per barrel and non-energy operating costs of $5.15 per barrel. Year-to-date operating expenses net of power revenue were $5.91 per barrel, including non-energy operating costs of $5.16 per barrel and 75 cents per barrel of energy operating costs net of power revenue.
• The corporation published its third ESG report in September, 2023, which discusses its foundational commitments of Business Model Resilience and Governance and the corporation's priority ESG (environmental, social and governance) topics: health and safety; climate change, and GHG (greenhouse gases) emissions; water management; energy security; energy affordability; and indigenous relations.
• On Sept. 13, 2023, Fitch Ratings raised the corporation's long-term issuer credit rating to BB- with a stable outlook from B+ and affirmed the issue-level rating on the corporation's senior unsecured notes at BB-.

Financial results

AFF and FFO in the third quarter of 2023 decreased to $492-million from $496-million and $501-million, respectively, in the comparative 2022 period. Increased sales volumes due to higher bitumen production largely offset a 6-per-cent decline in cash operating netback, to $58.64 per barrel, reflecting a higher bitumen realization after net transportation and storage expense more than offset by increased post-payout royalties.

Third quarter 2023 bitumen realization after net transportation and storage expense rose to $84.75 from $74.75 per barrel in the same period of 2022. A lower WTI oil price was more than offset by narrower WTI: AWB differentials and a weaker Canadian dollar. In addition, diluent expense fell from $9.63 to six cents per barrel reflecting a lower purchase cost of diluent relative to WTI, narrower WTI: AWB differentials and use of diluent linefill recorded at a lower historical accounting value. Diluent costs were fully recovered through blend sales in the third quarter of 2023 compared with a 79-per-cent recovery in the same 2022 period.

The corporation's Christina Lake operation reached postpayout status under the Oil Sands Royalty Regulation in the second quarter of 2023. The resulting royalty rate increase raised third quarter 2023 royalties to $181-million from $66-million in the same period of 2022.

The corporation sold 73 per cent and 66 per cent of blend sales volumes in the USGC market during the third quarters of 2023 and 2022, respectively. Average heavy oil apportionment on the Enbridge mainline system was 1 per cent and 3 per cent in those periods.

Third quarter 2023 FCF was $409-million, compared with $418-million in the same period of 2022, reflecting lower AFF and an increase in capital spending.

Capital expenditures rose to $83-million in the third quarter of 2023 from $78-million in the same quarter of 2022 due to increased 2023 scope, inflation, and timing of field development and maintenance activities.

Net earnings increased to $249-million in the third quarter of 2023 from $156-million in the comparative 2022 period, mainly reflecting a smaller unrealized foreign exchange loss on long-term debt.

Operating results

Bitumen production rose approximately 2 per cent in the third quarter of 2023 to 103,726 bbl/d, from 101,983 bbl/d in the same period of 2022. Higher 2023 production was delivered at a 2.28 SOR, a 5-per-cent reduction from 2.39 in the third quarter of 2022. This reflects the corporation's continued focus on short-cycle redevelopment programs, enhanced completion designs, optimized well spacing and targeted facility enhancements.

Third quarter 2023 non-energy operating costs increased to $5.15 per barrel of bitumen sales from $4.49 per barrel during the same period of 2022, primarily reflecting the timing of maintenance activities and inflationary pressures on the cost of services, treating chemicals and staff costs.

Power revenue exceeded energy operating costs in the third quarter of 2023 generating a four-cent-per-barrel net recovery relative to a 96-cent-per-barrel expense in the comparable 2022 period. Weaker natural gas prices reduced energy operating costs more than the offsetting impact of a lower realized price on power revenue. Power revenue offset 101 per cent and 84 per cent of energy operating costs in the third quarters of 2023 and 2022, respectively.

Debt repurchases and share buybacks

The $409-million of third quarter 2023 FCF was used to finance working capital requirements, repurchase debt and buy back shares. The corporation repurchased $68-million (U.S.) (approximately $92-million) of outstanding 7.125-per-cent senior unsecured notes at a weighted average price of 101.7 per cent. Share buybacks totalled $58-million through the repurchase and cancellation of 2.3 million shares at a weighted average price of $25.40 per share. Year-to-date the corporation repurchased $194-million (U.S.) (approximately $263-million) of outstanding 7.125-per-cent senior unsecured notes at a weighted average price of 102.1 per cent, and share buybacks totalled $227.4-million through the repurchase and cancellation of 10.3 million shares at a weighted average price of $22.07 per share.

The corporation remains focused on its strategy of debt reduction and returning capital to shareholders. From April 1, 2022, through Nov. 3, 2023, 33.1 million shares have been repurchased and cancelled returning $668-million to shareholders at a weighted average price of $20.16 per share. Debt repurchases have totalled $853-million (U.S.) (approximately $1.1-billion) over that same period.

Capital allocation strategy

Approximately 50 per cent of 2023 FCF is being allocated to debt reduction with the remainder applied to share buybacks. One hundred per cent of FCF will be returned to shareholders when the corporation reaches its $600-million (U.S.) net debt target, which is expected to occur mid-2024 at current oil prices. The corporation exited the third quarter of 2023 with net debt of $885-million (U.S.).

Sustainability and Pathways update

The corporation published its third ESG report in September, 2023, which discusses its foundational commitments of business model resilience and governance and the corporation's priority ESG topics: health and safety; climate change and GHG emissions; water management; energy security; energy affordability; and indigenous relations. The ESG report illustrates progress in several areas in 2022 and early 2023, including the establishment of a new mid-term absolute GHG emissions reduction target of 0.63 megatonne per annum by year-end 2030 (an approximately 30-per-cent reduction from 2019 levels); $72-million spent on goods and services provided by indigenous businesses in 2022 (a 30-per-cent increase over 2021); launching the company's diversity, equity and inclusion education and awareness campaign focused on amplifying the voices of every team member to enhance the company's decision making, innovation, employee engagement and the corporation's long-term success; and the continued advancement of safety management programs and systems to ensure safe, sustainable and reliable operations.

MEG, along with its Pathways Alliance peers, continues to progress pre-work on the proposed foundational carbon capture and storage (CCS) project, which will transport CO2 (carbon dioxide) via pipeline from multiple oil sands facilities to be stored safely and permanently underground in the Cold Lake region of Alberta. During the third quarter of 2023, technical teams continued to advance detailed evaluations of the proposed carbon storage hub. The alliance is working to obtain a carbon sequestration agreement from the government of Alberta by year-end 2023 to support regulatory submissions. In addition, the alliance continued to advance engineering work, environmental field programs to minimize the project's environmental disturbance, and consultations with indigenous and local communities along the proposed CO2 transportation and storage network corridor. 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 federal government has proposed an investment tax credit (ITC) for CCS projects for all sectors across Canada. Updated draft legislation was released for consultation in the third quarter of 2023. It will be important for governments to work together with industry to ensure that the ITC implementation delivers required support to enable CCS project development.

For further details on the 2023 ESG report and on the corporation's approach to ESG matters, please refer to the "sustainability" section of the corporation's website and the most recently filed AIF on SEDAR+.

Outlook

The 2023 guidance remains unchanged. Forecast bitumen production for the second half of the year is unchanged at approximately 105,000 bbl/d, with annual production still trending towards the low end of the guidance range and non-energy operating costs and G&A (general and administrative) expense still trending toward the high end of their respective ranges.

The corporation has capacity to ship 100,000 bbl/d of AWB blend sales, on a preapportionment basis, to the USGC market via its committed FSP capacity. In addition, 20,000 bbl/d of capacity is contracted on the TMX pipeline system to Canada's West Coast. TMX is scheduled to come into service at the end of the first quarter of 2024, which will further broaden MEG's market access.

Adjusted funds flow sensitivity

MEG's production comprises 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 third quarter 2023 operating and financial results at 6:30 a.m. Mountain Time (8:30 a.m. Eastern Time) on Nov. 7, 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.

About MEG Energy Corp.

MEG Energy is an energy company focused on sustainable in situ thermal oil production in the southern Athabasca oil region of Alberta, Canada. MEG Energy 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 Energy transports and sells thermal oil (AWB) to customers throughout North America and internationally. MEG Energy is a member of the Pathways Alliance, a group of Canada's largest oil sands producers working together to address climate change and achieve the goal of net-zero emissions by 2050.

We seek Safe Harbor.