Mr. Derek Evans reports

MEG ENERGY ANNOUNCES 2023 FINANCIAL AND OPERATING RESULTS

MEG Energy Corp. has released its full year 2023 operational and financial results.

"I am extremely proud of MEG's safety, operating and financial performance in 2023," said Derek Evans, president and chief executive officer. "Annual production grew by 6 per cent, averaging over 100,000 barrels per day for the first time and exiting the year at approximately 110,000 barrels per day. MEG's financial performance was also strong generating nearly $1-billion of free cash flow for debt repayment and share buybacks. At current prices MEG is well positioned to achieve $600-million (U.S.) net debt in the third quarter of 2024, after which 100 per cent of free cash flow will be returned to shareholders."

Highlights include:

• Annual free cash flow (FCF) of $953-million used to repay $437-million of debt and return $446-million of capital to shareholders through the repurchase and cancellation of 19.0 million shares at a weighted average price of $23.54 per share. FCF of $254-million in the fourth quarter was used to repay $173-million of debt and repurchase 8.7 million shares at a weighted average price of $25.29 per share, returning $219-million to shareholders.
• The corporation exited 2023 with net debt of $730-million (U.S.) ($1.0-billion).
• Annual bitumen production of 101,425 barrels per day (bbl/d) at a 2.27 steam-oil ratio (SOR), representing a 6-per-cent increase in production and a 4-per-cent decrease in SOR from 2022. Fourth quarter bitumen production averaged 109,112 bbl/d at a 2.28 SOR.
• Annual funds flow from operating activities (FFO) and adjusted funds flow (AFF) of $1,476-million and $1,402-million, or $5.13 and $4.87 per share, respectively. FFO and AFF totalled $358-million, or $1.27 per share, during the fourth quarter.
• Annual capital expenditures of $449-million and fourth quarter capital expenditures of $104-million were focused on sustaining and maintenance activities.
• Operating expenses net of power revenue declined 25 per cent in 2023 to $5.96 per barrel, including $5.01 per barrel of non-energy operating costs and 95 cents per barrel of energy operating costs net of power revenue. Fourth quarter 2023 operating expenses net of power revenue rose 5 per cent from the comparable 2022 quarter to $6.10 per barrel, including $4.64 per barrel of non-energy operating costs and $1.46 per barrel of energy operating costs net of power revenue.
• Intended renewal of the corporation's normal course issuer bid (NCIB) for a one-year period upon its expiration on March 9, 2024, which will allow the repurchase of an additional 10 per cent of MEG's public float.

Fourth quarter results

FCF of $254-million was used to repay $128-million (U.S.) ($173-million) of debt and repurchase 8.7 million shares, returning $219-million to shareholders.

Average bitumen production of 109,112 bbl/d was similar to 110,805 bbl/d in the fourth quarter of 2022 reflecting stable operations and no significant maintenance activity in both periods.

AFF decreased to $358-million, or $1.27 per share, from $401-million in the fourth quarter of 2022, reflecting a 12-per-cent decline in the cash operating netback.

The lower cash operating netback reflects increased royalty expense, the result of reaching payout status in the second quarter of 2023, partially offset by a higher bitumen realization due to narrower WTI:AWB differentials and lower diluent expense.

Annual financial results

AFF decreased to $1,402-million, or $4.87 per share, in 2023 from $1,934-million, or $6.26 per share, in 2022 driven by a lower cash operating netback partially offset by lower interest expense. The 31-per-cent decline in the cash operating netback for 2023 reflects a lower bitumen realization after net transportation and storage expense and higher royalties, the result of reaching payout status.

Bitumen realization after net transportation and storage expense decreased to $62.46 per barrel in 2023, from $76.66 per barrel in 2022, primarily driven by a lower average WTI (West Texas Intermediate) benchmark price partially offset by the realized price improvement from MEG's strategic market access and marketing optimization activities.

The corporation sold 66 per cent of blend sales volumes in the U.S. Gulf Coast during both 2023 and 2022 and average heavy oil apportionment on the Enbridge mainline system was 9 per cent and 5 per cent, respectively, in those years.

FCF totalled $953-million in 2023, compared with $1,558-million in 2022, reflecting lower AFF and higher capital spending.

Annual capital expenditures of $449-million were in line with guidance and rose from $376-million in 2022 due to increased scope, inflation, and timing of field development and maintenance work. Spending in both years focused on sustaining and maintenance activities.

Net earnings declined to $569-million in 2023 from $902-million in 2022 primarily driven by a lower cash operating netback, higher depletion and depreciation expense, and an onerous contract expense. These were partially offset by an unrealized foreign exchange gain on long-term debt and reduced interest and income tax expenses.

Annual operating results

Annual bitumen production in 2023 rose 6 per cent to 101,425 bbl/d at a 2.27 SOR from 95,338 bbl/d at a 2.36 SOR in 2022. The production increase and improved SOR reflects a continued focus on short-cycle redevelopment programs, enhanced completion designs, optimized well spacing and targeted facility enhancements. Production was impacted by major planned turnaround activities at the Christina Lake facility in both years.

Non-energy operating costs averaged $5.01 per barrel of bitumen sales in 2023, in line with guidance and representing a 6-per-cent increase from 2022 despite inflationary pressures on the cost of services, treating chemicals and staff.

Energy operating costs net of power revenue decreased to 95 cents per barrel in 2023 from $3.18 per barrel in 2022 as weaker natural gas prices more than offset reduced power revenue. Revenue from the sale of excess power generated by the corporation's co-generation facilities offset 76 per cent and 56 per cent of energy operating costs in 2023 and 2022, respectively.

Annual debt repayment and share repurchases

The $953-million of 2023 FCF was used to repay debt, return capital to shareholders and finance working capital requirements. The corporation repaid $322-million (U.S.) (approximately $437-million) of outstanding 7.125 per cent senior unsecured notes at a weighted average price of 101.7 per cent and returned $446-million to shareholders through the repurchase and cancellation of 19.0 million shares at a weighted average price of $23.54 per share, approximately 7 per cent of MEG's Dec. 31, 2022, issued and outstanding shares.

Capital allocation strategy

Approximately 50 per cent of FCF was allocated to debt repayment in 2023 with the remainder applied to share repurchases. 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 anticipated to occur in the third quarter of 2024 assuming a $75 (U.S.) per barrel WTI price. The corporation exited 2023 with net debt of $730-million (U.S.) (approximately $1.0-billion).

The corporation intends to renew the current NCIB for a one-year period upon its expiration on March 9, 2024, which will allow the repurchase of an additional 10 per cent of MEG's public float.

Sustainability and Pathways update

The corporation published its third ESG (environmental, social and governance) 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 (greenhouse gas) emissions; water management; energy security; energy affordability; and indigenous relations. The ESG report illustrates progress in several areas, including the establishment of a new mid-term absolute GHG emissions (Scope 1 and Scope 2) reduction target of 0.63 megatonne per year by year-end 2030 (which represents approximately 30 per cent of the corporation's 2019 GHG emissions); $72-million spent on goods and services provided by indigenous businesses in 2022 (a 30-per-cent increase over 2021); the launch of the corporation's diversity, equity and inclusion education and awareness campaign focused on ensuring that every team member is valued, respected and heard to enhance decision making, innovation, employee engagement and the corporation's long-term success; and the continued advancement of the corporation's safety management programs and systems to ensure safe, sustainable and reliable operations.

MEG, along with its Pathways Alliance peers, continues to progress prework 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. The Pathways Alliance continues to advance detailed evaluations of the proposed carbon storage hub and is working to obtain a carbon sequestration agreement from the Alberta government in the first half of 2024 to support regulatory submissions. In addition, the Pathways Alliance continues 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 (carbon dioxide) transportation and storage network corridor. The Pathways 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 and introduced implementing legislation for the CCS ITC in November, 2023. In addition, the Alberta government announced an Alberta Carbon Capture Incentive Program (ACCIP) which aims to help hard-to-abate industries by providing a grant of 12 per cent for new eligible CCS capital costs. The Pathways Alliance is evaluating these proposals and will continue to work with the federal and Alberta governments to secure the required financial support and regulatory certainty to enable the CCS project to proceed.

The 2024 annual production estimate incorporates reduced turnaround activities spread evenly throughout the year. The plan also includes the startup of two well pads, with the first pad on-stream mid-year and the second in the fourth quarter. New pad activity supports the 2024 production estimate and builds well capacity for future growth.

The corporation's 2024 capital expenditure program will allocate $450-million to sustaining activities and $100-million toward multiyear productive capacity growth. The growth investment reflects the commencement of a three-year project with an estimated total cost of approximately $300-million forecasted to deliver incremental productive capacity around the end of 2026.

The corporation's balance sheet and operating performance provide a solid foundation to finance the 2024 capital expenditure program. As a result, no WTI or WTI:WCS differential risk management contracts have been entered into for 2024.

Adjusted funds flow sensitivity

MEG's production is comprised 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 2023 annual operating and financial results at 6:30 a.m. Mountain Time (8:30 a.m. Eastern Time) on March 1, 2024. 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 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. MEG's common shares are listed on the Toronto Stock Exchange under the symbol MEG (TSX: MEG).

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