MEG Energy (OTC:MEGEF) Corp. (MEG) highlighted a quarter of robust safety, operational, and financial achievements in its Q2 2024 earnings call. The Canadian oil producer announced it is on track to meet a significant net debt target of $600 million in the upcoming third quarter.
The company also declared a quarterly cash dividend of $0.10 per share, payable on October 15, 2024, signifying its evolution as a mature entity in the sector. With a 17% increase in bitumen production from the previous year, and the commencement of the Trans Mountain Expansion pipeline, MEG Energy appears poised for improved profitability and efficiency.
Key Takeaways
- MEG Energy reported strong Q2 2024 performance with expectations to reach a $600 million net debt target in Q3.
- A quarterly cash dividend of $0.10 per share has been approved, payable in October.
- Adjusted funds flow reached CAD354 million, with CAD231 million of free cash flow.
- The company repurchased CAD68 million in shares and repaid $53 million in senior notes.
- Bitumen production averaged 100,500 barrels per day, up 17% from Q2 2023.
- Operating expenses averaged $6.62 per barrel, net of power revenue.
- The Trans Mountain Expansion pipeline startup is expected to enhance MEG's netback and profitability.
- Capital and operating guidance for 2024 remains unchanged.
- The Oil Sands Pathways Alliance project is over 75% complete in design, with regulatory applications in progress.
- Mike McAllister joined MEG's board of directors on July 1, 2024.
Company Outlook
- MEG Energy is focused on moderate growth, capital efficiency, and shareholder returns.
- The company plans to increase dividends and buy back shares as it grows production.
- Major turnarounds are scheduled every three years, with the possibility of extending to every four years.
- Frontend engineering design for additional processing capacity is expected to complete in the second half of the year.
- Access to Tidewater (NYSE:TDW) and international markets through TMX has expanded the customer base.
Bearish Highlights
- The company is monitoring the impact of wildfires on operations, having implemented fire breaks as a precaution.
Bullish Highlights
- MEG Energy is optimizing production capacity with the potential to increase production without additional steam capacity.
- The Trans Mountain pipeline provides access to new international customers.
- Increased demand for heavy high TAN crude oil is anticipated on the US West Coast.
Misses
- There were no specific financial misses reported in the call.
Q&A Highlights
- The company is evaluating the extension of major turnaround schedules and is working on engineering projects to determine processing capabilities.
- MEG Energy plans to continue its share buyback program, driven by free cash flow, oil prices, and volume.
- The company intends to pay down the remaining CAD100 million of 2027 bonds in Q3.
- Post-debt target achievement, MEG aims to return 100% of free cash flow to shareholders.
In summary, MEG Energy's second quarter of 2024 reflects a solid financial and operational footing, with significant strategic initiatives underway that could bolster future growth and investor returns. The company's commitment to shareholder value is evident in its dividend issuance and share repurchase activities. With the startup of the Trans Mountain Expansion pipeline and the progress in the Oil Sands Pathways Alliance project, MEG Energy is positioning itself to capitalize on both domestic and international market opportunities.
InvestingPro Insights
MEG Energy Corp.'s (MEGEF) recent quarterly performance demonstrates a commitment to shareholder value and operational efficiency, as reflected in its ongoing share repurchase program and the declaration of a cash dividend. According to InvestingPro data, the company's market capitalization stands at a modest $0.66 million, suggesting a smaller player within the industry. Despite a slight revenue decline of -2.9% over the last twelve months as of Q2 2024, the company's P/E ratio of 13.21 and an adjusted P/E ratio of 12.63 indicate that the stock is trading at a reasonable valuation relative to its earnings.
InvestingPro Tips highlight that MEG Energy's management has been actively engaged in buying back shares, a sign of confidence in the company's value and future prospects. This aligns with the company's announcement of reaching its net debt target and returning value to shareholders. Additionally, MEG Energy's stock is noted for trading with low price volatility, which may appeal to investors seeking stability in their portfolio.
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Full transcript - Meg Energy Corp OTC (MEGEF) Q2 2024:
Operator: Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MEG Energy's 2024 Q2 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Darlene Gates, CEO, you may begin your conference.
Darlene Gates: Thank you, Joelle. Good morning, everyone. And thank you for joining us to review MEG Energy's second quarter 2024 financial and operating results. With me on this call this morning are Ryan Kubik, our Chief Financial Officer; Lyle Yuzdepski, our Senior Vice President of Legal & Corporate Development, and Erik Alson, our Senior Vice President of Marketing. I'd like to remind our listeners that this call contains forward-looking information. Please refer to the advisories in our disclosure documents filed on SEDAR and our website. I'll keep my remarks brief today. For further detail on our second quarter results, please refer to yesterday's press release. I'd like to begin today by providing an update on our wildfire situation. Last week, we proactively evacuated non-essential personnel from the site and continue to operate our Christina Lake Facility with a reduced and essential workforce. To date, the wildfire has not directly impacted our facility and production remains steady. I'm pleased to share that we have started to return evacuated workers to the site as of today. I want to express my appreciation for our dedicated team for their ongoing efforts in ensuring safe and continuous operation of Christina Lake. They also exemplified collaboration with our industry partners and communities. I want to recognize Alberta Forestry and Parks for their selfless support in ensuring the safety of our people and communities. Thank you for everything that they are doing to help keep us all safe and their ongoing efforts. Moving on to business results, I'm proud of MEG's strong safety, operating and financial performance in the second quarter of 2024, which demonstrates the team's continuous focus on operational excellence. These business results mean that MEG expects to reach its $600 million net debt target in the third quarter. And I'm pleased to announce that MEG's board of directors has approved an inaugural quarterly cash dividend of $0.10 per share. This announcement is the culmination of a robust multi-year debt repayment and capital allocation strategy and highlights MEG's maturation as a senior Canadian oil producer. Further to our long-standing commitment, shareholder returns will rise to 100% of free cash flow with an emphasis on continued share buybacks and a quarterly base dividend. This dividend equates to an approximate 1.5% annual yield at MEG's current share price, a level that is positioned to grow through disciplined capital allocation. The dividend will be payable on October 15, 2024, to shareholders of record at the close of business on September 17, 2024. MEG recorded CAD354 million of adjusted funds flow in the second quarter. And after funding CAD123 million in capital expense, we generated CAD231 million of free cash flow. That free cash flow facilitated the repayment of $53 million in senior notes and allowed for the repurchase of CAD68 million, or 2.2 million MEG shares. Year-to-date, we have repaid $158 million of debt and repurchased 7 million shares totaling CAD195 million of share repurchases. Net debt as of June 30 was $634 million. Another milestone in the second quarter was the startup of the Trans Mountain Expansion pipeline. MEG began shipping on our 20,000 barrel per day contracted capacity up to Canada's West Coast, and our first cargo left the dock in June. This was an important milestone which removed longstanding Western Canadian transportation constraints, which we believe will lead to narrower and less volatile Canadian heavy oil differentials, improving MEG's netback and profitability. This was evident in the tightening of the WCS to WTI differential of US$5.70 per barrel in Q2 relative to the first quarter of 2024. Our second quarter average bitumen realization after net transportation and storage expense of $74 per barrel represents a 28% increase over the same period in 2023. On our operating front, bitumen production for the quarter averaged approximately 100,500 barrels per day, representing a 17% increase over the second quarter of 2023. This improved performance was driven by continued strong results from our recent SAGD pads and reduced turnaround scope. We converted the first group of wells from our newest pad to production late in the quarter and they are ramping up in line with expectations. Our second quarter steam-to-oil ratio of 2.44 reflects planned circulation of steam to these new wells. As we move into the second half of 2024, we anticipate higher production volumes with the addition of these new wells coming online. This coupled with the startup of a second pad late in the year positions us for a strong exit to 2024. Operating expenses net of power revenue in the second quarter averaged an industry leading $6.62 per barrel. We continue to benefit from low natural gas prices and power revenue, offsetting 54% of energy operating costs during the quarter. This results in CAD0.99 per barrel of energy operating cost net of power revenues. Capital investments in the quarter totaled CAD123 million, primarily directed towards drilling activity on SAGD pads and our short cycle redevelopment and infill programs. Engineering and design work on our facility expansion plan continues to progress with a final investment decision expected later in the year. On our 2024 capital and operating guidance, it remains unchanged. Now to a brief update on the Oil Sands Pathways Alliance. Regulatory applications to the Alberta Energy regulator seeking approvals for pathways, CO2 transportation network, and storage hub are continuing and the front end engineering and design on the proposed 400 kilometer CO2 transportation line is now more than 75% complete. Formal consultation and engagement with indigenous groups along with the proposed CO2 transportation corridor and storage network continues. And the Pathways Alliance continues to work actively with both the federal and Alberta governments on the necessary policy and co-financing frameworks required to move the project forward. Lastly, I'd like to welcome Mike McAllister to MEG's board of directors, effective July 1st. Mr. McAllister brings over 40 years of energy industry experience, having held several executive and technical roles overseeing operations, development, marketing and corporate services. His experience and expertise will be of significant benefit to our board as we execute our strategic initiative. 2024 has been a milestone year for MEG, as we reach the culmination of our balance sheet improvement strategy and the TMX startup diversifies market access and offers the potential for improved netbacks on all our production. With our commitment to returning 100% to free cash flow to shareholders, the introduction of a base dividend, and our transition to self-funded moderate organic growth production, MEG has solidified its position as a leading pure play oil investment. On behalf of MEG's board of directors and our management team, I want to thank you for your continued support. With that, I'll turn it back over to Joelle to begin the Q&As.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Greg Pardy with RBC. Your line is now open.
Greg Pardy: Thanks. Thanks. Good morning. Thanks for the rundown, Darlene, and good move on the dividend. Couple of questions, but maybe the biggest one is, I realize it's still early, but how are you thinking about just the cadence of your capital investment? Obviously not so much this year, but more as we get into 2025 and 2026?
Darlene Gates: Thanks, Greg. Good morning. When we look at the 2025 and 2026, as you know, with a strong operating performance, a strong financial performance, as we look ahead now, it's going to be focusing ourselves on moderate growth, 3% to 5% per year. Our team is evaluating those opportunities that we have right now. I would call them modesty bottlenecking growth. They're very capitally efficient. Most of those projects are projects that we have experience with. And the team is really refining those projects of how to integrate them and deliver the most capitally efficient program. As I look ahead at the numbers, of course, we haven't finalized any of these numbers. But I don't see any year exceeding -- they should range between 550 to 650 would be sort of that capital cadence over the next several years to deliver that moderate growth program that the team is proposing.
Greg Pardy: Okay. Okay. Thanks for that. And I'm going to shift gears entirely. If we roll back the clock like this time last year, WCS spreads were, I don't know, $10 or so, $10, $11, and some of that obviously impacted by outages on wildfires earlier in the season in 2023. Have the spreads surprised you guys a little bit as to how wide they are. But more importantly, I'm interested in what you think the path might be around spreads, particularly as we get into the autumn timeframe.
Erik Alson: Thanks, Greg. It's Erik. Looking at the differentials, say Q3 differentials have widened slightly on available inventory and a number of unplanned outages. In pads two, pads three in Mexico, we'll still see the typical widening, seasonal widening in the winter, but our view remains unchanged that Edmonton differentials will largely range in that minus 10 to minus 15 range?
Greg Pardy: Okay, terrific. Thanks very much.
Erik Alson: Welcome.
Operator: Your next question comes from Menno Hulshof with TD Cowen. Your line is now open.
Menno Hulshof: Good morning, everyone, and thanks for taking my questions. Maybe I'll just start with one on the game plan for the base dividend, which has been set fairly conservatively. And I understand this is a really volatile business. But is the plan or the hope maybe to ratably grow the dividend? And how important is that to the board?
Ryan Kubik: Hey, Menno, it's Ryan. You are right. We did intentionally set that base dividend at the low end of the spectrum. We don't feel we're here to compete on dividend yield against peers or other industries, quite frankly. So the plan is to add value through a base dividend. And we know that that accrues over time as you pay that base dividend, keep it stable, and grow it over time. And so that is the plan. We are still emphasizing our commitment to deliver 100% free cash flow returns to shareholders. And that's going to be largely concentrated on share buybacks at the moment. But with the base dividend at a relatively low level, we do expect that we can grow that dividend over time as we grow production through the projects that Darlene was just mentioning and as we buy back our shares over time. So, the plan would be to grow it over time. And we have set a level that we think we can sustain through the cycle. The oil price cycle, that is.
Menno Hulshof: Terrific. Thanks for that, Ryan. And then my second question is on turnarounds. My understanding is that 2024 is a light turnaround year with activity relatively evenly spread across the year. As we look into 2025 and 2026, should we assume turnarounds are going to look more like they have historically or do you see the potential to do those more efficiently as well?
Darlene Gates: Yes, Neil, thanks for that question. I know a lot of people are asking about the turnaround. And technically, this should have been a major turnaround year. And the team did some exceptional work looking at our performance of our asset and testing and challenging some of those capital efficiency opportunities. With our team, they had identified that we could minimize the turnaround scope this year. And that's part of what I mentioned is helping us with our production performance, because it's not only just cost, but it also impacts production as you know. As we look ahead, the continued work that the team has done to optimize the turnarounds is currently the schedule would be every three years, we do a major turnaround and then for two of our facilities or two of our plants, and then on the third year, it's a lighter scope. That's kind of the sequence today. What I'm seeing the team evaluating right now is moving that frequency to every four years. That decision hasn't been taken at this time, but I suspect based on the work that they're doing, that looks promising. So more to come by year end. We'll roll that out by Q4, give you more insights on the work that the team has progressed but expecting them to, either way, deliver some improvements on turnaround efficiencies.
Menno Hulshof: Thanks, Darlene. I'll turn it back.
Operator: Your next question comes from Neil Mehta with Goldman Sachs. Your line is now open.
Neil Mehta: Yes. Good morning, Darlene and team, and hope everybody stays safe from your team up there. My first question is just really on these economic growth projects. And you're in flight here on that third processing train, the skim tank, and then the steam optionality tie in. Just can you talk about how those are developing? And the biggest part of it, of course, is the third processing train. So if you could spend a little more time on that piece would be great.
Darlene Gates: Sure, we can. As we look at our strategy and hitting these major milestones and introducing ourselves, moving towards 100% free cash flow, our focus continues on shareholder value and returns. And as we evaluated our strategy, looking at our resource, it really starts with the delineation program over the last two years has been identifying our resource to the southeast but also now to the northwest, looks extremely promising. Our focus will be on capital efficient program and self-funded. Okay? So that has been the challenge that was given to the team. As I looked at that, you know, over the last year, the team has brought production up to the full capacity of the facility, both on processing and on steam. As they look ahead to grow the production moderate growth, how can we most efficiently do that? We've got a program in place that delivers -- programs around 20,000 to 25,000 per flowing barrel. And that includes an integration of both installing additional processing capacity. That's our ability to increase our fluid handling. And the frontend engineering design is in progress right now and should be complete in the second half of this year. That will allow us to make a decision, integrated with upgrading our steam system to allow access to both the northwest and the southeast. We bring those two programs together. Directionally, they look like they're sitting between 20,000, 25000 per flowing barrel. As they brought those two projects forward, there was also an identification for some efficient project execution strategy to optimize costs and labor as we brought those projects together. And that's why you're hearing us integrate those two. The third one you mentioned and asked about was the skim tank. And that's really about pacing your equipment delivery and how to create value over your investment period. With the turnaround, we can bring that tank in to optimize our turnaround and help with some of the scheduling and efficiency of the startup of the plant. And so that skim tank was something that the team identified, that while it's needed as part of the third processing chain, we could optimize turnarounds with the addition of accelerating that into the program. And that's why that came into the 2024 capital.
Neil Mehta: Thanks, Darlene. And the follow-up, just to Greg's question on the differential, I think some investors we keep speak to have been surprised. It has traded wider, despite we are in a seasonally tighter period for the demand for WCS, given refiners are running hard. And then you get into Q4 and you tend to get maintenance, and you get the blend ratios and all that stuff. So, is there something that we could be missing here, the fact that TMX went so over budget that it is bleeding into the differential and maybe the new mid cycle isn't 10 to 15, it's a little bit wider? Just wanted to push back and get your perspective on that.
Erik Alson: Thanks for the question. This is Erik again. The near-term issues that you're seeing, again, refineries are running hard. They're not necessarily the refineries that are running heavy crudes. So I had mentioned some of the unplanned outages we've seen in pads two and pads three. That's impacted heavy crude demand. So, you're seeing that impact in the differentials. With some of the reliability issues with refineries in Mexico, what has meant is more availability of Mexican crude in the US Gulf Coast. That's put additional pressure on availability and differentials as well. So that's what you're seeing in the near term. The longer term dynamic, as inventories are drawn, there's a fair bit of inventory built around the startup of TMX, as well as one of the big pad two refiners earlier in the year that was down for an extended period of time. There was a lot of heavy crude inventory that was built at that time. Those inventories are drawing and have been drying pretty heavily for the past couple of months. We'll be reaching operational minimums, inventory wise, here in 3Q. And again, my expectation is you'll see a little bit of the seasonal widening as you get into the winter. The nice thing is, with TMX online, the volatility that you've seen in the past, we're now protected with that from an unconstrained egress perspective. So as you roll into the coming year, the benefit of TMX, lower inventories, you'll see the differentials in that $10 to $15 range that we've been talking about.
Neil Mehta: Thanks, team. Appreciate more color.
Darlene Gates: You're welcome.
Operator: Your next question comes from John Royall with JPMorgan. Your line is now open.
John Royall: Hi, good morning. Thanks for taking my question. So you mentioned some modest growth through debottlenecks, obviously, in addition to the third processing train, and you gave some good color on Neil's question. But can you talk about what the ultimate capability is of the asset and how large you think it can get to over the long term relative to the 125 post the third train?
Darlene Gates: Thanks, John. Great question. What comes along with this is the ability of capacity. Right? The plant right now is at full capacity. And so without introducing these opportunities, we're not able to grow the production. So that's the first place is very efficient, how do we create the capacity, the processing side with the steam allows us to take it from about, I would say somewhere between 125,000 to 135,000 in production. That allows the team now, when you're thinking about capital efficiency, we'll pace the pads that come in to fill that capacity of the plant, and that's how we'll manage again, if we're in a volatile environment, how we pace the growth and why we give the range 3% to 5%, we'll manage that based on the macroenvironment that we're in to return the best returns to our shareholders. So, about 125 to 135. To go beyond that, we still have the ability to continue to optimize the facility. The resource looks outstanding. The delineation program through the last two years continues to demonstrate that the northwest of our resource looks even better than some of the southeast that we've been pursuing. And so we have a long runway ahead for opportunities. And now it's really just pace growth as we move that forward. To go beyond 135, then some additional optimization will be required in the facility. And I think we can optimize our way back up to about 145 to 150.
John Royall: Great, thank you. And then just to follow up on the wildfires, I think you mentioned bringing people back following the wildfires. Is it safe to say the near-term risk has completely come and gone. And then has enough of the surrounding area been burned off such that there's lower risk around the next wildfire should there be one?
Darlene Gates: So, what you count on MEG is our operations team out at the site and the collaboration that they have done with Alberta Forestry and Parks. We have installed, over the years through a lot of work, fire brakes is what I call them. To be frank, the fire was all around one of our disposal wells. The brakes worked extremely effective. The team managed it very well. And so they're able to demonstrate that the mitigations that they put in place are effective. I will never tell you that we're out of the woods. I think we're going to see the fires here for a while, but I'm confident, as you can see, I wouldn't bring the team back if we weren't confident in the safety of our people and several of the communities, a couple of the communities have also been mobilized back to the communities. So we are seeing the progress that Alberta Forestry and Parks is making. And I expect that we will continue to monitor these throughout the summer because of lightning strikes and those kind of things that are just present in our world that we're in today.
John Royall: Thank you.
Operator: Your next question comes from Dennis Fong with CIBC. Your line is now open.
Dennis Fong: Hi, good morning, and thanks for taking my questions. The first one is a bit of a follow on to John Royall's question. As you march through these debottlenecking operations, it sounds like oil processing capacity after this third processing train isn't as much going to be the limitation of the facility and rather steam gen. So, as you step into what you just highlighted as maybe a higher quality reservoir towards the northwest, driving down that should then potentially be able to increase production given your existing steam capacity or the expanded steam capacity. Is that a way to potentially optimize the field and kind of pull the most out of your CPF without actually having to install additional steam capacity after kind of these sets of projects have been completed to, we'll call it outperform, that 135 number that you just stated?
Darlene Gates: Yes, sorry, Dennis, it was a little broken up. But if I don't get your answer correct, just shoot me back another question. So I think what you're asking is, can we optimize further? So, yes, absolutely. Your steam is what you're using to deploy out to your best resource. If you have higher saturation, better resource, then your steam is more effective. And so if we have the ability in the northwest looks like it's better resourced, will have lower steam-to-oil ratios, and therefore, you don't need to bring on as additional steam to increase your production.
Dennis Fong: Great. And then I guess the pseudo follow-up to that would be just around oil processing capacity. Once this third processing train is complete, what do you think the facility itself could potentially do? Obviously, understanding that there's a steam constraint that may limit the actual total production level from the field.
Darlene Gates: Dennis, that's the work that the team is doing right now, as we do the engineering work and the optimization of these projects. The team is looking at those optimizations of what the processing capability can do. We expect that with the existing design, as they've laid it out, gets us to that 125 to 135, and we'll require some optimization work to go above the 135 as it sits today. But again, the team is doing that work as we speak. And we'll probably continue to provide updates as we get that refined in.
Dennis Fong: Great, great. And then my second question, just on the marketing side of things, and really appreciate all the color and context that you've provided already. Just as TMX throughput stabilizes towards kind of the normal operating levels, how has maybe the ability to gain access to certain markets, both through the West Coast and the US Gulf Coast, for your marketing operations may be changed or evolved as you've been able to kind of test the markets and gain realizations in either of those two sales points. And how might that shift going into the future, especially given the current dynamics on heavy oil?
Erik Alson: Thanks for the question. This is Eric. The access to Tidewater has been great. With TMX coming into service, we're pleased to see how well that new infrastructure has been operating. There were questions about that initially. But Trans Mountain has performed extremely well. Between the assets that we have with TMX, the access to the Gulf Coast, and the assets that we have there, the international reach has been great. We continue to access new international customers and continue to grow the sales portfolio. My expectation is we'll continue to see significant value from the international markets.
Dennis Fong: Great. Thanks. Appreciate the color. I'll turn it back.
Erik Alson: Thank you.
Operator: Your next question comes from Mike Warner with Yahoo. Your line is now open.
Mike Warner: Hi. Just wanted to say congratulations to the team on a standout first quarter. My question is, as you transition to 100% free cash flow to shareholders in Q3, you foresee down the line, Q4 2024, Q1 2025, the necessity to do a significant issuer bid to take up some share buybacks or do you -- do you see that just continuing on through an NCIB? Thanks very much.
Erik Alson: Thanks for the question. I guess we will continue to use the NCIB. That's the most effective way to buy back shares. But there is a limit on the NCIB program. So your question really revolves mostly around what oil price we're going to see and how much revenue we generate as a result of that. So, we will continue to pay the base dividend, subject to board approval, obviously. But depending on conditions at the time, that will use up some of the free cash flow that we're generating. We'll emphasize the NCIB program, that is capped at 10% of our shares. So, in a good world, we buy back 10% of our shares. And we have excess cash left over. At that point in time, you would have to consider -- to return 100% of free cash flow, you would have to consider an SIB program, which is a little bit more opportunistic. Those are larger bids. And you would build cash in advance of those SIB kind of programs. But we have seen peers use those programs, and it would be something we would consider if necessary. But first, you use up your NCIB.
Mike Warner: Great. Thanks.
Operator: [Operator Instructions]. Your next question comes from Patrick O'Rourke with ATB Capital Market. Your line is now open.
Patrick O’Rourke: Hey, guys. Thanks for the update. And congratulations on the inaugural dividend there. I just maybe wanted to ask sort of a bit of a follow-up on Dennis' question. Maybe a little bit of nuance here, but given you have some pretty significant experience marketing in the Gulf and now you're marketing on the West Coast. I'm kind of curious what, from a pricing dynamics perspective, the demand for those barrels, once you get them to the end of TMX, looks like from a discounting to WTI perspective, and how you've seen sort of the refinery complex, particularly in pad five, be able to sort of absorb what's a bit of a different and maybe slightly more nuanced crude slate coming down to them than they may have seen before and how they're reacting to that?
Erik Alson: Thanks for the question. This is Eric. As we look at the sales from Trans Mountain, some of the early netbacks, as we think about where the barrels are landing, we've got the committed capacity that's moving. Probably half of the barrels are moving into the US West Coast, the other half moving into eastern Asia, largely China. What we've seen from a dynamics perspective is the heavy high TANs are largely going to Asia at this point, with light crudes and low TAN mostly pointed to the US West Coast. One of the opportunities that's out there in front of us is for the pad five, the West Coast refiners, to build more familiarity with processing heavy high TAN. We know that kind of early runs are taking place with the West Coast refiners, and my expectation is we'll see more of a demand pull for heavy high TANs into the West Coast as well. So we're very encouraged by what we see to date and continue to see the opportunity for upside as our product moves into the West Coast.
Patrick O’Rourke: Okay. And then just with respect to the buyback here, when I look at the way you've done it, sort of on a monthly or on a quarterly basis, there is some lumpiness to it that sort of call it is in line with some of the free cash flow profiles. Just wondering that as you hit the $600 million, you got a ton of flexibility on the balance sheet. Is there any desire to move to something that's sort of ratable on an annualized basis and remove some of the lumpiness to the way that you guys buy back shares in the market here?
Erik Alson: On the buyback, we are very programmatic about how we do it. I think you'll continue to see us do that. The movement and the amount that gets bought back is really driven by the free cash flow that we're generating, oil prices, volumes, et cetera and our needs for cash to pay bills, etcetera. And so it is very programmatic. We'll continue to just look at what cash is sitting in the bank account at the end of the month. We'll hold back what we need to run the business, and then the rest goes to buying back stock and paying our dividend. And so that's the approach. We do just try to hit the volume weighted average price as we buy back and be programmatic rather than opportunistic in those buybacks. You'll continue to see that approach going forward.
Patrick O’Rourke: Okay, thanks.
Operator: Your next question comes from John Royall with JPMorgan. Your line is now open.
John Royall: Hi. Thanks for coming back to me. I just had a very quick housekeeping follow-up for Ryan. I think you have about CAD100 million remaining on the 2027 bonds. Is the intention to get this down to zero before you flip to 100% returns of capital?
Erik Alson: Hey, John. Yes, good question. That is exactly the intent. We'll hit our net debt target in Q3, probably mid Q3. And then further to that, we'll continue to buy back those 2027 bonds and give ourselves a nice liquidity runway out to 2029. That would be our next bond maturity. So take out that full CAD100 million of 2027. We expect that's going to occur in Q3 as well. And then we'll dial up to the 100% free cash flow returns.
John Royall: Thank you very much.
Operator: There are no further questions at this time. I will now turn the call over to Darlene Gates for closing remarks.
Darlene Gates: Thank you, Joelle. And thank you to everybody that joined us this morning for our Q2 results conference call. We look forward to updating you again when we release our Q2 results in November. I hope everyone has a great day.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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