Earnings call transcript: MEG Energy’s Q2 2025 sees robust cash flow and strategic growth

MEG Energy Corp, with a market capitalization of $1.06 billion, reported strong financial performance in its Q2 2025 earnings call, with a significant increase in free cash flow and a strategic plan for growth. The company maintained its full-year guidance, projecting over $500 million in free cash flow for 2025, while also increasing its quarterly dividend by 10%. MEG Energy continues to focus on capital-efficient growth, with a facility expansion project on track to increase production capacity by 2027. According to InvestingPro data, the company has demonstrated impressive revenue growth of 17.78% over the last twelve months, with a healthy current ratio of 1.78.

Key Takeaways

• MEG Energy returned $220 million to shareholders through share repurchases.
• The company increased its quarterly dividend by 10% to $0.11 per share.
• MEG Energy maintained its full-year 2025 guidance, projecting over $500 million in free cash flow.
• The facility expansion project aims to add 25,000 barrels per day by mid-2027.
• Strategic review updates are expected by mid-September.

Company Performance

MEG Energy demonstrated strong performance in Q2 2025, with an adjusted fund flow of $125 million, equating to $0.49 per share. The company’s strategic focus on capital-efficient growth and asset strength at Christina Lake positions it well for future expansion. Despite challenges such as wildfires and production delays, MEG Energy’s operational efficiency remains high, targeting an increase in production to 135,000 barrels per day. InvestingPro analysis shows the company maintains a GOOD overall Financial Health Score of 2.51, with particularly strong marks in price momentum and growth metrics. Subscribers can access 12+ additional ProTips about MEG Energy’s financial health and growth prospects.

Financial Highlights

• Adjusted fund flow: $125 million ($0.49 per share)
• Free cash flow for the first half of 2025: $148 million
• Projected free cash flow for 2025: Over $500 million
• Quarterly dividend: Increased by 10% to $0.11 per share

Outlook & Guidance

MEG Energy’s full-year 2025 guidance remains unchanged, with sustaining capital expected to stay around $450 million. The company is targeting per-barrel sustaining capital costs of approximately $10. Plans to extend turnaround cycles from three to four years are underway, with strategic review updates anticipated by mid-September. Future EPS forecasts for 2025 and 2026 suggest continued growth, with expectations of $1.7 and $1.9 respectively. Analyst consensus from InvestingPro shows a positive outlook, with price targets ranging from $31 to $35. The stock has already demonstrated strong momentum, delivering a remarkable 61.35% return year-to-date. For detailed analysis and valuation metrics, check out MEG Energy’s comprehensive Pro Research Report, available to subscribers along with reports on 1,400+ other top stocks.

Executive Commentary

Darlene Gates, President and CEO, emphasized MEG Energy’s strategic positioning for growth, stating, "MEG Energy is uniquely positioned to deliver low-risk, capital-efficient growth to 135,000 barrels per day." She also highlighted the company’s financial strength, noting, "We’re on track to generate over $500 million of free cash flow in 2025."

Risks and Challenges

• Global economic uncertainty and increased OPEC supply impacting oil prices.
• Potential operational disruptions from natural events, such as wildfires.
• Market volatility affecting commodity prices and investor sentiment.
• Ongoing capital requirements for facility expansion and maintenance.

MEG Energy’s Q2 2025 earnings call reflects a company poised for growth, with a strong financial foundation and strategic initiatives aimed at increasing production capacity and shareholder value.

Full transcript - MEG Energy Corp (MEG) Q2 2025:

Jeannie, Conference Operator: Good morning ladies and gentlemen. My name is Jeannie and I will be your conference operator today. I’d like to welcome everyone to MEG Energy Second Quarter 2025 and Six Months Results Conference Call. All lines have been placed on mute to prevent any background noise. After the MEG team’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star then the number one on your telephone keypad. If you would like to withdraw your question, please press Star one again. I’d like to remind our listeners that this call contains forward-looking information. Please refer to the advisories in MEG’s disclosure documents filed on SEDAR+ and on their website. For more on these disclaimers, full details on MEG’s second quarter and six months results are available in yesterday’s press release.

At this time I would like to turn the conference over to Darlene Gates, President and CEO of MEG Energy. Please go ahead.

Darlene Gates, President and CEO, MEG Energy: Thank you, Jeanne. Good morning, everyone, and thank you for joining us to review MEG Energy’s second quarter 2025 financial and operating results. I’ll begin today’s call by highlighting our financial performance and strategic execution before turning it over to our CFO, Ryan Kubik, for a more detailed look at the numbers. Also joining us this morning are additional members of our senior management team: Tom Gear, our Senior Vice President, Oil Sands; Eric Alson, our Senior Vice President, Marketing; and Lyle Yuzdepski, our Senior Vice President, Corporate Development and Legal. I’m incredibly proud to share that the MEG team safely and successfully completed the largest planned turnaround in our company’s history. What makes this achievement even more impressive is that it was completed while navigating the added complexity of regional wildfire conditions, with an unwavering commitment to the safety of our people and the communities we serve.

The turnaround was completed on time, on budget, and with exceptional safety performance across all key metrics. In addition, we completed over 150 tie-ins for our facility expansion project, helping to minimize future production interruptions and advance our growth plan. This project, which will add 25,000 barrels per day of production capacity by mid-2027, remains firmly on track and on budget thanks to the strength of our asset base and the resilience of our business model. MEG generated $148 million in free cash flow in the first half of the year and returned $220 million to shareholders, repurchasing approximately 3% of shares outstanding at current strip pricing. We’re on track to generate over $500 million of free cash flow in 2025. As I mentioned, the wildfires, which impacted communities and operators across the region, caused damage to third-party infrastructure, which delayed our post-turnaround ramp-up by approximately 12 days.

Despite this, our team restored production to pre-turnaround levels within two weeks of restart, and July production averaged about 109,000 barrels per day, positioning us for a strong second half. In the second quarter, bitumen production averaged 63,500 barrels per day with an average steam to oil ratio of 2.38. As expected, the turnaround reduced volumes by approximately 32,000 barrels per day, with wildfire contributing an additional 12,000 barrels per day. Full year 2025 operating and capital guidance will remain unchanged. Our world-class Christina Lake assets, combined with our strategic growth initiatives, position us to deliver low-risk, capital-efficient growth, reduce per barrel costs, and generate significant shareholder returns. Before I turn it over to Ryan, I’m pleased to share that MEG’s Board of Directors has approved a 10% increase in our quarterly dividend, raising it to $0.11 per share payable on October 15, 2025.

This increase reflects our confidence in the strength and resilience of our business model, our commitment to disciplined capital allocation, and our focus on delivering meaningful returns to shareholders. With that, I’ll turn it over to Ryan for a more detailed look on our financial results.

Ryan Kubik, CFO, MEG Energy: Thanks. As Darlene mentioned, MEG’s dividend increase is supported by our strong financial performance and with low corporate breakeven, MEG is positioned to sustain and grow that dividend over the long term through disciplined investment and share buybacks. At current strip pricing, we expect to generate over $375 million in free cash flow in the second half of 2025, providing ample flexibility to support our capital allocation priorities. Adjusted fund flow in the second quarter of this year was $125 million or $0.49 per share, reflecting the impact of lower bitumen realizations and reduced sales volumes due to the planned turnaround and wildfire related delays. The WCS heavy oil differential narrowed to US $10.27 per barrel in the quarter, supported by improved pipeline access and strong demand for Canadian heavy crude.

That differential, however, was more than offset by the WTI benchmark price which averaged below US $65 per barrel, influenced by global economic uncertainty and increased OPEC supply. Our operating costs net of power revenue were $10.88 per barrel in the second quarter, including non-energy operating costs of $8.16 per barrel. These per barrel operating costs will be significantly lower than in the second half of this year as production rises and we start up new wells and high quality resource capital. Expenditures in Q2 totaled $200 million, up from $123 million in Q2 2024 driven by our planned turnaround and continued investment in our facility expansion project. While our share buybacks are temporarily paused due to the unsolicited offer process, our capital return strategy remains unchanged and we plan to resume share repurchases when able.

With that, I’m going to turn the call back over to Darlene for closing remarks.

Darlene Gates, President and CEO, MEG Energy: Thank you, Brian. I’m incredibly proud of how our team delivered this quarter, executing a 250,000 hour turnaround while advancing our strategic growth initiatives and maintaining operational resilience through challenging wildfire conditions. MEG Energy is uniquely positioned to deliver low risk, capital efficient growth to 135,000 barrels per day while continuing to reduce per barrel costs and generate robust free cash flow. Our standalone strategy is compelling, anchored by the strength of our world class Christina Lake assets and supported by a deep portfolio of attractive growth opportunities at Surmont, Kirby, and May River. As previously announced, our board initiated a strategic review on June 16 to explore whether a superior alternative to our standalone plan exists. That process is ongoing, and we will provide an update ahead of the expiry of the ancillary cited SID in mid September. We will not be commenting further on the review.

During today’s call, I want to thank our shareholders for their continued confidence and engagement. Your support is critical as we navigate this pivotal moment in MEG Energy’s journey, and with that, we’re happy to answer any of your questions.

Jeannie, Conference Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment.

Darlene Gates, President and CEO, MEG Energy: To compile the Q&A roster.

Jeannie, Conference Operator: Your first question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

Ryan Kubik, CFO, MEG Energy: Good morning Darlene and team.

Understood on maybe some limitations on the MAS. I had a couple questions around projects and the first is just the facility expansion. You said in the release that you’re on track for 2020 and you got a lot of tie-ins that were completed during the turnaround, but just your perspective on how that’s ramping. What are the critical path items? That’s probably the most important project in your docket right now.

Darlene Gates, President and CEO, MEG Energy: Thanks, Nevaeh. I’ll start and then I’ll have Tom jump in with some additional commentary. You hit it very well. It is a very strategic, important project in our portfolio and the team has been executing exceptionally well. The first step for the team was to hit those tie-ins during the turnaround. They delivered that during the time frame; turnaround still maintained its cost and schedule. The next step that they’re working on right now is field construction activities are underway. Recently, they completed the steam generator. You might have seen some pictures out there on the steam generator facility that’ll be going out on the foundation later this quarter. I’d also say that they’ll start some of the modules by later this year. Those will be this year’s kind of major milestones. As we move ahead, really, the team generation will start next year and then the facility expansion.

The rest of that project will include the third processing train. Tom, any other commentary you want to throw in to add more color around that?

Ryan Kubik, CFO, MEG Energy: Yeah, no, thank you. I think the teams have been progressing.

Tom Gear, Senior Vice President, Oil Sands, MEG Energy: This fits really well with regard to critical paths. All key long lead items have already been purchased. When you look at that, it’s really about field construction at this point through the following year and then into 2027. It’s really just the field execution pieces of this. As Darlene mentioned, we’ve got module deliveries happening later on, and that will be just the assembly of all these components to provide that in service date in 2027.

Darlene Gates, President and CEO, MEG Energy: Neil, if I just summarize all we’ve got, it’s firmly on track and on budget and we’re about 15% completed to date.

That’s very helpful. I know there’s limits in terms of what you can say around the strategic review. Darlene, can you just remind what you said about timeline around it, if there are any parameters around that, even if you can reiterate your public comments around that.

Yeah, as we noted and you mentioned in the prepared remarks, we’re not commenting on the strategic review process on the call today, but what we have said is that the Board will be coming back by mid September with an update to our shareholders.

Tom Gear, Senior Vice President, Oil Sands, MEG Energy: That’s perfect.

Thank you, Darlene.

Darlene Gates, President and CEO, MEG Energy: Thank you.

Jeannie, Conference Operator: Your next question comes from the line of Dennis Fong with CIBC World Markets.

Darlene Gates, President and CEO, MEG Energy: Please go ahead.

Tom Gear, Senior Vice President, Oil Sands, MEG Energy: Hi, good morning and thanks for taking my questions. The first one is just around sustaining capital expenditures and the standalone opportunity set that you highlighted. You discussed an idea of kind of driving sustaining capital expenditures towards $10 per barrel from beforehand. Can you comment a little bit around is this predominantly scale? Does this incorporate larger timing between planned turnarounds or further efficiencies that you see in terms of obviously extended central processing facility footprint?

Darlene Gates, President and CEO, MEG Energy: Good morning, Dennis. I’ll first and then I’ll ask the team to jump in again with any other commentary they want to add here. As you know, the sustaining capital is being moved forward. It’s a combination of many different things, starting with turnarounds for sure. Extending them from three years to four years is clearly the path that the team has laid out for us after this successful turnaround. That’s the first component. Another major component is just around the development plan that the team has laid out. They’ve got most of the infrastructure as they start to develop down to the southeast and also to the northwest.

Once you make that primary investment of the infrastructure, then your time off, your time into that infrastructure with the additional pads allows you to get a very capitally efficient program because you’re making those investments today and then benefiting from those with additional pads. Ryan, Tom, any other comments other than.

Ryan Kubik, CFO, MEG Energy: We are expecting sustaining capital will stay right around the $450 million level where it is today. You do get that economy of scale. As production rises with our SEP, you’re spreading that relatively fixed cost base.

Tom Gear, Senior Vice President, Oil Sands, MEG Energy: Over more barrels, bringing the per barrel cost down a couple of dollars per barrel. Great.

Jeannie, Conference Operator: There are no further questions at this time. I will now turn the call back.

Darlene Gates, President and CEO, MEG Energy: Over to Darlene Gates for closing remarks.

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