MEG Energy Corp. (MEG) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to MEG Energy Corp.'s 2021 Annual Meeting. It's now my pleasure to turn the meeting over to Ian Bruce, Chairman of the Board of MEG. Mr. Bruce, the floor is yours.

Thank you, operator, and good afternoon. I'm Ian Bruce, and I'm the Chairman of the Board of MEG Energy Corp. It is my pleasure to welcome you to MEG's 2021 Annual Meeting of Shareholders. For the second year in a row, we are hosting our meeting virtually. We had hoped to meet in person, but believe that hosting or meeting virtually is in the best interest of MEG's stakeholders and in line with the corporation's commitment to protecting the health and safety of our employees and shareholders. On behalf of the MEG Board of Directors and all of us at MEG, I would like to extend our best wishes to all our stakeholders and our sincere wish that you and your families remain safe and healthy. I would like to take this opportunity to acknowledge the traditional territories of the people of the Treaty 7 regions in Southern Alberta, which includes the Blackfoot Confederacy, comprising Siksika, Piikani and Kainai First Nations as well as the Tsúùtínà First Nation and the Stoney Nakoda, including the Chiniki, Bearspaw and Wesley First Nations. Let me take a minute to briefly outline the procedures and guidelines to be followed. Your information screen displays instructions on how to participate in the meeting by voting and submitting questions. Voting and question functionality are only available for registered shareholders and duly appointed proxy holders. All other guests are in listen-only mode. Also, please note that because the meeting is being webcast, there is a delay between what our speakers are saying in real-time and what participants in the meeting are hearing. If at any time during the meeting, you experience technical difficulties, please refer to the technical support button on the broadcast section of your screen. Polling is now open. Voting is displayed on your information screen. If you have already voted, you do not need to take any further action unless you would like to change your vote. If you are a registered shareholder or duly appointed proxy holder, you may submit a question at any time during the meeting by selecting the messaging icon on the information section of the screen and typing in your question. The formal portion of the meeting will be followed by some brief remarks from our CEO in a question-and-answer period where we will have an opportunity to answer your questions that have been submitted online. If you are a registered shareholder or duly appointed proxy holder, you can submit your questions at any time during the meeting by selecting the messaging icon on the information section of your screen and typing your question. If your question relates to a voting matter, please submit your question immediately. We will answer your question when we reach that item during the meeting. All other questions will be answered at the end of the meeting after the CEO's remarks. I will now call the formal meeting to order. In accordance with the company's bylaws, I will act as Chair of this meeting. I would like to begin with the introduction of our Board of Director nominees. In addition to Derek Evans, our President and Chief Executive Officer, who is present with us today, the Board nominees, the majority of whom are attending the meeting virtually are myself, Ian Bruce, Grant Billing, Judy Fairburn, Robert Hodgins, William Klesse, Susan MacKenzie, Jeff McCaig, James McFarland, Diana McQueen. Next, in addition to Derek Evans, the MEG leadership team attending the meeting virtually are Eric Toews, Chief Financial Officer; Chi-Tak Yee, Chief Operating Officer; Lyle Yuzdepski, Senior Vice President, Legal & General Counsel; Erik Alson, Vice President, Marketing; Sorin Bujor, Vice President, Resource Development; Jeremy Gizen, Vice President, Operations and Engineering; and Dave Granger, Vice President, Human Resources. Moving forward with the meeting, I appoint Elissa Rojo from Computershare Trust Company of Canada to act as scrutineer of the meeting. The business of today's meeting is described in the notice of meeting and management information circular dated May 3, 2021, which were delivered and filed in advance of this meeting. A link to the management information circular is available on the information section of your screen. The business of the meeting is to receive the audited financial statements for the year ended December 31, 2020, and to consider and vote on 3 items as set out in the management information circular. They are: The election of the directors, the appointment of the corporation's auditor, and the nonbinding advisory vote on the corporation's approach to executive compensation. For efficiency, we have prearranged for Chi-Tak Yee and Dave Granger, both shareholders of MEG, to move and second the formal business motions. I have been advised by the secretary that the notice of this annual meeting was properly given and a quorum is present. Accordingly, I declare the meeting properly called and constituted for the transaction of business. We will now proceed with the formal business of the meeting. The first item of the business -- the first item of business is to receive the audited financial statements and the auditor's report for the year ended December 31, 2020. The financial statements were delivered to shareholders in advance of the meeting and a link can be found on the information section of your screen and also on MEG's website at megenergy.com. We will now move on to the voting items. The polls are still open for voting on all 3 items of business. You may vote at any time until the last item of business is completed, at which time I will declare the polls closed. As mentioned, voting will be conducted by online polling and your voting options should be visible on your screen, if you are a registered shareholder or duly appointed proxy holder. If you have already voted, you do not need to take any further action unless you would like to change your vote. Item 2 on the agenda of business is the election of directors. The Board has determined that 10 directors are to be elected until the next annual meeting. In accordance with MEG's majority voting policy, the directors will be voted on individually rather than as a slate. As described in the management information circular for this meeting, management proposes that the following persons be nominated for election to the board: Grant Billing, Ian Bruce, Derek Evans, Judy Fairburn, Robert Hodgins, William Klesse, Susan MacKenzie, Jeffrey McCaig; James McFarland and Diana McQueen. MEG's Board of Directors has adopted an advanced notice bylaw. This bylaw provides for certain requirements to be satisfied for additional director nominations to be valid. In particular, a nominating shareholders' notice of a director nomination must be given not less than 40 days prior to the applicable shareholder meeting. This advanced notice requirement is beneficial to all shareholders, including those shareholders not present or represented here today, as it permits nominations to be received considered by the corporation, the Board of Directors and all shareholders in a timely and orderly manner. As MEG did not receive any other director nominations within the prescribed notice period, we will not be considering any nominations in addition to those listed at this time. Accordingly, may I ask for a motion, please?

Mr. Chair, I move for a vote on item 2, a resolution individually electing each of the proposed nominees as director of the corporation.

Thank you, Mr. Yee. Is there a seconder for the motion?

Mr. Chair, I second the motion.

Thank you, Mr. Granger. Are there any questions on this motion?

Mr. Chair, there are no questions on the motion.

Thank you. We will now move to item 3 of the agenda, which is the appointment of PricewaterhouseCoopers LLP as auditors of the corporation as set forth on Page 8 of the management information circular for this meeting. May I have a motion, please?

Mr. Chair, I move for a vote on item 3, a resolution to appoint PricewaterhouseCoopers LLP as auditors of the corporation as set forth on Page 8 of the management information circular.

Thank you, Mr. Yee. Is there a seconder for the motion?

Mr. Chair, I second the motion.

Thank you, Mr. Granger. Are there any questions on this motion?

Mr. Chair, there are no questions on the motion.

Thank you. We will now move to item 4 of the agenda, which is the nonbinding advisory resolution to approve the corporation's approach to an executive compensation. May I have a motion, please?

Mr. Chair, I move for a vote on item 4, a nonbinding advisory resolution to approve the corporation's approach to executive compensation as set forth on Pages 8 and 9 of the management information circular for this meeting.

Thank you, Mr. Yee. Is there a seconder for this motion?

Mr. Chair, I second the motion.

Thank you, Mr. Granger. Are there any questions on this motion?

Mr. Chair, there are no questions on the motion.

Thank you. We will now pause for a moment to allow those voting online to so do. The line will go silent for about 30 seconds while we allow those to vote online. [Voting]

All right. Online polling is now closed. In order for today's resolutions to be passed, the approval by a simple majority of the votes cast by shareholders must be received. I have received the scrutineer's report and confirm as follows: each director nominee is elected to the Board to hold office for the ensuing year or until their successors are elected or appointed. PricewaterhouseCoopers LLP are appointed as auditors of the corporation. The nonbinding advisory vote to accept the approach to executive compensation has been approved. I direct the secretary to file the scrutineer's report with the minutes of the meeting. Details of the voting results will be filed with the securities regulators and included in our news release following the meeting. This now concludes today's formal business. We will conclude the meeting and turn to the CEO remarks and question-and-answer portion of the meeting. Could I have a motion to terminate the meeting, please?

Mr. Chairman, I move that this meeting be terminated.

Thank you, Derek. I declare the formal business of the meeting concluded, and now turn the meeting over to you for your remarks.

Thank you, Ian. Hello, everyone, and thanks for joining us today for this webcast version of our Annual Meeting of Shareholders. Before I begin my remarks, I would also like to draw your attention to the advisory on the screen. Here we go. It refers to the information I'm about to discuss. Additional information regarding our forward-looking statements and financial measures can be found in our 2020 Annual Information Form, 2020 annual MD&A, and our first quarter news release, first quarter MD&A and financial statements. Next slide, please. MEG is a sustainable energy company that aims to responsibly develop its significant in situ resource base over the decades to come. We have a high-quality reserve base with a 62 year reserve life that supports production of approximately 90,000 barrels a day of bitumen combined with a diversified marketing strategy, which maximizes realized pricing, with significant access to the U.S. Gulf Coast. We have a greenhouse gas intensity that is 20% below average, driven by innovative technologies such as eMSAGP. MEG is an Alberta based pure-play in situ oil sands producer with low-decline assets, a sustainable business model and a strong operating track record. The headwinds of lack of egress and weak commodity prices of the last 6 years have abated, with 1 million barrels of new egress capacity coming on in the next 18 months, and post COVID WTI prices continuing to show strength and staying power. Our production is expected to be sustainable for decades to come. We'll continue to optimize our marketing and production strategies while working to ensure cost efficiencies that will drive material free cash flow. We will continue to reduce our outstanding debt by allocating all free cash flow to debt repayment. We will not lose sight of the role that innovation has played and will continue to play in reducing our greenhouse gas emissions as we drive towards our goal of net zero emissions by 2050. MEG is committed to long-term sustainable development of our asset base. We're proud of our amazing COVID response in 2020 and our strong record of employee safety. We're proud of the water, methane and land intensity results, which are significantly lower than comparable oil sands peers and other North American oil and gas players. We're proud of our strong partnerships with local indigenous communities. And we're proud of the increasing focus on diversity across the organization. I'm impressed with the way that our workforce and suppliers stepped up and addressed the challenges of 2020. We demonstrated the resilience of our business model in a year when many other companies added significant debt, by generating $129 million of free cash flow and associated debt reduction in 2020. We continue our focus on reducing all cost structures, with excellent progress on G&A and operating costs. We executed on an extensive turnaround in a safe and effective -- cost-effective manner. We refinanced $1.2 billion in debt extending the maturity profile into early 2021, and followed up with a further refinancing in early 2022 of $600 million, both of which enhanced our ability to manage our balance sheet. MEG's workforce continues to demonstrate great resilience -- can we go to the next slide, sorry? MEG's workforce continues to -- sorry, we should probably go back. MEG's workforce continues to demonstrate great resilience by continuing to deliver outstanding results 15 months into the pandemic. 2021 production continues to perform better than expectations. We look to responsibly build production back up to plant capacity of 100,000 barrels a day over time. Based on current commodity prices, we expect to generate substantial free cash flow this year, the majority of which will be used to reduce outstanding debt. Last week, we announced the launch of the oil sands pathway to net zero alliance, demonstrating our ongoing commitment to net zero by 2050. We look forward to updating our shareholders on our continued progress in the upcoming quarters. Thank you, and now we will address questions that have been submitted online. It doesn't appear that we have any questions from registered shareholders or proxy holders at this time. We'll wait for 30 seconds or so to see if anyone has any questions to pose, if not, we will wrap up the meeting. Ladies and gentlemen, it does not appear there are any questions. On behalf of your Board of Directors and leadership team, thank you for attending our Annual Meeting of Shareholders.