MEG Energy Corp

TSX:MEG

Earnings Call Analysis

MEG Energy Reports Q2 2024 Financial and Operational Success

In Q2 2024, MEG Energy achieved solid safety, operating, and financial performance. The company generated CAD 231 million in free cash flow and will meet its USD 600 million net debt target by Q3. As part of a robust capital allocation strategy, MEG announced its first quarterly dividend of CAD 0.10 per share. Bitumen production averaged 100,500 barrels per day, up 17% from the previous year. The recent startup of the Trans Mountain Expansion pipeline improved transport efficiency for MEG. The company remains committed to returning 100% of free cash flow to shareholders, signaling strong financial health and strategic growth.

Overview of Company Performance

MEG Energy demonstrated impressive safety, operational, and financial performance during the second quarter of 2024. The company's steadfast focus on operational excellence is reflected in their strong metrics. Anticipating reaching a USD 600 million net debt target by Q3 2024, MEG's Board of Directors approved an inaugural quarterly cash dividend of CAD 0.10 per share. This is a significant milestone, showcasing the company's maturity as a leading Canadian oil producer .

Financial Highlights

Adjusted funds flow for the second quarter stood at CAD 354 million. After accounting for CAD 123 million in capital expenditures, MEG generated a free cash flow of CAD 231 million. This enabled the repayment of USD 53 million in senior notes and the repurchase of 2.2 million shares amounting to CAD 68 million. Cumulatively, for the year, the company repaid USD 150 million of debt and repurchased shares totaling CAD 195 million .

Operational Achievements

The second quarter saw significant progress, including the beginning of shipments via the Trans Mountain Expansion (TMX) pipeline. With 20,000 barrels per day contracted capacity, the first cargo was shipped in June, addressing long-standing transportation constraints and improving netbacks and profitability by tightening the WCS:WTI differential to USD 5.70 per barrel. Moreover, the average bitumen realization after net transportation and storage expenses was CAD 74 per barrel, a notable 28% increase year-over-year .

Production and Operational Efficiency

MEG achieved an average bitumen production of approximately 100,500 barrels per day, marking a 17% increase from the same quarter in the previous year. Enhanced performance from recent steam-assisted gravity drainage (SAGD) pads and reduced turnaround scope were key contributors. Operating expenses net of power revenue averaged an impressively low CAD 6.62 per barrel, aided by low natural gas prices and power revenues that offset 54% of energy operating costs .

Capital Investments and Future Plans

Capital investments for the quarter amounted to CAD 123 million, focusing primarily on drilling activities and short-cycle redevelopment and infill programs. Significant progress was also made in the engineering and design work on the facility expansion plan, with a final investment decision expected later in the year. Guidance for 2024 capital and operational expenditures remains stable .

Environmental and Community Initiatives

MEG continues to advance its efforts within the Oil Sands Pathways Alliance, working on regulatory applications for CO2 transportation and storage. The front-end engineering design for a proposed 400-kilometer CO2 transportation line is over 75% complete. Additionally, engagements with indigenous groups and necessary stakeholders are ongoing .

Leadership Changes and Strategic Initiatives

Effective July 1, Mike McAllister joined MEG’s Board of Directors, bringing over 40 years of industry experience. His addition is expected to be invaluable as MEG looks to execute its strategic initiatives. 2024 has been a transformative year for the company, underpinned by robust financial health and the commencement of the TMX pipeline, leading to improved market access and profitability .

Forward-Looking Remarks

MEG has reiterated its commitment to returning 100% of free cash flow to shareholders, maintaining a focus on share buybacks and the quarterly base dividend. With a strong foundation and strategic investments in place, the company is well-positioned to deliver sustained growth and shareholder value in the upcoming quarters .

Earnings Call Transcript 2024-Q2

[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. [Operator Instructions] Mrs. Darlene Gates, CEO. You may begin your conference.

[Darlene Gates, executive]

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 and 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 update on our wildfire situation. Last week, we proactively evacuated nonevent 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 site as of today.

I want to express my appreciation for our dedicated team for their ongoing efforts and ensuring a safe and continuous operation at 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 USD 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 CAD 0.10 per share. This announcement is the culmination of a robust multiyear debt repayments 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 CAD 354 million of adjusted funds flow in the second quarter. And after funding CAD 123 million in capital expenditures, we generated CAD 231 million of free cash flow. That free cash flow facilitated the repayment of USD 53 million in senior notes and allows for the repurchase of CAD 68 million or 2.2 million net shares. Year-to-date, we have repaid USD 150 million of debt and repurchased 7 million shares, totaling CAD 195 million of share repurchases. Net debt as of June 30 was USD 634 million.

Another milestone in the second quarter was as a start-up with the Trans Mountain Expansion pipeline. MEG began shipping on our 20,000 barrel per day contracted capacity of Canada's West Coast -- to Canada's West Coast and our first cargo left the dock in June. This was an important milestone, which removed long-standing Western Canadian transportation constraints which we believe will lead to narrower and less volatile Canadian heavy oil differentials improving MEG's netbacks and profitability. This was evident in the tightening of the WCS:WTI differential of USD [ 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 CAD 74 per barrel represents a 28% increase over the same period in 2023.

On our operating front, bitumen production for the order 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 paths 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 on. This, coupled with the startup of the 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 CAD 6.62 per barrel. We continue to benefit from low natural gas prices and power revenues offsetting 54% of energy operating costs during the quarter. This results in the CAD 0.99 per barrel of energy operating cost net of power revenues.

Capital investments in the quarter totaled CAD 123 million, primarily directed towards drilling activity on safety 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 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 a proposed 400-kilometer CO2 transportation line is now more than 75% complete. Formal consultation 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 1. Mr. McAllister brings over 40 years of energy industry experience, having helped several executives and technical -- overseeing operations, development, marketing and corporate services. His experience and expertise will be a significant benefit to our Board as we execute our strategic initiatives.

2024 has been a milestone year for MEG as we reached the culmination of our balance sheet improvement strategy and the TMX start-up diversifies market access and offers the potential for improved netbacks on all our production. With our commitment to returning 100% of free cash flow to shareholders, 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 Q&A.

[Operator]

Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from Greg Pardy with RBC.

[Greg Pardy, analyst]

Good move on the dividend. A 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, executive]

When we look at the '25 and 2026, as you know, with the 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 the modest debottlenecking growth. Very capitally efficient. Most of those projects are projects that we have experienced with. And the team is really refining those projects have 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 CAD 550 million to CAD 650 million 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, analyst]

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, CAD 10 or so, CAD 10, CAD 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? And then but more importantly, I'm interested in what you think the path might be around spreads, particularly as we get into the autumn time frame.

[Erik Alson, executive]

It's Erik. Looking at the differentials, say, Q3 differentials have widened slightly on available inventory and a number of unplanned outages in PADD 2, PAAD 3 in Mexico we'll still see the typical widening -- the seasonal widening in the winter. But our view remains unchanged that differentials will largely range in that minus CAD 10 to minus CAD 15 range.

[Operator]

Your next question comes from Menno Hulshof with TD Cowen.

[Menno Hulshof, analyst]

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, executive]

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 could sustain through the cycle, the oil price cycle that is.

[Menno Hulshof, analyst]

And then my second question is on turnaround. 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, executive]

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 assets, and testing and challenging some of those capital efficiency opportunities. With our team, they have 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 in 2 of our facilities or 2 of our plants. And then on the third year, it's a lighter scope. That's kind of a sequence today.

When I'm seeing the team evaluating right now is moving that frequency to every four years. That decision hasn't been taken us 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.

[Operator]

Your next question comes from Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

My first question is just really on the economic growth projects, and you're in flight here on that third processing train, the skim tank and then this team optionality tie-in. Just can you talk about how those are developing? And the biggest part of it, of course, is the third processing trains. So if you could spend a little more time on that piece, it would be great.

[Darlene Gates, executive]

Sure, can. This is -- 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 programming 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 CAD 20,000 to CAD 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 front-end engineering design is in progress right now and should be complete in the second half of this year. That will allow us to make decisions integrate with upgrading our steam system to allow access to both the Northwest and the Southeast. We bring those 2 programs together. Directionally, they look like they're sitting between that CAD 20,000 and CAD 25,000 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 2.

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 with 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 start-up of the plant. And so the skim tank was something that the team identified that well it's needed as part of the third processing train, 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, analyst]

And then the follow-up is just on to Greg's question on the differential. I think some investors we 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 is bleeding into the differential and maybe the new mid-cycle is at CAD 10 to CAD 15, it's a little bit wider. I just want to push back and get your perspective on that.

[Erik Alson, executive]

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 have mentioned some of the unplanned outages we've seen in PAAD 2 and PAAD 3 that's impacted heavy-crude demand. So you're seeing that impact in the differentials with some of the reliability issues with the refineries in Mexico, what that has meant is more availability of Mexican crude in the U.S. 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 start with TMX as well as one of the big PADD 2 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 drawing pretty heavily for the past couple of months. We'll be reaching operational minimums inventory-wise here in 3Q. And again, my expectation is we'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 rule into the coming year, the benefit of TMX, lower inventories, you'll see the differentials in that CAD 10 to CAD 15 range that we've been talking about.

[Operator]

Next question comes from John Royall with JPMorgan.

[John Royall, analyst]

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 do you think it can get to over the long term relative to the 125,000 post the third train?

[Darlene Gates, executive]

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 PADDS that come in to fill that capacity of the plant, and that's how we'll manage against hostile environment, how we pace the growth and why we give the range 3% to 5%. We'll manage that based on the macro environment that we're in to return the best returns to our shareholders.

So about 125,000 to 135,000. 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 paced growth as we move that forward. To go beyond 135,000 at some additional optimization will be required in the facility. And I think we can optimize our way back up to about 145,000 to 150,000.

[John Royall, analyst]

And then just a follow-up on the wildfires. I think you mentioned bringing people back following the wildfire. So 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, executive]

So this is -- what you count at MEG is our operations team out at the site and the collaboration that they have done with Alberta Forestry and Park, we have installed over the years through a lot of work, is firebreaks what I call them. To be frank, the fire was all around, one of our disposal wells. The breaks were 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, 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 community. 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 a world that we're in today.

[Operator]

Your next question comes from Dennis Fong with CIBC.

[Dennis Fong, analyst]

The first one is a bit of a follow-on to John Royall's question. As you march through the 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 is 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 new capacity. Is that a way to potentially optimize the field and kind of pull the most out of your CTF 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 135,000 number that you just stated?

[Darlene Gates, executive]

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. You're steam is what you're using to deploy out your best resource. If you have higher saturations, better resource then your steam is more effective. And so if we have the ability in the Northwest looks like it's better resource, the steams 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, analyst]

And then I guess the pseudo follow-up to that would be just around oil processing capacity. Once the 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, executive]

That's the work that the team is doing right now is 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 125,000 to 135,000 and we'll require some optimization work to go above the 135,000 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, analyst]

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 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 U.S. Gulf Coast for your marketing operations maybe change or evolve as you've been able to kind of test the market and gain realizations in either of those 2 sales point? And how might that shift going into the future, especially given the current dynamics on heavy oil?

[Erik Alson, executive]

This is Erik. 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 market.

[Operator]

The next question comes from [ Mike Warner with Yahoo ].

[Unknown Analyst]

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. Do 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 see that just continuing on through an NCIB?

[Ryan Kubik, executive]

I guess we will continue to use the NCIB. That's the most effective way to buy back shares and -- 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. You largely -- 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 will be something we would consider if necessary. But first, you use up your NCIB.

[Operator]

[Operator Instructions] Your next question comes from Patrick O'Rourke with ATB Capital Markets.

[Patrick O'Rourke, analyst]

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 the -- 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 PADD 5 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, executive]

This is Erik. 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 U.S. 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 tans mostly pointed to the U.S. West Coast.

One of the opportunities that's out there in front of us is for the PADD 5, the West Coast refiners to build more familiarity with processing heavy high tan. We know those 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, analyst]

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 profile. Just wondering that as you hit the CAD 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?

[Ryan Kubik, executive]

On the buyback, we are very programmatic about how we do it. And I think you'll continue to see us do that. The the movement in 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, et cetera. 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 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.

[Operator]

Your next question comes from John Royall with JPMorgan.

[John Royall, analyst]

I just had a very quick housekeeping follow-up for Ryan. I think you have about CAD 100 million remaining on the 2027 bonds. Is the intention to get this down to 0 before you flip to 100% returns of capital?

[Ryan Kubik, executive]

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 CAD 100 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.

[Operator]

There are no further questions at this time. I will now turn the call over to Darlene Gates for closing remarks.

[Darlene Gates, executive]

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 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.