CALGARY,
AB, July 27, 2022 /CNW/ - Tourmaline Oil Corp.
(TSX: TOU) ("Tourmaline" or the "Company") is pleased to release
financial and operating results for the second quarter ("Q2") of
2022, declare a special dividend and announce strategically timed
growth projects.
HIGHLIGHTS
- Second quarter 2022 cash flow(1)(2) ("CF") was a
record $1.35 billion ($3.95 per diluted share(3)), a 137%
increase over second quarter 2021 cash flow.
- Net debt(4) at June 30,
2022, was $430.0 million, well
below the long-term debt target of $1.0-$1.2 billion.
This places Tourmaline in an excellent position to concurrently
fund the Conroy project and to continue its free cash
flow(5) ("FCF") allocation strategy.
- Second quarter 2022 free cash flow was a record $1.1 billion ($3.25
per diluted share) enabling the Company to declare a special
dividend of $2.00 per common share to
be paid August 12, 2022 to
shareholders of record on August 5,
2022. Tourmaline's trailing 12-months of distributed
dividends now total $6.28 per share
(inclusive of this August 2022
special dividend), an implied 9% trailing yield(6).
- Second quarter 2022 EP capital spending was $228.9 million, within previous guidance.
- Second quarter 2022 net earnings were $822.9 million ($2.40 per diluted share).
- At current strip pricing, full-year 2022 CF of $5.0 billion(7) is now anticipated
($14.69 per diluted share).
- Tourmaline's 2023 EP capital program is estimated at
$1.6 billion reflecting the 12-13 rig
program for the full year and increased inflation contingencies
over the May 2022 plan. The EP
program is expected to deliver an annual average production of
545,000 boepd, and cash flow at strip pricing of $5.1 billion, yielding FCF of $3.5 billion in 2023.
- The new EP growth plan extends through 2028 and incorporates
the current 12-13 drilling rig fleet in 2H 2022 and through the
balance of the plan and also includes phase 1 of the Conroy North
Montney development project, commencing production through new
Tourmaline facilities in Q1 2026 and phase 2 in 2028.
- The new EP growth plan (2022-2028) generates $31.4 billion of CF and $18.0 billion of FCF at strip pricing
(July 18, 2022) on total EP spending
of $12.7 billion. Average annual
production growth during the plan is approximately 6%, total
production growth over the period of the plan is 40%.
PRODUCTION UPDATE
- Second quarter 2022 production average was 502,937 boepd
(506,086 boepd prior to storage injections in California and Dawn), within the previously
disclosed guidance range and a 23% increase over second quarter
2021 production of 410,339 boepd.
- A third quarter 2022 average production range of
485,000-495,000 boepd is forecast reflecting planned facility
turnarounds, temporary in-field frac-related shut-ins, and
incorporating considerable third-party pipeline maintenance in
August.
- The modest EP activity increase post break-up will lead to a
higher Q4 2022 production forecast of 520,000 to 525,000 boepd, up
from 510,000 boepd in the previous forecast. A full-year 2022
average production forecast of 507,000 boepd is now anticipated,
including the impact of the Rising Star Resources Ltd. ("Rising
Star") acquisition from August onwards (as further described
below).
- Full-year 2022 average liquids production of over 115,000 boepd
is expected, up 19% from average 2021 levels (condensate, oil,
NGLs).
FINANCIAL RESULTS
- Second quarter 2022 cash flow was a record $1.35 billion ($3.95 per diluted share), a 137% increase over
second quarter 2021 cash flow.
- Second quarter 2022 free cash flow was a record $1.1 billion ($3.25
per diluted share).
- At current strip pricing (July 18,
2022), full-year 2022 cash flow of $5.0 billion is now anticipated ($14.69 per diluted share).
- Second quarter 2022 net earnings were $822.9 million ($2.40 per diluted share).
- Given the strong commodity price outlook and anticipated record
free cash flow in 2022, Tourmaline intends to return a minimum of
60% of FCF to shareholders in 2022. The Company has also declared a
Q3 2022 special dividend of $2.00/share that will be paid on August 12, 2022 to shareholders of record on
August 5, 2022. The special dividends
are designated as "eligible dividends" for Canadian income tax
purposes.
- Total trailing twelve-month dividends of $6.28/share (inclusive of the August 2022 special dividend) have provided for a
dividend yield of 9%(8).
- Tourmaline intends to pay quarterly special dividends through
the balance of 2022 and 2023. The magnitude of these special
dividends will be a function of commodity prices and available
quarterly free cash flow. The Company intends to continue to return
the majority of FCF (greater than 60% in 2022, 50-75% in 2023) to
shareholders through base dividend increases, special dividends,
and share buybacks. A component of free cash flow will also be used
for modest incremental EP investments, including new pool/new zone
exploration opportunities, asset acquisitions within existing core
complexes, and select margin improving infrastructure
investments.
MARKETING UPDATE
- Average realized natural gas price in Q2 2022 was $6.31/mcf as the Company continued to benefit
from rising natural gas prices.
- Tourmaline currently has 620 mmcfpd accessing US markets
through long-term firm transport agreements. This volume will grow
to 905 mmcfpd by exit 2023. Tourmaline is amongst the most
diversified of all North American large gas producers from a market
access standpoint. The Company is continuing to explore
opportunities to expand this export capability.
- The Company's 140 mmcfpd Gulf Coast LNG deal with Cheniere
commences January 1, 2023, and
provides exposure to JKM pricing over the 15-year term of the deal.
The 2023 JKM strip price was $31.88
US/mmbtu as of July 19, 2022.
- In addition to the expiry of Q1 2022 lower-priced hedges,
approximately 50% of the remaining hedges, assumed by Tourmaline
when acquiring Jupiter Resources Ltd., Modern Resources Inc., and
Black Swan Energy Ltd., will roll off and these production volumes
will benefit from the much higher current strip pricing for winter
2022/2023. Furthermore, 77% of these remaining lower-priced hedges
will expire by the end of 2023.
- Tourmaline has an average of 885 mmcfpd hedged for 2022 at a
weighted average fixed price of CAD $3.80/mcf, an average of 140 mmcfpd hedged at a
basis to NYMEX of USD $(0.01)/mcf,
and an average of 575 mmcfpd of unhedged volumes exposed to export
markets in 2022, including Dawn, Iroquois, Empress/McNeil, Chicago, Ventura, Sumas, US Gulf Coast, Malin, and
PG&E.
- Realized NGL prices averaged $51.83/bbl in Q2 2022, up 99% from Q2 2021.
Tourmaline is the largest NGL producer in Canada.
EP STRATEGY UPDATE
- The new EP growth plan extends through 2028 and incorporates
the current 12-13 drilling rig fleet in 2H 2022 and through the
balance of the plan. The Company felt it prudent to retain the
drilling and completion services already secured on a go-forward
basis. The previous plan could be executed with approximately 11
drilling rigs.
- The new EP growth plan also includes phase 1 of the Conroy
North Montney development project, commencing production through
new Tourmaline facilities in Q1 2026 and phase 2 in 2028. The
North Montney development project
is described in detail below under "Conroy North Montney
Development".
- The new EP growth plan (2022-2028) generates $31.4 billion of CF and $18.0 billion of FCF at strip pricing
(July 18, 2022) on total EP spending
of $12.7 billion. Average annual
production growth during the plan is approximately 6%, total
production growth over the period of the plan is 40%.
- The increased activity in 2023 and 2024 will yield modestly
higher production growth than the previously disclosed May 2022 plan (6% average growth per year versus
4% previously).
- The updated EP plan will consume approximately 2,500 gross
drilling locations through 2028, 11% of the current inventory of
22,715 locations.
- The Company believes the modestly-increased capital program on
very high-return EP projects is a good utilization of FCF. The
incremental EP expenditure increase in the 2H 2022 to exit 2024
period is $1.05 billion or 14% of
estimated total FCF in the corresponding 2.5 year period. Current
well payouts are in the three-to-six-month range.
- The total incremental gas production of 250 mmcfpd in 2023/2024
via the expanded program coincides with incremental Basin egress,
consistent with Tourmaline's long-term balanced basin supply
narrative. Through expansions on the GTN system and the Company's
Gulf Coast Cheniere LNG agreement, Tourmaline has 300 mmcfpd of
incremental Basin egress commencing in 2023. These gas volumes will
access the two destinations with the sustained premium gas prices –
international LNG and California.
- The Company believes long-term supply/demand fundamentals are
strong and should yield elevated commodity prices for an extended
period of time. The Company also expects commodity prices to be
more volatile, both locally and globally, than historical
trends.
- Tourmaline is able to deliver a strong, sustainable annual
return to shareholders (greater than 60% of FCF in 2022), a
meaningful sustained annual production growth profile (6% per year
2022-2028), and continued material value accretion through
profitable annual reserve additions (91% growth in 2P reserve
value(9) from December 31,
2020 to December 31,
2021).
CAPITAL SPENDING AND FINANCIAL
OUTLOOK
- Second quarter 2022 EP capital spending was $228.9 million, within previous guidance. Total
capital expenditures in the quarter were $478.5 million including acquisition and land
sales, which are funded separately through available free cash
flow.
- The full-year 2022 EP capital budget has been increased to
$1.5 billion reflecting the increased
2H 2022 EP program and a further contingency for inflation.
- Tourmaline's 2023 EP capital program is estimated at
$1.6 billion reflecting the 12-13 rig
program for the full year and increased inflation contingencies
over the May 2022 plan. The EP
program is expected to deliver an annual average production of
545,000 boepd, and cash flow at strip pricing (July 18, 2022) of $5.1
billion yielding FCF of $3.5
billion in 2023.
- Significantly increased inflation contingencies will yield
capital efficiencies of approximately $8,000/boepd in 2022 and 2023, compared to
original efficiency targets of $6,500-$7,000/boepd
set in Q4 2021. Average capital efficiencies through the entire
plan are approximately $8,500/boepd
inclusive of the significant facility and infrastructure capital in
the 2024-2028 period for the North
Montney development.
- The 2H 2022 and 2023 capital programs include up to 10
incremental exploration new zone/new pool wells, following up on
multiple successes to date.
- The capital programs include infrastructure investments that
will continue to improve operating margins across all three EP
complexes.
- Net debt at June 30, 2022 was
$430.0 million, well below the
long-term debt target of $1.0-$1.2 billion.
This places Tourmaline in an excellent position to concurrently
fund the Conroy North Montney development and to continue its free
cash flow allocation strategy.
CONROY NORTH MONTNEY DEVELOPMENT
- The new EP growth plan incorporates the initial phase of the
Conroy North Montney development, with a January 1, 2026 targeted on-stream date. The
project has been segmented into two 50,000 boepd phases; the second
phase is scheduled to start up in 2028. The timing roughly
approximates the sequencing of LNG Canada commissioning, which the
Company views as positive for long-term natural gas pricing in the
WCSB. Phase 2 could be accelerated contingent upon commodity prices
and Basin egress considerations.
- The Greater North Montney
phase 1 development will add production of 228 mmcfpd of gas and
12,000 bpd of condensate and NGLs by 2026.
- Tourmaline has drilled a total of 14 delineation pads within
the North Montney project area
over the past 18 months to confirm well performance and capital
costs. Capital costs are on target and well performance has
exceeded original expectation for the vast majority of the new
pads.
- The Company estimates a development drilling inventory of over
2,000 wells in the North Montney
project area, supporting an additional, similar second phase of
growth and an ability to maintain plateau production across the
entire complex for 30 years.
- As part of the project, Tourmaline has negotiated a new
long-term transportation and fractionation arrangement with Pembina
Pipeline Corporation for the incremental condensate and NGL volumes
in the Company's North Montney
project area. The agreement ensures that all new Company liquid
volumes will flow upon project startup, along with significant
flexibility and strong operating margins for Tourmaline in the
North Montney development area.
The Company plans to continue to evaluate liquids midstream
investment and capital opportunities and weigh them against
partnership solutions in each operating area.
- As part of the long-term associated Conroy facilities strategy,
Tourmaline also closed the previously-announced acquisition of the
50% non-operated interest in the two Aitken area gas plants during
the second quarter of 2022.
RISING STAR ACQUISITION
- Tourmaline is pleased to announce that it has entered into a
binding agreement to acquire Rising Star for $194.3 million, with closing expected to occur in
August 2022. The purchase price
includes common shares of Topaz Energy Corp. ("Topaz") currently
owned by Tourmaline and the remainder in cash.
- The Rising Star assets are located within Tourmaline's Peace
River High Charlie Lake complex. Current production is
approximately 5,700 boepd, 2P reserves are estimated at 50
mmboe(9), and Rising Star has no outstanding debt. First
half 2022 cash flow from the assets was approximately $43.0 million. Rising Star also has a large
number of Tier 1 Upper and Lower Charlie Lake horizontal locations
in inventory, complementing Tourmaline's extensive existing Peace
River High complex inventory.
- Included in the acquisition are facilities that complement
Tourmaline's existing infrastructure and the pooling of land bases
will facilitate drilling of longer horizontals in the Lower Charlie
Lake. The 2,500+ metres Charlie Lake horizontal wells have been
yielding the strongest well results to date since Tourmaline
initiated the Charlie Lake play
over a decade ago.
- Tourmaline has entered into a definitive agreement to sell a
gross overriding royalty ("GORR") to Topaz on the core Rising Star
lands (subject to the closing of the Rising Star transaction),
along with other land parcels acquired through land sales or swaps
in which Topaz does not currently own a GORR. Tourmaline will
receive cash proceeds of $52.0
million from Topaz in the third quarter. Consistent with
Topaz's existing GORR's with Tourmaline, Topaz will receive 3% on
natural gas and 2.5% on crude oil and condensate.
- Tourmaline may pursue dispositions of non-core components of
the Rising Star asset base during the second half of the year.
EP UPDATE
- Tourmaline drilled 33.5 net wells and completed 25.5 net wells
in Q2 2022; 26 new net wells were brought on production during the
second quarter.
- A total of 142.7 net wells are anticipated to come on
production during the second half of 2022.
- Tourmaline currently has 13 drilling rigs and 5 frac spreads
active across the three EP complexes.
- The ongoing new pool/new zone exploration program has yielded
three significant successes to date. The Company has 41 successful,
producing horizontals into a new liquids-rich gas zone in the
Alberta Deep Basin with 495.5 bcfe 2P reserves booked in the
December 31, 2021 GLJ reserves
report. A further seven horizontals will be drilled into this
horizon in the 2H 2022 EP program. Tourmaline has seven producing
horizontals from the new zones in the Company's South Montney BC complex with 317.9 bcfe of 2P
reserves booked in the reserve report at December 31, 2021. The third new play has two
successful horizontals, 32 km apart, drilled and tested thus far.
Further follow-up drilling is planned in the 2H 2022/2023 EP
program; the Company expects to book reserves from this expansive
new play in the 2022 reserve report.
- New zone/new play exploration wells will be drilled in the
Peace River High and Alberta Deep Basin complexes during the second
half of 2022.
ENVIRONMENTAL PERFORMANCE
IMPROVEMENT
- Tourmaline has received preliminary platinum ratings from the
Project Canary (Trustwell) assessment of a series of
Company-operated NEBC assets, with an average score of 131
achieved. Tourmaline is the first Canadian gas company with a
Trustwell score and ranks in the top 10% in North America.
- All of the Tourmaline-contracted rig fleet is displacing diesel
with natural gas or running fully electric. Tourmaline was
operating three Cat Tier 4 DGB natural gas powered frac spreads in
Western Canada in July 2022. The evolving diesel displacement
initiative continues to reduce both emissions and costs for the
Company.
NORMAL COURSE ISSUER BID
- Tourmaline is also pleased to announce that the Toronto Stock
Exchange (the "TSX") has approved the renewal of Tourmaline's
normal course issuer bid (the "NCIB").
- The NCIB allows Tourmaline to purchase up to 16,800,668 common
shares (representing 5% of its issued and outstanding common shares
as of July 19, 2022) over a period of
twelve months commencing on August 2,
2022. The NCIB will expire no later than August 1, 2023. Under the NCIB, common shares may
be repurchased in open market transactions on the TSX and other
alternative trading platforms in Canada and in accordance with the rules of the
TSX governing NCIBs. The total number of common shares Tourmaline
is permitted to purchase is subject to a daily purchase limit of
439,169 common shares, representing 25% of the average daily
trading volume of 1,756,677 common shares on the TSX calculated for
the six-month period ended June 30,
2022; however, Tourmaline may make one block purchase per
calendar week which exceeds the daily repurchase restrictions. Any
common shares that are purchased under the NCIB will be cancelled
upon their purchase by Tourmaline.
- Under its most recent normal course issuer bid, Tourmaline
obtained approval to purchase up to 14,943,420 of its common
shares, of which Tourmaline purchased 200,000 common shares.
- Tourmaline believes that at times, the prevailing share price
does not reflect the underlying value of the common shares and the
repurchase of its common shares for cancellation represents an
attractive opportunity to enhance Tourmaline's per share metrics
and thereby increase the underlying value of its common shares to
its shareholders. Tourmaline will use the NCIB as another tool to
enhance total long-term shareholder returns and will be used in
conjunction with management's disciplined free funds flow capital
allocation strategy.
___________
|
(1)
|
This news release
contains certain specified financial measures consisting of
non-GAAP financial measures, non-GAAP financial ratios, capital
management measures and supplementary financial measures. See
"Non-GAAP and Other Financial Measures" in this news release for
information regarding the following non-GAAP financial measures,
non-GAAP financial ratios, capital management measures and
supplementary financial measures used in this news release: "cash
flow", "capital expenditures", "free cash flow", "operating
netback", "operating netback per boe", "cash flow per boe", "cash
flow per diluted share", "free cash flow per diluted share",
"adjusted working capital", "net debt", operating expenses
($/boe), and transportation costs ($/boe). Since these
specified financial measures do not have standardized meanings
under International Financial Reporting Standards ("GAAP"),
securities regulations require that, among other things, they be
identified, defined, qualified and, where required, reconciled with
their nearest GAAP measure and compared to the prior period. See
"Non-GAAP and Other Financial Measures" in this news release and in
the Company's most recently filed Management's Discussion and
Analysis (the "Q2 MD&A"), which information is incorporated by
reference into this news release, for further information on the
composition of and, where required, reconciliation of these
measures.
|
(2)
|
"Cash flow" is a
non-GAAP financial measure defined as cash flow from operating
activities adjusted for the change in non-cash working capital
(deficit). See "Non-GAAP and Other Financial Measures" in
this news release.
|
(3)
|
"Cash flow per
diluted share" is a non-GAAP financial ratio. Cash flow, a
non-GAAP financial measure, is used as a component of the non-GAAP
financial ratio. See "Non-GAAP and Other Financial Measures"
in this news release and in the Q2 MD&A
|
(4)
|
"Net debt" is
a capital management measure. See "Non-GAAP and Other Financial
Measures" in this news release and in the Q2
MD&A.
|
(5)
|
"Free cash flow" is
a non-GAAP financial measure defined as cash flow less capital
expenditures, excluding acquisitions and dispositions. Free cash
flow is prior to dividend payments. See "Non-GAAP and Other
Financial Measures" in this news release.
|
(6)
|
Calculated as the
dividend per common share for the 12-month period divided by the
closing share price of $68.56 on July 18, 2022.
|
(7)
|
Based on oil and gas commodity strip pricing at July
18, 2022.
|
(8)
|
Calculated as the total dividends per common share
for the trailing 12-month period divided by the closing share price
of $68.56 on July 18, 2022.
|
(9)
|
Growth in 2P reserve
value is before income taxes and discounted at 10% as disclosed in
the Company's consolidated reserve reports as at December 31, 2020
and December 31, 2021. Values also include 2021 2P reserve
additions of 1,089.7 mmboe, including acquisitions and including
2021 annual production of 161.0 million boe.
|
(10)
|
Reserves have been
evaluated as at December 31, 2021 by Sproule Associates Ltd., an
independent reserve evaluator. Reserves are working interest gross
reserves before deduction of royalties payable to others and
without including any royalty interests.
|
CORPORATE SUMMARY – SECOND QUARTER
2022
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2022
|
2021
|
Change
|
|
2022
|
2021
|
Change
|
OPERATIONS
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
2,343,704
|
1,915,630
|
22 %
|
|
2,352,275
|
1,916,633
|
23 %
|
Crude oil, condensate
and NGL
(bbl/d)
|
112,320
|
91,067
|
23 %
|
|
112,941
|
91,516
|
23 %
|
Oil equivalent
(boe/d)
|
502,937
|
410,339
|
23 %
|
|
504,987
|
410,955
|
23 %
|
Product
prices(1)
|
|
|
|
|
|
|
|
Natural gas
($/mcf)
|
$
6.31
|
$
3.25
|
94 %
|
|
$
5.59
|
$
3.55
|
57 %
|
Crude oil, condensate
and NGL
($/bbl)
|
$
74.63
|
$
42.84
|
74 %
|
|
$
70.58
|
$
41.95
|
68 %
|
Operating expenses
($/boe)
|
$
4.24
|
$
3.70
|
15 %
|
|
$
4.22
|
$
3.67
|
15 %
|
Transportation costs
($/boe)
|
$
5.03
|
$
3.99
|
26 %
|
|
$
4.96
|
$
4.17
|
19 %
|
Operating
netback(3) ($/boe)
|
$
29.70
|
$
15.47
|
92 %
|
|
$
26.85
|
$
16.58
|
62 %
|
Cash general and
administrative
expenses ($/boe)(2)
|
$
0.57
|
$
0.56
|
2 %
|
|
$
0.58
|
$
0.59
|
(2) %
|
FINANCIAL
($000, except share and per share)
|
|
|
|
|
|
|
|
Total revenue from
commodity sales
and realized
gains
|
2,108,834
|
921,278
|
129 %
|
|
3,822,518
|
1,926,542
|
98 %
|
Royalties
|
325,211
|
56,547
|
475 %
|
|
528,945
|
110,323
|
379 %
|
Cash
flow(3)
|
1,353,926
|
570,232
|
137 %
|
|
2,429,902
|
1,199,557
|
103 %
|
Cash flow per share
(diluted)(3)
|
$
3.95
|
$
1.89
|
109 %
|
|
$
7.13
|
$
4.00
|
78 %
|
Net earnings
(loss)
|
822,944
|
420,849
|
96 %
|
|
1,084,228
|
668,686
|
62 %
|
Net earnings (loss) per
share (diluted)
|
$
2.40
|
$
1.40
|
71 %
|
|
$
3.18
|
$
2.23
|
43 %
|
Capital expenditures
(net of
dispositions)
|
478,545
|
664,696
|
(28) %
|
|
957,918
|
1,086,802
|
(12) %
|
Weighted average shares
outstanding
(diluted)
|
|
|
|
|
340,985,975
|
299,967,134
|
14 %
|
Net
debt(3)
|
|
|
|
|
(429,761)
|
(1,728,794)
|
(75) %
|
(1)
|
Product prices
include realized gains and losses on risk management activities and
financial instrument contracts.
|
(2)
|
See "Non-GAAP and
Other Financial Measures" in this news release and in the Q2
MD&A.
|
(3)
|
Excluding interest
and financing charges.
|
Conference Call Tomorrow at
9:00 a.m. MT (11:00 a.m. ET)
Tourmaline will host a conference call tomorrow, July 28, 2022 starting at 9:00 a.m. MT (11:00 a.m.
ET). To participate, please dial 1-888-664-6383
(toll-free in North America), or
international dial-in 1-416-764-8650, a few minutes prior to the
conference call.
Conference ID is 32469174.
REPLAY DETAILS
If you are unable to dial into the live conference call on
July 28th, a replay will be available
(usually by that afternoon) by dialing 1-888-390-0541
(international 1-416-764-8677), referencing Encore Replay Code
469174. The recording will expire on August 11, 2022.
Reader Advisories
CURRENCY
All amounts in this news release are stated in Canadian dollars
unless otherwise specified.
FORWARD-LOOKING INFORMATION
This news release contains forward-looking information and
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. The use of any of the words
"forecast", "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "on track", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are
intended to identify forward-looking information. More particularly
and without limitation, this news release contains forward-looking
information concerning Tourmaline's plans and other aspects of its
anticipated future operations, management focus, objectives,
strategies, financial, operating and production results and
business opportunities, including the following: anticipated
petroleum and natural gas production and production growth for
various periods including estimated production levels for Q3 2022,
Q4 2022 and full-year 2022; expected free cash flow and cash flow
levels for full years 2022 to 2028; the future declaration and
payment of base and special dividends and the timing and amounts
thereof including any future increase; the level of free cash flow
to be returned to shareholders through base dividend increases,
special dividends and share buybacks; capital expenditures over
various periods; the number of drilling rigs to be operated; cost
reduction initiatives; improvements in capital efficiency;
projected operating and drilling costs and drilling times; the
timing for facility expansions and facility start-up dates;
sustainability and environmental improvement initiatives;
anticipated future commodity prices; the ability to generate, and
the amount of, anticipated cash flow and free cash flow including
in 2022 and over the long-range development plan; expectations that
in 2023 Tourmaline will have exposure to JKM pricing; the closing
of the Rising Star acquisition, the timing and terms thereof and
the benefits to be derived therefrom; as well as Tourmaline's
future drilling prospects and plans, business strategy, future
development and growth opportunities, prospects and asset base. The
forward-looking information is based on certain key expectations
and assumptions made by Tourmaline, including expectations and
assumptions concerning the following: prevailing and future
commodity prices and currency exchange and interest rates;
applicable royalty rates and tax laws; future well production rates
and reserve volumes; operating costs, the timing of receipt of
regulatory approvals; the performance of existing and future wells;
the success obtained in drilling new wells; anticipated timing and
results of capital expenditures; the sufficiency of budgeted
capital expenditures in carrying out planned activities; the
timing, location and extent of future drilling operations; the
successful completion of acquisitions and dispositions and the
benefits to be derived therefrom; the state of the economy and the
exploration and production business; the availability and cost of
financing, labour and services; ability to maintain its investment
grade credit rating; and ability to market crude oil, natural gas
and NGL successfully. Without limitation of the foregoing, future
dividend payments, if any, and the level thereof is uncertain, as
the Company's dividend policy and the funds available for the
payment of dividends from time to time is dependent upon, among
other things, free cash flow, financial requirements for the
Company's operations and the execution of its growth strategy,
fluctuations in working capital and the timing and amount of
capital expenditures, debt service requirements and other
factors beyond the Company's control. Further, the ability of
Tourmaline to pay dividends is subject to applicable laws
(including the satisfaction of the solvency test contained in
applicable corporate legislation) and contractual restrictions
contained in the instruments governing its indebtedness, including
its credit facility.
Statements relating to "reserves" are also deemed to be forward
looking information, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
Although Tourmaline believes that the expectations and
assumptions on which such forward-looking information is based are
reasonable, undue reliance should not be placed on the
forward-looking information because Tourmaline can give no
assurances that it will prove to be correct. Since forward-looking
information addresses future events and conditions, by its very
nature it involves inherent risks and uncertainties. Actual results
could differ materially from those currently anticipated due to a
number of factors and risks. These include, but are not limited to:
the risks associated with the oil and natural gas industry in
general such as operational risks in development, exploration and
production; delays or changes in plans with respect to exploration
or development projects or capital expenditures; the uncertainty of
estimates and projections relating to reserves, production,
revenues, costs and expenses; health, safety and environmental
risks; commodity price and exchange rate fluctuations; interest
rate fluctuations; marketing and transportation; loss of markets;
environmental risks; competition; incorrect assessment of the value
of acquisitions; failure to complete or realize the anticipated
benefits of acquisitions or dispositions; ability to access
sufficient capital from internal and external sources; failure to
obtain required regulatory and other approvals; climate change
risks; inflation; supply chain risks and changes in legislation,
including but not limited to tax laws, royalties and environmental
regulations.
In addition, wars (including the war in Ukraine), hostilities, civil insurrections,
pandemics, epidemics or outbreaks of an infectious disease in
Canada or worldwide, including
COVID-19 or other illnesses could have an adverse impact on the
Company's results, business, financial condition or liquidity.
Ongoing military actions between Russia and Ukraine have the potential to threaten the
supply of oil and gas from the region. The long-term impacts of the
actions between these nations remains uncertain. If the
pandemic is further prolonged, including through subsequent waves,
or if additional variants of COVID-19 emerge which are more
transmissible or cause more severe disease, or if other diseases
emerge with similar effects, the adverse impact on the economy
could worsen. It remains uncertain how the macroeconomic
environment, and societal and business norms will be impacted
following the COVID-19 pandemic. In addition, in 2022, industry has
been impacted by significant cost inflation, rising interest rates,
labour shortages and supply constraints, and the Company expects
these pressures will continue through the balance of the year and
into next year. The Company will continue to actively monitor
inflationary pressures and supply chain constraints and their
impact on the Company's business.
Readers are cautioned that the foregoing list of factors is not
exhaustive.
Additional information on these and other factors that could
affect Tourmaline, or its operations or financial results, are
included in the Company's most recently filed Management's
Discussion and Analysis (See "Forward-Looking Statements" therein),
Annual Information Form (See "Risk Factors" and "Forward-Looking
Statements" therein) and other reports on file with applicable
securities regulatory authorities and may be accessed through the
SEDAR website (www.sedar.com) or Tourmaline's website
(www.tourmalineoil.com).
The forward-looking information contained in this news release
is made as of the date hereof and Tourmaline undertakes no
obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, unless expressly required by applicable securities
laws.
BOE EQUIVALENCY
In this news release, production and reserves information may be
presented on a "barrel of oil equivalent" or "BOE" basis. BOEs may
be misleading, particularly if used in isolation. A BOE
conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. In
addition, as the value ratio between natural gas and crude oil
based on the current prices of natural gas and crude oil is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
FINANCIAL OUTLOOKS
Also included in this news release are estimates of Tourmaline's
2022 and long-range cash flow and free cash flow, which are based
on, among other things, the various assumptions as to production
levels, capital expenditures, annual cash flows and other
assumptions disclosed in this news release and including
Tourmaline's estimated average daily production for 2022 - 2028 of
507,000 boepd, 545,000 boepd, 565,000 boepd, 585,000 boepd, 620,000
boepd, 670,000 boepd and 700,000 boepd, respectively, 2022 - 2028
commodity price assumptions for natural gas ($6.67 2022 NYMEX US, $5.49 2023 NYMEX US, $4.69 2024 NYMEX US, $4.44 2025 NYMEX US, $4.30 2026 NYMEX US, $4.20 2027 NYMEX US $4.24 2028 NYMEX US, $5.96 2022 AECO, $5.32 2023 AECO, $4.62 2024 AECO, $4.53 2025 AECO, $4.48 2026 AECO, $4.47 2027 AECO, $4.60 2028 AECO) crude oil ($98.00/bbl 2022 WTI US, $83.77/bbl 2023 WTI US, $77.32/bbl 2024 WTI US, $73.55/bbl 2025 WTI US, $70.82/bbl 2026 WTI US, $69.05/bbl 2027 WTI US, $67.85/bbl 2028 WTI US) and an exchange rate
assumption of $0.77 (US/CAD) for
years 2022 – 2027 and $0.78 for 2028.
Further, in the case of years subsequent to 2022, readers are
cautioned that such estimates are provided for illustration only
and are based on budgets and forecasts that have not been finalized
or approved by the Board of Directors and are subject to a variety
of additional factors and contingencies including prior years'
results. To the extent such estimates constitute financial
outlooks, they were approved by management and the Board of
Directors of Tourmaline on July 27,
2022 and are included to provide readers with an
understanding of Tourmaline's anticipated cash flow and free cash
flow based on the capital expenditure, production and other
assumptions described herein and readers are cautioned that the
information may not be appropriate for other purposes.
NON-GAAP AND OTHER FINANCIAL
MEASURES
This news release contains the terms cash flow, capital
expenditures, free cash flow, and operating netback which are
considered "non-GAAP financial measures", operating netback per
boe, cash flow per boe, cash flow per diluted share, and free cash
flow per diluted share which are considered "non-GAAP financial
ratios" and operating expenses ($/boe) and transportation costs
($/boe) which are considered "supplementary financial measures".
These terms do not have a standardized meaning prescribed by GAAP.
In addition, this news release contains the terms adjusted working
capital and net debt, which are considered "capital management
measures" and do not have standardized meanings prescribed by
GAAP. Accordingly, the Company's use of these terms may
not be comparable to similarly defined measures presented by other
companies. Investors are cautioned that these measures should not
be construed as an alternative to net income determined in
accordance with GAAP and these measures should not be considered to
be more meaningful than GAAP measures in evaluating the Company's
performance.
Non-GAAP Financial Measures
Cash Flow
Management uses the term "cash flow" for its own performance
measure and to provide shareholders and potential investors with a
measurement of the Company's efficiency and its ability to generate
the cash necessary to fund its future growth expenditures, to repay
debt or to pay dividends. The most directly comparable GAAP
measure for cash flow is cash flow from operating activities.
A summary of the reconciliation of cash flow from operating
activities to cash flow, is set forth below:
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
(000s)
|
2022
|
2021
|
2022
|
2021
|
Cash flow from
operating activities (per GAAP)
|
$1,351,481
|
$
494,673
|
$
2,465,130
|
$ 1,244,802
|
Change in non-cash
working capital (deficit)
|
2,445
|
75,559
|
(35,228)
|
(45,245)
|
Cash flow
|
$1,353,926
|
$
570,232
|
$
2,429,902
|
$ 1,199,557
|
Capital Expenditures
Management uses the term "capital expenditures" as a measure of
capital investment in exploration and production activity, as well
as property acquisitions and divestitures, and such spending is
compared to the Company's annual budgeted capital
expenditures. The most directly comparable GAAP measure for
capital expenditures is cash flow used in investing
activities. A summary of the reconciliation of cash flow used
in investing activities to capital expenditures, is set forth
below:
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
(000s)
|
2022
|
2021
|
2022
|
2021
|
Cash flow used in
investing activities (per GAAP)
|
$
660,163
|
$
764,526
|
$
1,119,610
|
$ 1,134,897
|
Change in non-cash
working capital (deficit)
|
(181,618)
|
(99,830)
|
(161,692)
|
(48,095)
|
Capital
expenditures
|
$
478,545
|
$
664,696
|
$
957,918
|
$ 1,086,802
|
Free Cash Flow
Management uses the term "free cash flow" for its own
performance measure and to provide shareholders and potential
investors with a measurement of the Company's efficiency and its
ability to generate the cash necessary to fund its future growth
expenditures, to repay debt and provide shareholder returns.
Free cash flow is defined as cash flow less capital expenditures,
excluding acquisitions and dispositions. Free cash flow is
prior to dividend payment. The most directly comparable GAAP
measure for cash flow is cash flow from operating activities.
See "Non-GAAP Financial Measures – Cash Flow" and " Non-GAAP
Financial Measures – Capital Expenditures" above.
Operating Netback
Management uses the term "operating netback" as a key
performance indicator and one that is commonly presented by other
oil and natural gas producers. Operating netback is defined
as the sum of commodity sales from production, premium (loss) on
risk management activities and realized gains (loss) on financial
instruments less the sum of royalties, transportation costs and
operating expenses. A summary of the reconciliation of
operating netback from commodity sales from production, which is a
GAAP measure, is set forth below:
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
($/boe)
|
2022
|
2021
|
2022
|
2021
|
Commodity sales from
production
|
$2,605,781
|
$ 1,025,310
|
$
4,500,952
|
$ 2,021,345
|
(Loss) on risk
management activities
|
(203,919)
|
(60,000)
|
(226,883)
|
(22,939)
|
Realized (loss) on
financial instruments
|
(293,028)
|
(44,032)
|
(451,551)
|
(71,864)
|
Royalties
|
(325,211)
|
(56,547)
|
(528,945)
|
(110,323)
|
Transportation
costs
|
(230,118)
|
(148,958)
|
(453,286)
|
(310,057)
|
Operating
expenses
|
(194,018)
|
(138,238)
|
(385,936)
|
(273,078)
|
Operating
netback
|
$
1,359,487
|
$
577,535
|
$
2,454,351
|
$ 1,233,084
|
Non-GAAP Financial Ratios
Operating Netback per-boe
Management calculates "operating netback per-boe" as operating
netback divided by total production for the period. Netback
per-boe is a key performance indicator and measure of operational
efficiency and one that is commonly presented by other oil and
natural gas producers. A summary of the calculation of
operating netback per boe, is set forth below:
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
($/boe)
|
2022
|
2021
|
2022
|
2021
|
Revenue, excluding
processing income
|
$
46.08
|
$
24.67
|
$
41.82
|
$
25.90
|
Royalties
|
(7.11)
|
(1.51)
|
(5.79)
|
(1.48)
|
Transportation
costs
|
(5.03)
|
(3.99)
|
(4.96)
|
(4.17)
|
Operating
expenses
|
(4.24)
|
(3.70)
|
(4.22)
|
(3.67)
|
Operating
netback
|
$
29.70
|
$
15.47
|
$
26.85
|
$
16.58
|
Cash Flow per-boe
Management uses cash flow per boe to highlight how much cash
flow is generated by each boe produced. The ratio is
calculated by dividing cash flow by total production for the
period. See "Non-GAAP Financial Measures – Cash Flow".
Cash Flow per diluted share
Management uses cash flow per diluted share as a measurement of
the Company's efficiency and its ability to generate the cash
necessary to fund its future growth expenditures, to repay debt or
to pay dividends on a per diluted share basis. Cash flow per
diluted share is calculated using cash flow divided by the weighted
average diluted shares outstanding.
Free Cash Flow per diluted
share
Management uses free cash flow per diluted share as a measure of
the Company's efficiency and its ability to generate the cash
necessary to fund its future growth expenditures, to repay debt and
provide shareholder returns on a per diluted share basis. Free cash
flow per diluted share is calculated using free cash flow divided
by the weighted average diluted shares outstanding.
Capital Management Measures
Adjusted Working Capital
Management uses the term "adjusted working capital" for its own
performance measures and to provide shareholders and potential
investors with a measurement of the Company's liquidity. A
summary of the composition of adjusted working capital (deficit),
is set forth below:
|
As at
June 30,
|
As at
December 31,
|
(000s)
|
2022
|
2021
|
Working capital
(deficit)
|
$
(533,416)
|
$
(361,034)
|
Fair value of financial
instruments – short-term liability, net of short-term asset
|
532,777
|
240,970
|
Lease liabilities –
short-term
|
2,888
|
2,997
|
Decommissioning
obligations – short-term
|
30,000
|
20,103
|
Unrealized foreign
exchange in working capital – liability
|
(2,749)
|
(6,441)
|
Adjusted working
capital (deficit)
|
$
29,500
|
$
(103,405)
|
Net Debt
Management uses the term "net debt", as a key measure for
evaluating its capital structure and to provide shareholders and
potential investors with a measurement of the Company's total
indebtedness. A summary of the composition of net debt, is
set forth below:
|
As at
June 30,
|
As at
December 31,
|
(000s)
|
2022
|
2021
|
Bank debt
|
$
(11,074)
|
$
(421,539)
|
Senior unsecured
notes
|
(448,187)
|
(448,035)
|
Adjusted working
capital (deficit)
|
29,500
|
(103,405)
|
Net debt
|
$
(429,761)
|
$
(972,979)
|
Supplementary Financial
Measures
The following measures are supplementary financial measures:
operating expenses ($/boe), and transportation costs ($/boe). These
measures are calculated by dividing the numerator by total
production for the period.
OIL AND GAS METRICS
This news release contains certain oil and gas metrics which do
not have standardized meanings or standard methods of calculation
and therefore such measures may not be comparable to similar
measures used by other companies and should not be used to make
comparisons. Such metrics have been included in this document to
provide readers with additional measures to evaluate the Company's
performance; however, such measures are not reliable indicators of
the Company's future performance and future performance may not
compare to the Company's performance in previous periods and
therefore such metrics should not be unduly relied upon.
ESTIMATES OF DRILLING LOCATIONS
Unbooked drilling locations are the internal estimates of
Tourmaline based on Tourmaline's prospective acreage and an
assumption as to the number of wells that can be drilled per
section based on industry practice and internal review. Unbooked
locations do not have attributed reserves or resources (including
contingent and prospective). Unbooked locations have been
identified by Tourmaline's management as an estimation of
Tourmaline's multi-year drilling activities based on evaluation of
applicable geologic, seismic, engineering, production and reserves
information. There is no certainty that Tourmaline will drill
all unbooked drilling locations and if drilled there is no
certainty that such locations will result in additional oil and
natural gas reserves, resources or production. The drilling
locations on which Tourmaline will actually drill wells, including
the number and timing thereof is ultimately dependent upon the
availability of funding, regulatory approvals, seasonal
restrictions, oil and natural gas prices, costs, actual drilling
results, additional reservoir information that is obtained and
other factors. While a certain number of the unbooked drilling
locations have been de-risked by Tourmaline drilling existing wells
in relative close proximity to such unbooked drilling locations,
the majority of other unbooked drilling locations are farther away
from existing wells where management of Tourmaline has less
information about the characteristics of the reservoir and
therefore there is more uncertainty whether wells will be drilled
in such locations and if drilled there is more uncertainty that
such wells will result in additional oil and gas reserves,
resources or production.
SUPPLEMENTAL INFORMATION REGARDING
PRODUCT TYPES
This news release includes references to Q2 2022 average daily
production and estimated Q3, Q4 full year 2022 and full year 2023
average daily production. The following table is intended to
provide supplemental information about the product type composition
for each of the production figures that are provided in this news
release:
|
Light and
Medium
Crude
Oil(1)
|
Conventional
Natural
Gas
|
Shale Natural
Gas
|
Natural
Gas
Liquids(1)
|
Oil
Equivalent
Total
|
|
Company
Gross
(Bbls)
|
Company
Gross
(Mcf)
|
Company
Gross
(Mcf)
|
Company
Gross
(Bbls)
|
Company
Gross
(Boe)
|
Q2 2022 Average
Daily
Production
|
43,400
|
1,275,967
|
1,067,737
|
68,920
|
502,937
|
Q3 2022 Average
Daily
Production
|
44,300
|
1,244,000
|
1,009,000
|
70,200
|
490,000
|
Q4 2022 Average
Daily
Production
|
47,100
|
1,334,000
|
1,070,200
|
74,700
|
522,500
|
2022 Average
Daily
Production
|
44,800
|
1,296,600
|
1,050,000
|
71,100
|
507,000
|
2023 Average
Daily
Production
|
47,900
|
1,349,200
|
1,162,400
|
78,500
|
545,000
|
(1)
|
For the purposes of
this disclosure, condensate has been combined with Light and Medium
Crude Oil as the associated revenues and certain
costs
of condensate are
similar to Light and Medium Crude Oil. Accordingly,
NGLs in this disclosure exclude condensate.
|
INITIAL PRODUCTION RATES
Any references in this news release to initial production rates
are useful in confirming the presence of hydrocarbons; however,
such rates are not determinative of the rates at which such wells
will continue production and decline thereafter and are not
necessarily indicative of long-term performance or ultimate
recovery. While encouraging, readers are cautioned not to place
reliance on such rates in calculating the aggregate production for
the Company. Such rates are based on field estimates and may be
based on limited data available at this time.
CREDIT RATINGS
Credit ratings are intended to provide investors with an
independent measure of credit quality of an issue of securities.
Credit ratings are not recommendations to purchase, hold or sell
securities and do not address the market price or suitability of a
specific security for a particular investor. There is no assurance
that any rating will remain in effect for any given period of time
or that any rating will not be revised or withdrawn entirely by a
rating agency in the future if, in its judgment, circumstances so
warrant.
GENERAL
See also "Forward-Looking Statements", and "Non-GAAP and Other
Financial Measures" in the most recently filed Management's
Discussion and Analysis.
Certain Definitions:
1H
|
first half
|
2H
|
second half
|
bbl
|
barrel
|
bbls/day
|
barrels per
day
|
bbl/mmcf
|
barrels per million
cubic feet
|
bcf
|
billion cubic
feet
|
bcfe
|
billion cubic feet
equivalent
|
bpd or
bbl/d
|
barrels per
day
|
boe
|
barrel of oil
equivalent
|
boepd or
boe/d
|
barrel of oil
equivalent per day
|
bopd or
bbl/d
|
barrel of oil,
condensate or liquids per day
|
CCUS
|
carbon capture, usage
and storage
|
DUC
|
drilled but uncompleted
wells
|
EP
|
exploration and
production
|
gj
|
gigajoule
|
gjs/d
|
gigajoules per
day
|
mbbls
|
thousand
barrels
|
mmbbls
|
million
barrels
|
mboe
|
thousand barrels of oil
equivalent
|
mboepd
|
thousand barrels of oil
equivalent per day
|
mcf
|
thousand cubic
feet
|
mcfpd or
mcf/d
|
thousand cubic feet per
day
|
mcfe
|
thousand cubic feet
equivalent
|
mmboe
|
million barrels of oil
equivalent
|
mmbtu
|
million British thermal
units
|
mmbtu/d
|
million British thermal
units per day
|
mmcf
|
million cubic
feet
|
mmcfpd or
mmcf/d
|
million cubic feet per
day
|
MPa
|
megapascal
|
mstb
|
thousand stock tank
barrels
|
natural
gas
|
conventional natural
gas and shale gas
|
NCIB
|
normal course issuer
bid
|
NGL or NGLs
|
natural gas
liquids
|
tcf
|
trillion cubic
feet
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND CONSOLIDATED FINANCIAL STATEMENTS
To view Tourmaline's Management's Discussion and Analysis and
Interim Condensed Consolidated Financial Statements for the periods
ended June 30, 2022 and 2021, please
refer to SEDAR (www.sedar.com) or Tourmaline's website at
www.tourmalineoil.com.
About Tourmaline Oil Corp.
Tourmaline is Canada's largest
and most active natural gas producer dedicated to producing the
lowest-emission and lowest-cost natural gas in North America. We are an investment grade
exploration and production company providing strong and predictable
operating and financial performance through the development of our
three core areas in the Western Canadian Sedimentary Basin. With
our existing large reserve base, decades-long drilling inventory,
relentless focus on execution and cost management, and
industry-leading environmental performance, we are excited to
provide shareholders an excellent return on capital, and an
attractive source of income through our base dividend and surplus
free cash flow distribution strategies.
SOURCE Tourmaline Oil Corp.