TORC Oil & Gas Ltd. Announces First Quarter 2018 Financial & Operating Results; Strategic Southeast Saskatchewan Acquisition; Increased 2018 Production Guidance & Increase to the Dividend

CALGARY, May 8, 2018 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce its financial and operating results for the three month period ended March 31, 2018.  The associated management’s discussion and analysis (“MD&A”) and unaudited interim financial statements as at and for the quarter ended March 31, 2018 can be found at www.sedar.com and www.torcoil.com.

PRESIDENT’S MESSAGE

TORC’s operational momentum from 2017 continued into the first quarter of 2018 with a focus on the Company’s long term objectives of delivering disciplined growth in combination with maintaining financial flexibility and providing a sustainable dividend. TORC’s active drilling program was focused in both the southeast Saskatchewan and Cardium core areas where the Company continued to realize strong results.

The Company’s key achievements in the first quarter of 2018 included the following:

• Achieved record quarterly production of 22,894 boepd, up from 21,886 boepd in the fourth quarter of 2017 and 19,806 boepd in the first quarter of 2017;
• Generated cash flow of $64.0 million relative to $60.6 million in the fourth quarter of 2017 and $51.5 millionin the first quarter of 2017;
• Generated cash flow per share of $0.33 per share as compared to $0.32 in the fourth quarter of 2017 and $0.28 per share in the first quarter of 2017;
• Successfully drilled 26 (18.6 net) wells spending $41.7 million;
• During the first quarter, TORC declared dividends of $11.8 million of which $3.9 million was paid under the share dividend program;
• Achieved a payout ratio in the quarter of 77% while continuing to organically grow production;
• Subsequent to the end of the first quarter, TORC entered into an agreement to acquire light oil assets which are complementary to TORC’s existing operations in southeast Saskatchewan.  The strategic acquisition (the “Acquisition”) includes 15.5 mmboe of P+P reserves and over 3,200 boepd of high quality, low decline, high netback, light oil producing assets (the “Acquired Assets”) for aggregate consideration comprised of the issuance of 13.5 million TORC common shares and $125.0 million in cash; and
• At quarter end, the Company’s net debt was approximately $269.5 million with $233.1 million drawn on the credit facility.  Subsequent to quarter end, TORC’s credit facility was reconfirmed at $400 million, providing the Company with significant financial flexibility and liquidity.

OPERATIONAL UPDATE

TORC’s first quarter production averaged 22,894 boepd (87% light oil and NGLs).  Strong new well results and solid performance of the Company’s existing low decline production across all of TORC’s core areas contributed to the continued quarter over quarter growth of the Company’s production base.

During the first quarter, TORC executed a development program, drilling 26 (18.6 net) wells focused on the conventional and unconventional assets in southeast Saskatchewan and the Cardium in central Alberta.  TORC spent $41.7 million in the first quarter representing 25% of the Company’s 2018 $165 million capital budget.

SOUTHEAST SASKATCHEWAN

TORC drilled 10 (6.9 net) southeast Saskatchewan conventional wells in the first quarter.  TORC’s southeast Saskatchewan conventional assets are characterized by their lower risk nature and high rates of return driven by low capital costs, high netbacks and the favorable royalty regime in the province. With a long term decline profile of less than 20% and strong operating netbacks, the southeast Saskatchewan assets yield significant free cash flow to support TORC’s business model.

TORC has identified more than 400 net undrilled conventional light oil locations in southeast Saskatchewanproviding years of high quality drilling inventory.  In 2018, TORC plans to drill 44 (37.2 net) conventional wells.  The focus in TORC’s southeast Saskatchewan conventional properties is to maintain a reasonably flat production profile and maximize free cash flow from the assets.

On the Company’s unconventional asset base in southeast Saskatchewan, TORC drilled 6 (4.0 net) wells during the first quarter in the Torquay/Three Forks geological zone.  As expected, TORC completed 3 (1.5 net) of these wells in the first quarter and plans to complete the remaining 3 (2.5 net) wells during the second quarter.  In 2018, TORC plans to drill a total of 17 (13.5 net) wells continuing to drive growth in this light oil high netback resource play.  TORC has identified over 150 net development locations in the Torquay/Three Forks play providing multiple years of drilling inventory.

TORC has also been active on the unconventional Midale light oil resource play in southeast Saskatchewandrilling 5 (3.3 net) wells during the first quarter.  The Company continues to be very encouraged with the initial results from this delineation activity.  The Company plans to drill a total of 12 gross (11.0 net) wells spread across the Company’s land position for both the development and further delineation of the play in 2018.  Based on detailed geotechnical analysis as well as the Company’s drill results to date, TORC has identified more than 150 net future undrilled development locations across the Company’s asset base for unconventional Midale production.  TORC will continue to delineate this play with the intention of continuing to add to this development drilling inventory.

CARDIUM

TORC drilled 5 (4.4 net) successful Cardium development wells in the first quarter.  For 2018, the Company has budgeted to drill 12 (10.5 net) Cardium wells representing less than 5% of TORC’s identified undrilled inventory.

TORC controls more than 95 net light oil sections in the Cardium trend where the Company has identified more than 290 net undrilled locations.  With a decline profile below 25% and a deep inventory of high quality development locations, the Cardium continues to contribute meaningfully to the Company’s free cash flow growth strategy.

ACQUISITION ACTIVITY

Subsequent to the first quarter, TORC entered into a purchase and sale agreement (the “Agreement”) with an independent Canadian oil and gas company, dated May 8, 2018, to acquire 15.5 mmboe of P+P reserves and over 3,200 boepd of high quality, low decline, high netback, light oil producing assets for consideration comprised of the issuance of 13.5 million TORC common shares and $125.0 million in cash, prior to customary closing adjustments.

The Acquisition is consistent with TORC’s strategy to capitalize on opportunities to enhance the quality of its asset base throughout the commodity price cycle.  The Acquired Assets enhance TORC’s decline profile, operating netback and light oil drilling inventory. TORC has identified approximately 75 (net) high quality light oil drilling locations on the Acquired Assets which will provide some of the highest relative economic returns in the Western Canadian Sedimentary Basin.

The Acquired Assets are very complementary to TORC’s existing operations in southeast Saskatchewan and provide operating and strategic synergies. The acquisition is a result of the proactive nature of TORC’s acquisition efforts and represents assets with significant overlap with TORC’s existing operations.

The TORC common shares to be received by the vendor pursuant to the Acquisition will be subject to a four month hold period.

Completion of the Acquisition is subject to certain conditions and the receipt of all required regulatory approvals, including the approval of the TSX and necessary competition approvals.  The Acquisition is anticipated to close on or about June 27, 2018.  Certain of the assets comprising approximately 500 boepd are subject to Rights of First Refusal.

REVISED CAPITAL PROGRAM

TORC anticipates that on closing of the Acquisition the Company’s 2018 budget will be increased to $180 million from $165 million currently.  The 2018 capital program will remain concentrated on the Company’s primary core areas in southeast Saskatchewan, focused on both conventional opportunities and the unconventional plays, and the Cardium play in central Alberta.  TORC continues to focus on operational efficiencies with a goal of achieving results that exceed budget expectations.

The revised program maintains TORC’s balanced approach where the Company continues to focus on disciplined long term organic growth, maintain a consistent production decline, protect the Company’s strong financial position to maintain repeatability of the business model.

TORC has undertaken an active commodity hedging program to further protect our core capital spending requirements and dividend policy and currently has 4,500 bopd of oil production hedged through the remainder of 2018.  An updated hedging schedule can be found in TORC’s corporate presentation at www.torcoil.com.

Based on current commodity prices and budgeted cost structure, TORC is expected to achieve significant free cash flow in 2018 after growing production and paying the current dividend.  This free cash flow continues to position the Company to take advantage of opportunities as they arise.

INCREASED PRODUCTION GUIDANCE

It is anticipated that on closing of the Acquisition TORC will increase 2018 average production guidance to 24,700 boepd from 23,000 boepd previously and 2018 exit production guidance to 27,000 boepd from 23,800 boepd previously while revising up the percentage of oil and liquids to 88% from 87% previously.

TORC continues to focus on growing free cash flow and utilizing that free cash flow to enhance the growth and sustainability of the Company’s business model.

INCREASED DIVIDEND

TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall strategy.  During the first quarter, TORC declared dividends of $11.8 million of which $3.9 million was paid under the share dividend plan.

With continued production and cash flow per share growth, the Board of Directors has approved a 10% increase to the Company’s annual dividend.  Accordingly, TORC’s annual dividend will increase to $0.264 per year ($0.022 per month) from $0.24 per year ($0.02 per month).  On this basis, TORC shareholders of record on May 30, 2018 will receive the increased dividend for the month of May, payable June 15, 2018.

The Company is committed to maintaining a disciplined approach.  TORC’s priorities are to act prudently to protect TORC’s financial flexibility while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable dividend.

OUTLOOK

TORC has built a sustainable growth platform of light oil focused assets and continues to enhance this platform. The stability of the high quality, low decline, light oil assets in southeast Saskatchewan and the low risk Cardium development inventory in central Alberta, combined with exposure to unconventional light oil resource plays in southeast Saskatchewan, positions TORC to provide value creation through a disciplined long term focused growth strategy with a sustainable dividend.

TORC has the following key operational and financial attributes:

An updated corporate presentation can be found at www.torcoil.com.