TORC Oil & Gas Ltd. Announces Third Quarter 2018 Financial & Operational Results; Increased 2018 Production Guidance; and Appoints New Member to Board of Directors

CALGARY, Nov. 5, 2018 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2018.  The associated management’s discussion and analysis (“MD&A”) and unaudited interim financial statements as at and for the three and nine months ended September 30, 2018 can be found at www.sedar.com and www.torcoil.com.

PRESIDENT’S MESSAGE

The steady execution of TORC’s business plan continued during the third quarter of 2018.  The Company executed the largest capital program in the Company’s history while generating cash flow in excess of the capital program and dividend.  Supported by free cash flow generated by the underlying business, TORC completed a complementary acquisition of unconventional Midale focused assets in the Company’s southeast Saskatchewan core area further enhancing the Company’s asset base and business model.

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

• Achieved record quarterly production of 27,160 boepd, up from 23,059 boepd in the second quarter of 2018 and 20,992 boepd in the third quarter of 2017;
• Generated cash flow of $95.1 million relative to $75.3 million in the second quarter of 2018 and $44.4 million in the third quarter of 2017;
• Generated cash flow per share of $0.45 compared to $0.38 in the second quarter of 2018 and $0.24 in the third quarter of 2017;
• Drilled 36 (30.8 net) successful wells;
• Paid dividends of $0.066 per share to shareholders;
• During the first nine months of 2018, the Company generated cash flow of $234.4 million, incurred $130.7 million on capital expenditures, and paid cash dividends of $25.9 million for a payout ratio of 67%;
• Completed the acquisition of a private company with complementary operations which are primarily focused on the unconventional Midale light oil play in southeast Saskatchewan. The strategic acquisition includes 4.0 mmboe of proven plus probable reserves and over 1,000 boepd of high quality, high netback, light oil producing assets for aggregate consideration comprised of the issuance of 2.1 million TORC common shares and $46.5 million in cash; and
• At quarter end, the Company had drawn $336 million on the credit facility, with net debt of approximately $391 million. Subsequent to the end of the third quarter, TORC’s credit facility was reconfirmed at $500 million as part of the regular semi-annual review process.

OPERATIONAL UPDATE

With continued success of the 2018 capital program and the Company’s solid underlying production profile, TORC achieved record production of 27,160 boepd during the third quarter.  TORC spent a total of $59.0 million of exploration and development capital, including drilling 36 (30.8 net) wells with 100% success.  Total exploration and development capital spending for the first nine months of 2018 was $130.7 million which included 70 (56.4 net) wells drilled with 100% success.

SOUTHEAST SASKATCHEWAN 

During the third quarter, the Company drilled 33 (27.8 net) wells in southeast Saskatchewan including 25 (20.9 net) conventional wells, 3 (3.0 net) Torquay/Three Forks wells, 4 (2.9 net) unconventional Midale wells and 1 (1.0 net) salt water disposal well.

TORC drilled 40 (31.8 net) conventional wells in the first nine months of 2018 consistently achieving production results above type curves, further enhancing the already attractive capital efficiencies and economics.  TORC has identified more than 400 net undrilled conventional locations in southeast Saskatchewan providing years of high quality drilling inventory.

In the first nine months of 2018, TORC drilled 12 (10.0 net) southeast Saskatchewan Torquay/Three Forks wells.  Based on encouraging results from the program to date, TORC commenced the construction of a multi well facility which will serve to enhance the strong netbacks in this play due to reduced trucking costs of salt water and emulsion.  With more than 150 net undrilled Torquay/Three Forks locations identified on the southeast Saskatchewan land base, TORC expects to increase the allocation of development capital to the Torquay/Three Forks play in 2019.

In the first three quarters of 2018, TORC drilled 10 (7.2 net) horizontal unconventional Midale wells.  TORC has established prospective land positions in a number of areas that have the potential for unconventional Midale exploitation.  The Company has achieved success across the asset base continuing to expand and de-risk the Company’s drilling inventory.  In addition, the Company has had success exploiting more mature fields through the reentry and fracture stimulation of older unstimulated wells.  The technical success serves to continue to expand and upgrade the Company’s drilling inventory. The Company will be active in the fourth quarter of 2018 with 4 (3.4 net) wells planned.  With the multiple successes to date in 2018, the Company expects to significantly increase capital allocation to this play in 2019.

CARDIUM

During the third quarter TORC drilled 3 (3.0 net) Cardium development wells.  Combined with the 5 (4.4 net) wells drilled in the first quarter of the year, TORC has drilled 8 (7.4 net) wells in the first nine months of 2018.   TORC successfully tested two higher intensity multi stage fracture stimulations in the Cardium play during the fourth quarter of 2017.  Production from these initial two wells remains encouraging.  TORC has plans for three additional higher intensity fracture stimulations in the fourth quarter of 2018. With continued success, TORC will continue to unlock opportunities on its large undeveloped land base.

TORC has identified more than 290 net undrilled locations on the Company’s land base representing several years of high quality, lower risk drilling locations on a maturing asset which continues to support TORC’s disciplined growth plus dividend model.

DIVIDEND

In the third quarter, TORC paid dividends totaling $0.066 per share or $14.0 million of which $4.4 million was issued under the Company’s Stock Dividend Plan (“SDP”).  In the first nine months of 2018, the Company has paid dividends totaling $39.0 million, of which $12.1 million was issued under the Company’s SDP.

The Board of Directors has confirmed a dividend of $0.022 per common share to be paid on November 15, 2018 to common shareholders of record on October 31, 2018.

TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall strategy. TORC’s current dividend policy is $0.022 per share per month. 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.

CAPITAL BUDGET AND PRODUCTION GUIDANCE

TORC’s 2018 exploration and development capital budget of $185 million maintains TORC’s balanced approach where the Company continues to focus on disciplined long term sustainable growth while protecting the Company’s strong financial position.

TORC spent $130.7 million in the first three quarters of 2018. With approximately $54 million to be spent in the fourth quarter of 2018, TORC remains well positioned to achieve the Company’s capital expenditure and production guidance for 2018.

The 2018 capital program remains concentrated on the Company’s primary core areas in southeast Saskatchewan, focused on both conventional and unconventional opportunities, and the Cardium play in central Alberta.

Based on actual production to date and expected fourth quarter production rates, TORC is increasing 2018 average production guidance to 25,300 boepd from 25,100 boepd (87% light oil & liquids) while maintaining exit guidance of 28,000 boepd (88% light oil & liquids).

Overall, global crude oil prices have trended upwards in 2018, however, Western Canadian crude oil is currently trading at historically high differentials relative to global oil prices primarily due to take away capacity limitations and historically high PADD II refinery maintenance outages during October.  Approximately 85% of TORC’s crude oil is produced in southeast Saskatchewan and sold at Cromer, Manitoba which is downstream of the crude oil delivery points that have experienced apportionments in the range of 30-45% since the second quarter of 2018.  This has resulted in TORC receiving advantaged pricing relative to western Canadian crude oil sold upstream of Cromer during the third quarter.  The relative advantaged pricing has widened further in the fourth quarter and is expected to continue until upstream crude oil apportionments ease. PADD II refining capacity has begun to be placed back on stream which is anticipated to provide some relief from the current upstream apportionment issues.

Based on current commodity prices and budgeted cost estimates, TORC expects to achieve free cash flow in the fourth quarter of 2018 after executing the remaining budgeted capital program and paying the dividend.  To the end of the third quarter, TORC generated $78 million of free cash flow in 2018.  This free cash flow continues to position the Company to take advantage of opportunities as they arise.

TORC anticipates announcing the 2019 capital budget and production guidance in mid-December.

BOARD APPOINTMENT

TORC is pleased to announce the appointment of Mr. John Gordon to the Company’s Board effective November 5, 2018.

Mr. Gordon served as the Canadian Managing Partner, Quality and Risk Management, the Canadian Managing Partner, Audit and the Calgary Office Managing Partner for KPMG LLP prior to his retirement in 2018.  Mr. Gordon has extensive experience in providing audit and other services to public oil and gas companies. Mr. Gordon is a Chartered Professional Accountant (FCPA), a Chartered Financial Analyst (CFA), and is a graduate of the University of Saskatchewan. Mr. Gordon serves on the Board of the CAMH Foundation, the Alberta Adolescent Recovery Centre, and is a lecturer for, and an active member of the Institute of Corporate Directors.

OUTLOOK

TORC has built a sustainable growth platform of light oil focused assets. 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 the emerging light oil resource plays in the Torquay/Three Forks and unconventional Midale in southeast Saskatchewan, positions TORC to provide a sustainable dividend along with value creation through a disciplined long term focused growth strategy.

TORC has the following key operational and financial attributes: