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Tourmaline Delivers Strong Q3 Earnings and Cash Flow Growth, Increases 2018 Exit and 2019 Production Estimates and Reduces 2019 Capital Program


CALGARY, Nov. 7, 2018 /CNW/ – Tourmaline Oil Corp. (TSX:TOU) (“Tourmaline” or the “Company”) is pleased to release  financial and operating results for the third quarter of 2018.

HIGHLIGHTS

  • 2018 exit production estimate increased from 290,000 to 300,000 boepd driven primarily by stronger than forecast well performance.
  • Q3 2018 average production was 254,185 boepd, up 7% from Q3 2017.
  • 2019 average production forecast increased from 291,000 to 300,000 boepd on a reduced EP capital program of $1.30 billion.
  • Gundy BC Phase 1 deep cut plant start-up accelerated to Q2 2019.
  • Q3 2018 earnings of $55.3 million, continuing the strong earnings performance despite low natural gas prices.
  • The four 2H 2018 liquids-focused facility projects have all been completed and are on-stream providing very strong Q4 2018 production growth.
  • Strong well performance and increased condensate production rates from the new 2018 Montney horizontal wells at Gundy Ck (70-135 bbls/mmcf of condensate) are anticipated to yield a significant corresponding increase in recoverable natural gas and condensate reserves (EUR).

PRODUCTION UPDATE

  • The Company anticipates achieving the originally-targeted 290,000 boepd 2018 exit volume in mid-November and now expects to exit 2018 at approximately 300,000 boepd, driven primarily by stronger than forecast well performance.
  • For the nine months ending September 30, 2018, production has averaged 261,161 boepd compared to 235,255 boepd for the same period in 2017, an increase of 11%.
  • Q3 2018 production was 3% lower than Q2 2018 as the Company re-scheduled annual facility turnarounds into July (a period of weaker gas prices) in all three operated complexes and continued to experience unscheduled third-party transportation interruptions and restrictions.
  • Unusually wet weather conditions deferred start-up of four large pads from September to October, reducing Q3 2018 average production by approximately 3,500 boepd.
  • A third-party turnaround at the Saturn deep cut complex in the Deep Basin reduced third quarter liquids volumes by approximately 2,000 bpd.
  • Given the impact of the Enbridge 36 inch pipeline interruption during October, and uncertainty surrounding pipeline capacity after repairs are completed, Tourmaline now expects Q4 production to range between 281,000-287,000 boepd, and full year average production in the 265,000-270,000 boepd range.
  • As a result of the higher 2018 exit rate due to improved well performance, the 2019 average production forecast has been increased from 291,000 boepd to 300,000 boepd (11.0-13.0% annual growth). The increased 2019 production levels also include a significantly increased downtime provision of 9%, up from the 5% utilized previously in 2017/2018. The 2019 EP capital has also decreased from $1.35 billion to $1.30 billion reflecting stronger well performance and continuously-improving capital efficiencies.

FINANCIAL UPDATE

  • Q3 cash flow(1) of $287.4 million was up 14% from Q3 2017 cash flow of $251.3 million (14% per diluted share) and up 6% from the previous quarter.
  • For the nine months ending September 30, 2018, cash flow was $911.9 million, a 6% increase from $857.5 million for the comparable period in 2017.
  • Q3 2018 earnings were $55.3 million, up 9% from Q3 2017.  Tourmaline continues to focus on full cycle profitability for the overall EP business.
  • Very strong Q4 2018 production growth and stronger natural gas prices are expected to yield Q4 2018 cash flow of $380-410 million.
  • Tourmaline now expects to generate full-year 2018 cash flow of $1.32 billion with total capital spending of $1.15 billion, generating $168.7 million in free cash flow(2) for the year.
  • As previously disclosed, Q3 2018 EP capital spending was increased to provide maximum production volumes by November to take advantage of anticipated higher winter 2019 gas prices.
  • For the nine months ending September 30, 2018, total capital expenditures, including A&D, were $819.2 million down 22% from $1,054.4 million during the same period in 2017.
  • Q3 2018 EP capital spending of $402.3 million included $28.1 million for the ongoing construction of the Gundy C-60-A gas plant anticipated to start up in late Q2 2019.  To date, $102.2 million of the projected $180 million total installed plant cost has been spent.
  • The quarterly dividend for Q4 2018 will remain at $0.10/common share.
  • Tourmaline continues to maintain a very strong balance sheet.  The exit 2018 net debt to cash flow ratio is expected to be 1.2 times and the 2019 net debt to cash flow ratio is forecast to be 0.8 times.

2019 CAPITAL PROGRAM

  • The Board-approved 2019 EP capital program has been set at $1.3 billion while average 2019 production has been increased by 3% to 300,000 boepd. The program consists of approximately 264 new wells (net) with drill/complete/equip/tie-in capital of $1.1 billion.
  • 2019 cash flow of $1.67 billion is anticipated on EP capital spending of $1.3 billion, yielding approximately $330 million of free cash flow.

GAS MARKETING AND TRANSPORTATION UPDATE

  • Tourmaline’s gas market diversification strategy, formulated over six years ago, continues to provide upside to realized natural gas pricing every quarter. Tourmaline’s realized Q3 2018 gas price was $2.54/mcf, compared to the AECO quarterly index price of $1.20 /mcf.
  • Tourmaline currently has 205 mmcfpd of AECO gas indexed to NYMEX and approximately 187 mmcfpd hedged at a fixed price.
  • Tourmaline now has approximately 440 mmcfpd that is sold at six hubs with gas prices indexed to the prevailing NYMEX gas price. These daily NYMEX priced volumes will grow to 540 mmcfpd in mid-2019 via additional long-term firm transportation taking effect.

EP UPDATE

  • The EP program was ramped up significantly from Q2 levels as planned. Tourmaline is currently operating 15 drilling rigs and two to three frac spreads across the three core complexes.
  • A total of 150 new wells will be brought on-stream in the 2H 2018, the majority of which will commence production in Q4 2018.
  • The Company continues to pursue a number of new technologies aimed at continuing to realize drill/complete capital cost reductions in all three operated core complexes. Horizontal drilling costs in certain areas within the Alberta Deep Basin have been reduced from an average of $2.5 million in 2016/2017 to $1.6 million in 2018.

LIQUIDS BUSINESS UPDATE

  • Four previously disclosed 2H 2018 liquids-focused facility projects for 2H 2018 were completed between September 25 and November 5 and are all on-stream. These include the Doe 2-11 Montney sweetening and debottlenecking facility, the Wroe expansion and Cecilia pipeline loop in the Alberta Deep Basin, the south Gundy BC liquids-rich Montney tie-in and the Spirit River West compression and pipeline loop project.
  • Tourmaline will exit 2018 with liquids production in excess of 60,000 bpd.
  • The accelerated start-up of Gundy phase 1 and the stronger liquids production rates will yield increased 2019 total liquid production of 66,000 bpd, up from 64,500 bpd previously.
  • The Company has not had any production curtailed as a result of recent pipeline apportionments and does not anticipate constraints in Q4 2018.
  • Tourmaline’s realized oil differential in Q3 was approximately 20% better than the differential on the index price. For Q4 2018, the Company expects to realize approximately 32% better than the current index price.
  • Tourmaline’s condensate differential in Q3 was 59% better than the Peace condensate differential index price. For Q4 2018, the Company expects to realize approximately 11.5% better than the current condensate differential index.

NEBC MONTNEY GAS CONDENSATE COMPLEX

  • The Doe 2-11 sweetening/liquids debottlenecking facility was commissioned during the last week of September adding approximately 3,000 bbls/day of condensate and NGLs. The facility allows over 20 Montney turbidite wells to come on-stream as facility capacity allows.
  • The Gundy 200 mmcfpd deep cut gas plant is under construction and a June 2019 start-up is now anticipated – approximately three months ahead of the original schedule. The plant will also bring 15,000-17,500 bpd of condensate and NGLs on-stream.
  • Tourmaline has now drilled 36 Montney horizontals over the past two years at Gundy completing 33 of these wells thus far. Production has already reached the targeted 15,000 boepd Q4 2018 level through third-party processing options, and with the start-up of the Tourmaline facility in Q2 2019, production is expected to exceed 50,000 boepd at Gundy (200 mmcfpd, 15,000-17,000 bpd condensate and NGL).
  • Well performance and liquids rates at Gundy continue to improve, the 16 Tourmaline wells that have over 300 days of production history are tracking an 8.5 bcf performance curve, up from 4.5 bcf curve in 2016. Average condensate recoveries of 290-300 mstb and deep cut NGL recoveries of 300-315 mstb are now estimated, yielding total EUR per well of 1,850 mstboe (Company estimate). Current well costs (drill, frac, complete) are averaging $3.3-3.5 million. The gas and liquids at Gundy are sweet which will drive operating costs into the $3.00$3.25/boe range with start-up of the new Tourmaline operated plant. The increased per-well gas and condensate recoveries, the low capital costs and the very low operating cost structure in Company operated facilities render the Gundy complex one of the most economic Montney developments in the WCSB.
  • Very high gas and condensate production rates have been realized from the most recent Gundy pads. The 11 well b-93-I pad has a combined capability of 88 mmcfpd and 6,173 bbls/day of condensate (average 71 bbls/mmcf of condensate) based on three weeks of production. The 6 well C-42-I pad has a combined capability of 57.6 mmcfpd and 6,890 bbls/day of condensate (133 bbls/mmcfpd condensate) based on one week of production. The Gundy horizontals are expected to average 50 bbls/mmcf of C3(+) of NGL recovery in addition to the condensate recovered once directed through the Tourmaline deep cut.
  • The current Gundy development in the five year corporate development plan consists of the 200 mmcfpd 100% working interest C-60-A deep cut plant commencing production by mid-2019 and remaining at full capacity through the balance of the plan. Annual cash flow of approximately $300 million from the Phase 1 development is expected utilizing commodity prices embedded in the current plan, with annual maintenance capital of approximately $100 million required to keep the plant full. The Phase 1 $180 milliondeep cut plant is being constructed to facilitate the planned Phase 2, 200 mmcfpd expansion. The Company has not as yet made the Phase 2 investment decision/expansion, and as such, the 50,000 boepd production increment and development capital associated with the Phase 2 expansion are not captured in the current five year growth plan. Estimated capital cost of the Phase 2 expansion is $150 million.

_________________________________

(1)

“Cash flow” is defined as cash provided by operations before changes in non-cash operating working capital.  See “Non-GAAP Financial Measures” in the Company’s Q3 2018 Management’s Discussion and Analysis

(2)

“Free cash flow” is defined as cash flow less Total Net Capital Expenditures. Total Net Capital Expenditures is defined as total capital spending before acquisitions and non-core dispositions. Free cash flow is prior to dividend payments.  See “Non-GAAP Financial Measures”

CORPORATE SUMMARY – THIRD QUARTER 2018

 

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change

OPERATIONS

Production

Natural gas (mcf/d)

1,253,490

1,187,462

6%

1,290,611

1,192,748

8%

Crude oil and NGL (bbl/d)

45,270

38,995

16%

46,059

36,464

26%

Oil equivalent (boe/d)

254,185

236,905

7%

261,161

235,255

11%

Product prices(1)

Natural gas ($/mcf)

$

2.54

$

2.52

1%

$

2.59

$

2.95

(12)%

Crude oil and NGL ($/bbl)

$

48.91

$

37.63

30%

$

47.63

$

39.69

20%

Operating expenses ($/boe)

$

3.44

$

3.00

15%

$

3.33

$

3.24

3%

Transportation costs ($/boe)

$

3.71

$

3.01

23%

$

3.48

$

2.90

20%

Operating netback(3)($/boe)

$

13.15

$

12.27

7%

$

13.51

$

14.06

(4)%

Cash general and
administrative expenses($/boe)(2)

$

0.54

$

0.46

17%

$

0.51

$

0.47

9%

FINANCIAL
($000, except share and per share)

Revenue

496,711

410,591

21%

1,510,722

1,356,505

11%

Royalties

21,880

12,265

78%

61,989

59,525

4%

Cash flow(3)

287,421

251,327

14%

911,930

857,531

6%

Cash flow per share (diluted)(3)

$

1.06

$

0.93

14%

$

3.36

$

3.18

6%

Net earnings

55,296

50,580

9%

210,523

258,694

(19)%

Net earnings per share (diluted)

$

0.20

$

0.19

5%

$

0.78

$

0.96

(19)%

Capital expenditures (net of
dispositions)

409,919

465,466

(12)%

819,243

1,054,383

(22)%

Weighted average shares outstanding
(diluted)

271,588,415

269,439,702

1%

Net debt(3)

(1,688,854)

(1,772,158)

(5)%

(1)

Product prices include realized gains and losses on financial instrument contracts

(2)

Excluding interest and financing charges

(3)

See “Non-GAAP Financial Measures” in the Company’s Q3 2018 Management’s Discussion and Analysis

Conference Call Tomorrow at 9:00 a.m. MT (11:00 a.m. ET)

Tourmaline will host a conference call tomorrow, November 8, 2018 starting at 9:00 a.m. MT (11:00 a.m. ET).  To participate, please dial 1-888-231-8191 (toll-free in North America), or international dial-in 647-427-7450, a few minutes prior to the conference call.

Conference ID is 1157818.



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