TORC Oil & Gas Ltd. Announces 2019 Capital Budget and Production Guidance; Confirms December Dividend

CALGARY, Dec. 11, 2018 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce the Company’s Board of Directors has approved an initial 2019 capital budget of $180 million. TORC’s strategic objectives associated with the 2019 capital budget are consistent with the Company’s long term objectives of achieving disciplined per share growth in combination with maintaining financial flexibility while paying a sustainable dividend.

TORC’s 2019 capital budget exhibits a measured approach to both the domestic and global volatility in the crude oil price environment and reflects a balance between managing long term objectives, protecting the Company’s strong financial position and sustaining the dividend.

TORC maintains significant financial and operational flexibility to adapt to changes in the domestic and global commodity price complex.

TORC’s 2019 capital budget is specifically focused on:

• Investing in higher rate of return, lower risk light oil opportunities across the Company’s extensive development drilling inventory;
• Maintaining production levels and maximizing cash flow through an efficient capital program;
• Efficiently executing a high graded development drilling program while continuing to organically expand the Company’s inventory through select delineation opportunities;
• Maintaining the Company’s decline profile;
• Maintaining a payout ratio of less than 100%;
• Directing the pace of the capital program to maintain spending flexibility throughout the year;
• Maintaining operational flexibility to effectively respond to a changing commodity price environment; and
• Maintaining TORC’s strong financial position and flexibility to take advantage of additional growth opportunities as they arise.

TORC’s capital program in 2019 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (approximately 75%), with the remainder allocated to operational and facility optimization to maximize production efficiency.  The capital program is concentrated on the Company’s primary core areas in southeast Saskatchewan, focused on both conventional and unconventional opportunities, along with the Cardium play in central Alberta.

2019 BUDGET HIGHLIGHTS

SOUTHEAST SASKATCHEWAN

TORC’s asset base in southeast Saskatchewan is comprised of both conventional assets and unconventional light oil resource plays.  TORC’s primary focus on the conventional asset base is to maintain production and maximize free cash flow through the efficient exploitation of identified conventional light oil pools.  TORC’s unconventional light oil resource plays provide current and future organic growth opportunities for the Company.

In 2019, TORC plans to drill 45 gross (33.7 net) conventional wells.  With more than 400 net undrilled conventional locations identified, the 2019 budget represents less than 9% of TORC’s conventional development locations.  These locations are characterized by their lower risk nature and high rates of return driven by their lower capital costs, high netbacks and the attractive royalty regime in Saskatchewan. Southeast Saskatchewan conventional activity will comprise approximately 28% of the Company’s 2019 drilling, completion and tie-in capital budget.

On the Company’s unconventional asset base in southeast Saskatchewan, TORC has been active on the Torquay/Three Forks light oil resource play.  Based on the Company’s results from this program, TORC will continue to allocate significant capital to this resource play with plans to drill 16 gross (12.5 net) wells during 2019.  This program represents less than 9% of the 150 net identified Torquay/Three Forks development locations on the Company’s land base. The Torquay/Three Forks activity in southeast Saskatchewan will comprise approximately 29% of the 2019 drilling, completion and tie-in capital budget.

TORC has also been active in a number of areas prospective for unconventional Midale exploitation. Given the continued success the Company has achieved in this play, the Company plans to increase capital allocated to this light oil resource play in 2019 with plans to drill 18 gross (14.9 net) wells spread across the Company’s land position. This program represents less than 9% of the 175 net identified Midale development locations on the Company’s land base. The Midale activity in southeast Saskatchewan will comprise approximately 23% of the 2019 drilling, completion and tie-in capital budget.

Together, the conventional and unconventional southeast Saskatchewan capital allocation represents approximately 80% of the overall drilling, completion and tie-in capital budget during 2019.

CARDIUM

In 2019, TORC plans to drill 9 gross (8.2 net) wells across the Company’s land position in the Cardium to maintain production.  With a decline profile of approximately 20%, the Cardium play continues to generate free cash flow in the current commodity price environment supporting the sustainability and repeatability of the Company’s business objectives.

TORC’s development plans for the Cardium in 2019 represents approximately 20% of the Company’s drilling, completion and tie-in activity.

PRODUCTION GUIDANCE

TORC anticipates that the $180 million 2019 capital budget will maintain 2018 exit production levels resulting in 2019 average and exit production of 28,000 boepd (~88% light oil & liquids) while continuing to maintain a decline profile of approximately 23%.

DIVIDEND

TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall strategy. TORC is well positioned to sustain a current dividend of $0.022 per share per month and will continue to monitor and review realized commodity prices, capital efficiencies and cash costs on a timely basis to maintain financial flexibility and long term sustainability.

TORC is pleased to confirm that the December, 2018 dividend of $0.022 per common share will be paid on January 15, 2019.

DISCIPLINED BUDGET

TORC’s priorities are to act prudently to protect the financial flexibility of the Corporation while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable dividend.

TORC is committed to maintaining a disciplined approach during the current volatility in both the domestic and global oil markets.

Western Canadian crude oil has recently been trading at historically high differentials relative to global oil prices primarily due to take away capacity limitations.  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 2018.  This has resulted in TORC receiving advantaged pricing relative to western Canadian crude oil sold upstream of Cromer.

On December 2, 2018 the Alberta government announced a mandated production curtailment to help alleviate current take away capacity issues being experienced in Alberta and to reduce storage levels to historical averages.

The temporary production reduction applies to all operators in Alberta beginning in January, 2019 with the first 10,000 barrels per day of oil production exempt from curtailment.  TORC’s oil production in the province of Alberta is under the 10,000 barrels per day and therefore the Company is exempt from reducing production.  The Company expects that the production curtailment will have a positive impact on the price differentials of western Canadian crude oil relative to global oil prices.

The Company continues to diligently focus on capital efficiency improvements through the combination of operational improvements and capital cost reductions. TORC’s $180 million 2019 capital budget is based on current capital cost realizations.

TORC continues to focus on maintaining a payout ratio of less than 100% in 2019.

The Company remains in a position to return to a budget targeting organic growth in a timely manner should there be positive developments in the commodity price environment.

At September 30, 2018, TORC’s net debt was $391 million with approximately $336 million drawn on a bank line of $500 million, positioning TORC with financial flexibility and a strong balance sheet.

OUTLOOK

TORC has built a sustainable growth platform of light oil focused assets. The stability of the high quality, low decline, conventional light oil assets in southeast Saskatchewan and the low risk Cardium development inventory in central Alberta combined with exposure to the 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: