CALGARY, Feb. 25, 2019 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce financial and operating results for the three month periods and years ended December 31, 2018and 2017 and to provide 2018 year-end reserves information as evaluated by Sproule Associates Limited (“Sproule”).
The associated Management’s Discussion and Analysis (“MD&A”) dated February 25, 2019 and audited financial statements as at and for the year ended December 31, 2018 can be found at www.sedar.com and www.torcoil.com.
Highlights |
Three months ended |
Year ended |
|||||||||
(in thousands, except per share data) |
December 31 2018 |
September 30 2018 |
December 31 2017 |
December 31 2018 |
December 31 2017 |
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Financial |
|||||||||||
Adjusted funds flow, including |
|||||||||||
transaction related costs (1) |
$54,389 |
$94,036 |
$59,973 |
$287,074 |
$208,331 |
||||||
Per share basic |
$0.25 |
$0.44 |
$0.31 |
$1.39 |
$1.11 |
||||||
Per share diluted |
$0.25 |
$0.44 |
$0.31 |
$1.38 |
$1.10 |
||||||
Adjusted funds flow, excluding |
|||||||||||
transaction related costs (1), (2) |
$54,389 |
$95,086 |
$60,589 |
$288,824 |
$208,947 |
||||||
Per share basic |
$0.25 |
$0.45 |
$0.32 |
$1.40 |
$1.11 |
||||||
Per share diluted |
$0.25 |
$0.44 |
$0.31 |
$1.39 |
$1.11 |
||||||
Net cash from operating activities |
$73,653 |
$87,364 |
$55,611 |
$294,347 |
$187,815 |
||||||
Net income (loss) |
($24,398) |
$22,747 |
($9,431) |
$16,894 |
($10,490) |
||||||
Per share basic |
($0.11) |
$0.11 |
($0.05) |
$0.08 |
($0.06) |
||||||
Per share diluted |
($0.11) |
$0.11 |
($0.05) |
$0.08 |
($0.06) |
||||||
Exploration and development |
|||||||||||
expenditures (1) |
$54,155 |
$59,027 |
$32,734 |
$184,856 |
$129,421 |
||||||
Property acquisitions, net of |
|||||||||||
dispositions (1) |
$4,020 |
$58,366 |
$79,775 |
$292,294 |
$114,709 |
||||||
Net debt (1) |
$405,293 |
$391,101 |
$280,138 |
$405,293 |
$280,138 |
||||||
Cash dividends declared (3) |
$9,648 |
$9,434 |
$7,710 |
$36,062 |
$29,764 |
||||||
Dividends declared per common share |
$0.066 |
$0.066 |
$0.060 |
$0.256 |
$0.240 |
||||||
Common shares |
|||||||||||
Shares outstanding, end of period |
216,637 |
215,647 |
196,061 |
216,637 |
196,061 |
||||||
Weighted average shares (basic) |
216,191 |
212,913 |
191,240 |
205,793 |
187,417 |
||||||
Weighted average shares (diluted) |
218,399 |
215,405 |
192,946 |
208,488 |
189,025 |
||||||
Operations |
|||||||||||
Production |
|||||||||||
Crude oil (Bbls per day) |
23,546 |
22,480 |
18,350 |
20,943 |
17,642 |
||||||
NGL (Bbls per day) |
1,554 |
1,459 |
985 |
1,365 |
790 |
||||||
Natural gas (Mcf per day) |
18,380 |
19,327 |
15,306 |
18,183 |
14,634 |
||||||
Barrels of oil equivalent (Boepd, 6:1) |
28,163 |
27,160 |
21,886 |
25,339 |
20,871 |
||||||
Average realized price |
|||||||||||
Crude oil ($ per Bbl) |
$52.34 |
$77.88 |
$64.58 |
$67.78 |
$58.55 |
||||||
NGL ($ per Bbl) |
$28.76 |
$31.10 |
$30.30 |
$29.49 |
$24.64 |
||||||
Natural gas ($ per Mcf) |
$1.40 |
$0.98 |
$1.40 |
$1.23 |
$1.81 |
||||||
Barrels of oil equivalent |
|||||||||||
($ per Boe, 6:1) |
$46.26 |
$66.83 |
$56.49 |
$58.50 |
$51.70 |
||||||
Operating netback per Boe (6:1) |
|||||||||||
Operating netback (1) |
$23.63 |
$40.71 |
$32.65 |
$33.93 |
$29.91 |
||||||
Operating netback (prior to hedging) (1) |
$23.88 |
$41.34 |
$32.65 |
$34.28 |
$29.91 |
||||||
Adjusted funds flow netback per Boe (6:1) |
|||||||||||
Including transaction related costs (1) |
$20.99 |
$37.63 |
$29.79 |
$31.04 |
$27.35 |
||||||
Excluding transaction related costs (1) |
$20.99 |
$38.05 |
$30.09 |
$31.23 |
$27.43 |
||||||
Wells drilled: |
|||||||||||
Gross |
16 |
36 |
15 |
86 |
63 |
||||||
Net |
15.3 |
30.8 |
12.8 |
71.7 |
47.4 |
||||||
Success (%) |
100 |
100 |
100 |
100 |
100 |
||||||
(1) |
Management uses these non-GAAP financial measures to analyze operating performance, leverage and investing activity. These measures do not have a standardized meaning |
||||||||||
(2) |
For ease of readability, in this press release, adjusted funds flow, excluding transaction related costs will be referred to as “cash flow” |
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(3) |
Cash dividends declared are net of the share dividend program participation |
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PRESIDENT’S MESSAGE
TORC has consistently focused on providing shareholders with disciplined growth and a sustainable dividend while preserving financial flexibility and ensuring a consistent decline profile to maintain the future repeatability of the business strategy. 2018 was another strong year in executing this strategy as TORC was successful in achieving per share growth in reserves, production and cash flow along with growing the monthly dividend to shareholders while at the same time strengthening the repeatability of the business strategy going forward.
Through the execution of a $185 million capital expenditure program in 2018, TORC successfully achieved several strategic operational objectives, including maximizing free cash flow from the Company’s conventional southeast Saskatchewan assets while growing and further delineating the Company’s unconventional assets in southeast Saskatchewan. In central Alberta, the Company continued developing and delineating the Cardium play which remains a core asset built to generate free cash flow.
TORC’s focus on high quality, light oil weighted assets combined with disciplined financial management continued to be rewarded in 2018. During the year, free cash flow generated from the Company’s core business was used to execute on two larger acquistions along with several tuck-in acquisitions to further enhance the Company’s asset base. The two accretive strategic acquisitions included approximately 4,200 boepd (greater than 90% light oil) of operated, low decline, high netback light oil producing assets, adding to the Company’s significant position in southeast Saskatchewan. The identified locations from these strategic acquisitions more than replaced the capital program of wells drilled by the Company in 2018. In aggregate, these strategic transactions were both value and business accretive improving the Company’s decline profile, strengthening TORC’s operating netback and adding high quality light oil drilling inventory.
The integrated approach of organic growth complemented by strategic lower decline acquisitions drove the Company’s growth in reserves, production and cash flow above original guidance while maintaining a decline profile of less than 25%.
TORC’s disciplined approach, focused on an efficient capital program, prudent financial management and an emphasis on maintaining a low underlying decline profile, positions TORC to take advantage of strategic opportunities as they arise. The Company will continue to be disciplined and focused while being proactive to further position and complement the Company’s asset base and business model.
HIGHLIGHTS
The Company’s achievements in the fourth quarter and year ended 2018 include the following:
- Achieved record production of 28,163 boepd in the fourth quarter of 2018, a 29% increase (14% per share) from 21,886 boepd in the fourth quarter of 2017;
- Average production increased to 25,339 boepd in 2018, up from 20,871 boepd in 2017;
- Production growth was achieved while maintaining the Company’s decline rate at approximately 23%;
- Successfully drilled 16 (15.3 net) wells in the fourth quarter; in 2018, the Company drilled 86 (71.7 net) successful wells;
- Generated cash flow of $54.4 million in the fourth quarter and $288.8 million for 2018;
- Cash flow per share was $0.25 per share in the fourth quarter and $1.40 per share for 2018 relative to $0.32 in the fourth quarter of 2017 and $1.11 in 2017;
- Paid dividends of $0.066 per share in the fourth quarter; paid dividends of $0.254 per share in 2018 up from $0.24 in 2017;
- Achieved a payout ratio of 76% while growing production on a per share basis;
- Exited 2018 with a strong balance sheet with net debt of $405.3 million ($335.5 million drawn on an available credit facility of $500 million);
- Increased the Company’s high quality light oil development drilling inventory through organic delineation and strategic acquisitions;
- Increased the Company’s light oil asset base through value accretive strategic acquisitions adding over 4,200 boepd (greater than 90% light oil), improving the corporate decline profile, operating netbacks and light oil drilling inventory;
- Proved developed producing reserves increased to 55.2 mmboe at year-end 2018 up from 46.0 mmboe at year-end 2017, representing growth of 20% (9% per share);
- Proved reserves increased to 90.3 mmboe at year-end 2018 up from 74.0 mmboe at year-end 2017, representing growth of 22% (10% per share);
- Proved plus probable reserves increased to 138.6 mmboe at year-end 2018 up from 114.1 mmboe at year-end 2017, representing 21% growth (10% per share);
- Proved plus probable reserve life index was 13.5 years at year-end 2018;
- Generated a proved plus probable reserve replacement ratio on production of approximately 153%, excluding the effects of acquisitions;
- Proved plus probable F&D (including future development costs) of $15.95/boe resulting in a recycle ratio of 2.1x (2018 operating netback); and
- Proved plus probable FD&A (including future development costs) of $19.42/boe resulting in a recycle ratio of 1.8x (2018 operating netback).
RESERVES
In this press release, all references to reserves are to gross Company reserves, meaning TORC’s working interest reserves before deductions of royalties and before consideration of TORC’s royalty interests. The reserves were evaluated by Sproule in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) effective December 31, 2018. TORC’s annual information form for the year ended December 31, 2018 (the “AIF”) will contain TORC’s reserves data and other oil and natural gas information as mandated by NI 51-101. TORC expects to file the AIF on SEDAR by March 31, 2019.
The following tables are a summary of TORC’s petroleum and natural gas reserves, as evaluated by Sproule, effective December 31, 2018, using Sproule’s year end forecast prices and costs. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. It is important to note that the recovery and reserves estimates provided herein are estimates only. Actual reserves may be greater or less than the estimates provided herein. Reserves information may not add due to rounding.
Reserves Summary
Light and Crude Oil (mbbl) |
Conventional |
NGLs (mbbl) |
Total Oil (mboe) |
|
Proved |
||||
Developed Producing |
44,115 |
45,704 |
3,446 |
55,178 |
Developed Non-Producing |
1,505 |
2,760 |
161 |
2,126 |
Undeveloped |
25,137 |
34,572 |
2,091 |
32,990 |
Total Proved |
70,757 |
83,035 |
5,697 |
90,294 |
Probable |
36,776 |
50,468 |
3,101 |
48,288 |
Total Proved plus Probable |
107,533 |
133,504 |
8,798 |
138,582 |
Net Present Value of Future Net Revenue
Before Future Income Tax Expenses and Discounted at |
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0% |
5% |
10% |
15% |
20% |
|
($mm) |
($mm) |
($mm) |
($mm) |
($mm) |
|
Proved |
|||||
Developed Producing |
1,746 |
1,391 |
1,159 |
999 |
883 |
Developed Non-Producing |
48 |
39 |
32 |
27 |
24 |
Undeveloped |
792 |
544 |
384 |
277 |
202 |
Total Proved |
2,586 |
1,974 |
1,576 |
1,304 |
1,109 |
Probable |
1,781 |
1,110 |
772 |
576 |
450 |
Total Proved plus Probable |
4,368 |
3,084 |
2,348 |
1,879 |
1,559 |
Future Development Costs
Proved Reserves ($mm) |
Proved Plus Probable ($mm) |
|
2019 |
157.1 |
194.7 |
2020 |
200.9 |
245.8 |
2021 |
190.1 |
302.2 |
2022 |
64.6 |
148.8 |
Total Undiscounted |
634.0 |
924.4 |
Capital Expenditures and Finding, Development, and Acquisition Costs
Reserves Additions |
F&D and FD&A |
|||||||||
Excluding Change in Future Development Costs |
Capital ($mm) |
Proved Developed Producing (mmboe) |
Total (mmboe) |
Proved (mmboe) |
Proved Developed Producing ($/boe) |
Total ($/boe) |
Proved Plus ($/boe) |
|||
Exploration & Development(1) |
166.9 |
8.8 |
11.0 |
12.9 |
18.88 |
15.11 |
12.89 |
|||
Acquisitions (net)(2) |
310.3 |
9.6 |
14.5 |
20.8 |
32.20 |
21.47 |
14.92 |
|||
Total |
477.2 |
18.5 |
25.5 |
33.7 |
25.82 |
18.71 |
14.14 |
Capital Expenditures |
Reserves Additions |
F&D and FD&A |
|||||||||||
Including Change in Future Development Costs |
Total Proved ($mm) |
Proved Plus ($mm) |
Total (mmboe) |
Proved Plus (mmboe) |
Total ($/boe) |
Proved Plus ($/boe) |
|||||||
Exploration & Development(1) |
197.0 |
206.4 |
11.0 |
12.9 |
17.83 |
15.95 |
|||||||
Acquisitions (net)(2) |
417.9 |
448.9 |
14.5 |
20.8 |
28.92 |
21.58 |
|||||||
Total |
614.9 |
655.3 |
25.5 |
33.7 |
24.12 |
19.42 |
1 |
Excludes Capitalized G&A of $5.1mm; excludes capital of $18.0mm spent on acquired properties |
2 |
Includes $18.0mm of capital spent on acquired properties from the date of acquisition to period end |
Net Asset Value per Share as at December 31, 2018
($millions except share and per share amounts) |
|
Proved Plus Probable Reserve Value NPV10 BT |
2,347 |
Land and Seismic (1) |
158 |
Net Debt |
(405) |
Total Net Assets (basic) |
2,100 |
Basic Common Share Outstanding (mm) |
217 |
Estimated NAV per Basic Common Share |
$9.69 |
1 |
Includes independent third party estimate of $131mm of the value of approximately 315,000 net acres of non-reserve assigned land and management |
OPERATIONAL UPDATE
With continued success of the 2018 capital program and the Company’s solid underlying production profile, TORC achieved record production of 28,163 boepd during the fourth quarter. TORC spent a total of $185 million of exploration and development capital, including drilling 86 (71.7 net) wells.
SOUTHEAST SASKATCHEWAN
TORC’s southeast Saskatchewan conventional assets are characterized by their lower risk nature and high rates of return driven by lower capital costs, high operating netbacks and an attractive royalty regime in Saskatchewan. With a long term production decline profile of less than 20% and high operating netbacks, the southeast Saskatchewan conventional assets yield significant free cash flow in the current commodity price environment.
TORC drilled 46 (37.1 net) southeast Saskatchewan conventional wells in 2018, with 7 (6.3 net) wells drilled in the fourth quarter. In 2018, TORC was successful in maintaining a low cost structure in drilling, completion and equipping costs on conventional wells through both operational efficiencies and managing oilfield service costs. In addition to effective cost management, outperformance of wells relative to expectations further enhanced the already attractive capital efficiencies and economics.
TORC continues to identify more than 400 net undrilled conventional locations in southeast Saskatchewanproviding numerous years of high quality drilling inventory. In 2019, TORC plans to drill 45 (33.7 net) conventional wells. The focus on TORC’s southeast Saskatchewan conventional properties is to maximize free cash flow.
On the Company’s unconventional asset base in southeast Saskatchewan, TORC has been active on the Torquay/Three Forks light oil resource play. During 2018, TORC executed on a development focused program while continuing to selectively delineate the play drilling 15 gross (13.0 net) successful wells. 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. TORC has currently identified more than 150 net undrilled locations in the play.
TORC has also been active in a number of areas prospective for unconventional Midale exploitation. TORC was active on the play in 2018 drilling 13 gross (10.2 net) wells. The Company plans to continue to increase capital allocation to this play in 2019 with 18 (14.9 net) wells in the 2019 budget. The Company has identified 175 net undrilled locations in the unconventional Midale play.
CARDIUM
TORC has greater than 95 net light oil sections in the Cardium trend where the Company continues to identify more than 290 net undrilled locations on the Company’s asset base. During 2018, the Cardium continued to deliver solid results in this established light oil resource play. TORC drilled a total of 11 (10.4 net) Cardium wells which included drilling 3 (3.0 net) Cardium wells in the fourth quarter.
With a decline profile of less than 25%, the Cardium play continues to generate substantial free cash flow in the current commodity price environment supporting the sustainability and repeatability of the Company’s business objectives.
In 2019, TORC plans to drill 9 gross (8.2 net) wells across the Company’s land position in the Cardium.
CAPITAL PROGRAM AND PRODUCTION GUIDANCE
TORC’s $180 million capital expenditure budget for 2019 is consistent with the Company’s long term strategic objectives of delivering disciplined per share growth in combination with maintaining financial flexibility while providing 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’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.
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 providing flexibility to take advantage of opportunities (both organic and acquisition related) as they arise.
DIVIDEND
TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall strategy. TORC paid dividends of $0.254 per share in 2018 up from $0.24 in 2017, of which $0.066was paid in the fourth quarter of 2018.
During 2018, TORC declared dividends of $53.1 million of which $17.0 million was paid under the share dividend program (SDP).
The Board of Directors has confirmed a dividend of $0.022 per common share will be paid on March 15, 2019to shareholders of record on February 28, 2019.
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:
High Netback Production (1) |
2019E Average: 28,000 boepd 2019E Exit: 28,000 boepd |
Total Proved plus Probable Reserves (2) |
Greater than 138 mmboe (~84% light oil & liquids) |
Southeast Saskatchewan Light Oil |
Greater than 400 net undrilled conventional locations Greater than 150 net undrilled Torquay/Three Forks locations Greater than 175 net undrilled unconventional Midale locations |
Cardium Light Oil Development Inventory |
Greater than 290 net undrilled locations |
Sustainability Assumptions (3) |
Corporate decline ~23% Current Capital Efficiency ~$28,000 per boepd (IP 365) |
2019 Capital Program |
$180 million |
Monthly Dividend |
$0.022 per share |
Net Debt as at Dec 31, 2018 (4) |
$405 million; $335 million drawn |
Shares Outstanding |
217 million (basic) |
Tax Pools |
Approximately $1.9 billion |
Notes: |
|
(1) |
~88% light oil & NGLs |
(2) |
All reserves information in this press release are gross reserves. The reserve information in the foregoing table is derived from the |
(3) |
Refers to full cycle capital efficiency which is the all-in corporate capital budget divided by the IP365 of the associated wells. Corporate decline |
(4) |
See “Non-GAAP Measurements” |
An updated corporate presentation can be found at www.torcoil.com.
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