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Tourmaline Delivers 2018 Earnings of $401.4 Million, Generates Free Cash Flow and Achieves Record Breaking Q4 Cash Flow of $391.5 Million


CALGARYMarch 5, 2019 /CNW/ – Tourmaline Oil Corp. (TSX:TOU) (“Tourmaline” or the “Company”) is pleased to announce very strong 2018 financial and operating results.

Tourmaline Oil Corp. (CNW Group/Tourmaline Oil Corp.)

HIGHLIGHTS

  • Tourmaline delivered full-year 2018 earnings of $401.4 million($1.48/diluted share) underscoring the inherent profitability of the core EP business.
  • Annual cash flow(1) for 2018 of $1.3 billion ($4.80/diluted share) which is 8% higher than 2017 cash flow of $1.2 billion ($4.47/diluted share).
  • Record Q4 2018 cash flow of $391.5 million ($1.44/diluted share) was 36% higher than cash flow for the third quarter of 2018 ($1.06/diluted share).
  • Free cash flow(2) generated for the year of $89.0 million.
  • Average realized gas price for 2018 was $2.73/mcf, an 81% premium over AECO benchmark price of $1.51/mcf. Q4 2018 average realized gas price was $3.13/mcf compared to AECO benchmark price of $1.57/mcf.
  • Tourmaline realized 9% average production growth in 2018 up to 265,044 boe/d including 23% growth in average liquids production of 47,540 bbls/d.
  • Tourmaline added 337.9 mmboe of proved plus probable reserves (“2P”) after adding back annual production of 96.7 mmboe.
  • 2P liquids reserves increased 17% to 505.2 mmboe; 21% after accounting for 2018 annual average liquids production.
  • 2P finding, development and acquisition costs (“FD&A”) in 2018 were $5.15/boe including changes in future development capital (“FDC”) ($3.59/boe excluding change in FDC) based on total capital expenditures of $1.214 billion; total proved (“TP”) FD&A in 2018 were $6.79/boe including change in FDC ($4.91/boe excluding change in FDC). 2018 proved, developed producing (“PDP”) FD&A were $9.11/boe.
  • After ten years of operation, Tourmaline has 2P natural gas reserves of 11.7 tcf and 2P crude oil, condensate and liquids reserves of 505.2 mmboe (December 31, 2018). The Company has the largest publicly-reported, independently-assessed, 2P natural gas reserves in Canada.
  • 2P reserve net present value(3) (“NPV”) of $58.57 per diluted share, TP reserve NPV of $33.67 per diluted share and a PDP reserve NPV of $17.36 per diluted share at December 31, 2018. The Company was able to continue to grow reserve NPV per diluted share in 2018 despite significantly lower natural gas pricing used in the independent reserve report.
  • The 2018 2P recycle ratio was 2.6 based on 2P FD&A of $5.15/boe (including FDC), and 2018 cash flow of $13.47/boe. The 2018 TP recycle ratio was 2.0 and the 2018 PDP recycle ratio was 1.5.
  • 2P reserve replacement ratio(4) of 3.5 times based on 2P reserve additions of 337.9 mmboe before 2018 production of 96.7 mmboe.

Consistent Value Growth and Industry-Leading Efficiencies

PDP FD&A

($/boe)

1P FD&A

($/boe)

2P FD&A

($/boe)

2P NPV10 Annual

Reserve Value Growth

Excl ▲FDC

Incl ▲FDC

Excl ▲FDC

Incl ▲FDC

2018

9.11

4.91

6.79

3.59

5.15

$832.8 MM

2015-2017 (Avg)

11.94

7.06

8.12

3.58

5.16

$2.48 B

2018 FINANCIAL RESULTS

  • Tourmaline grew 2018 cash flow by 8% to $1.3 billion from $1.2 billion in 2017: per diluted share, cash flow in 2018 increased by 7% to $4.80 from $4.47 in 2017.
  • Q4 2018 cash flow of $391.5 million ($1.44/diluted share) was up 12% over Q4 2017 cash flow of $348.2 million ($1.29/diluted share) and up 36% over the third quarter of 2018 cash flow.
  • These record cash flows for the Company were realized during a year of generally weak natural gas prices. Tourmaline’s gas diversification and hedging strategies provided an average realized natural gas price of $2.73/mcf, an 81% premium over the full-year average AECO index price of $1.51/mcf.
  • The Company delivered very strong full-year 2018 earnings of $401.4 million ($1.48/diluted share) up from 2017 earnings of $346.8 million ($1.29/diluted share) underscoring the Company’s ability to generate profitable, full-cycle growth, even in weak commodity price environments.
  • Q4 2018 operating netback(5) of $15.82/boe was 7% higher than Q4 2017 operating netback of $14.80/boe.
  • Full-year cash flow was $1.30 billion with full-year capital spending of $1.21 billion generating $89.0 millionin free cash flow in 2018. Tourmaline’s low cash costs and industry-leading capital execution costs allow the Company to achieve cash flow per share growth, generate free cash flow, and pay a dividend.
  • As part of its lower-growth, sustainability model in 2018, the Company began paying dividends for the first time for a total payout of $100.6 million.
  • Capital spending for 2018 included $110.0 million in expenditures relating to the Gundy deep-cut gas plant, of which $35.0 million was spent in Q4 2018 in an effort to accelerate the project which is now set to be commissioned in June 2019 from its originally-planned timing of October 2019.
  • Exit 2018 net debt(6) of $1.72 billion was down by $19.1 million from Q4 of 2017 after accounting for dividends paid during the year of $100.6 million.

PRODUCTION UPDATE

  • Full-year 2018 average production of 265,044 boepd was 9% higher than 2017 average production of 242,325 boepd and within the Company’s guidance range.
  • Q4 2018 liquids production (crude oil, condensate, NGL) of 51,938 bpd was 14% higher than Q4 2017 average liquids production. Tourmaline is forecasting 2019 average liquids production of 66,000 bpd, representing 39% year-over-year growth, forecast to be amongst the highest liquids growth rates in the industry this year.
  • Q4 2018 average production of 276,568 boepd was 9% higher than Q3 2018 average production of 254,185 boepd and 5% higher than Q4 2017 production of 263,309 boepd.
  • Tourmaline has been producing at the 1H 2019 guidance range of 290,000 – 300,000 boepd during the first quarter and reiterates full-year 2019 production guidance of 300,000 boepd, representing 13% growth over 2018.

COST MANAGEMENT

  • Full-year 2018 operating costs of $3.33/boe were 4% higher than 2017 with a production base that grew 9% over the same period and average liquids production that grew 23%. The low operating costs continue to reflect multiple cost reduction initiatives which were implemented during the year.
  • Top quartile 2018 cash costs $7.87/boe were up from $7.12/boe reflecting higher liquids production in 2018 which carry higher operating costs. The cash costs also reflect an increase in transportation costs, a result of the Company’s continued natural gas market diversification strategy.

CAPITAL BUDGET OUTLOOK

  • The Company has updated its five-year plan reducing the 2019 AECO price to $1.80/mcf and reducing NGL pricing. 2019 forecast cash flow is $1.5 billion with free cash flow of $242.6 million, before dividend payments. Cumulative forecast free cash flow over the five-year period is estimated at approximately $2.2 billion. The Company is estimating 2019 cash flow per share growth of 15% over 2018.
  • The current full-year 2019 capital budget is $1.225 billion, reflecting the $75.0 million reduction announced on January 15, 2019. The Company expects to spend less than $600.0 million during the first half of 2019.
  • Tourmaline expects a 2019 exit net debt-to-cash flow ratio of approximately 1.1 times.

MARKETING UPDATE

  • The Company currently has 678 mmcfpd that is sold at six hubs with gas prices indexed to the prevailing NYMEX gas price. These volumes will grow to 778 mmcfpd in Nov 2019.
  • Thus far in 2019, Tourmaline’s average realized price (net of transportation) on its Western US gas exposure is CAD $6.24/mcf.
  • Tourmaline has secured multiple long-term liquid processing and handling agreements in BC and Alberta to allow for premium pricing for the Company’s future liquid streams, including the large volumes at Gundy in BC. Tourmaline has entered into a liquids-handling agreement with AltaGas for its Gundy propane. The agreement secures Argus Far East Index (AFEI) pricing on an estimated 45% of Tourmaline’s propane volume. In 2019, Tourmaline expects this volume to realize wellhead prices that are in excess of C$5.00/bbl above Edmonton prices.

DIVIDEND

  • The Company has declared a quarterly cash dividend on its common shares of C$0.10 per common share. The dividend will be payable March 29, 2019 to shareholders of record at the close of business on March 15, 2019. This quarterly cash dividend is designated as an “eligible dividend” for Canadian income tax purposes.

(1)

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

(2)

“Free cash flow” is defined as cash flow less total capital expenditures, including EP capital and other corporate expenditures and excludes acquisition and disposition activities, and is prior to dividend payments.  See “Non-GAAP Financial Measures” in this news release and in the Company’s 2018 Management’s Discussion and Analysis for additional information.

(3)

Reserve NPV per share is calculated as the before tax net present value of the reserves at December 31, 2018 discounted at 10% divided by total diluted shares outstanding at December 31, 2018.

(4)

Reserve replacement ratio is calculated by dividing the annual 2P reserve additions (including annual production) by annual production.

(5)

See “Non-GAAP Financial Measures” in this news release and in the Company’s 2018 Management’s Discussion and Analysis.

(6)

“Net debt” is defined as long-term debt plus working capital (adjusted for the fair value of financial instruments).  See “Non-GAAP Financial Measures” in this news release and in the Management’s Discussion and Analysis for the year ended December 31, 2018.

CORPORATE SUMMARY – DECEMBER 31, 2018

Three Months Ended December 31,

Twelve Months Ended December 31,

2018

2017

Change

2018

2017

Change

OPERATIONS

Production

Natural gas (mcf/d)

1,347,778

1,306,935

3%

1,305,025

1,221,529

7%

Crude oil, condensate and NGL (bbl/d)

51,938

45,486

14%

47,540

38,737

23%

Oil equivalent (boe/d)

276,568

263,309

5%

265,044

242,325

9%

Product prices(1)

Natural gas ($/mcf)

$

3.13

$

2.70

16%

$

2.73

$

2.89

(6)%

Crude oil, condensate and NGL ($/bbl)

$

43.40

$

48.31

(10)%

$

46.47

$

42.24

10%

Operating expenses ($/boe)

$

3.35

$

3.08

9%

$

3.33

$

3.19

4%

Transportation costs ($/boe)

$

3.63

$

3.01

21%

$

3.52

$

2.93

20%

Operating netback(4) ($/boe)

$

15.82

$

14.80

7%

$

14.12

$

14.27

(1)%

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

$

0.42

$

0.44

(5)%

$

0.49

$

0.46

7%

FINANCIAL
($000, except share and per share)

Total revenue from commodity sales
and realized gains

595,487

527,106

13%

2,106,209

1,883,611

12%

Royalties

15,380

21,113

(27)%

77,369

80,638

(4)%

Cash flow(4)

391,352

348,227

12%

1,303,462

1,205,758

8%

Cash flow per share (diluted)(4)

$

1.44

$

1.29

12%

$

4.80

$

4.47

7%

Net earnings

190,895

88,079

117%

401,418

346,773

16%

Net earnings per share (diluted)

$

0.70

$

0.33

112%

$

1.48

$

1.29

15%

Capital expenditures
(net of dispositions)

395,194

352,233

12%

1,214,437

1,406,616

(14)%

Weighted average shares
outstanding (diluted)

271,702,910

269,595,109

1%

Net debt(4)

(1,718,142)

(1,737,241)

(1)%

PROVED +
PROBABLE RESERVES(3)

Natural gas (bcf)

11,712.7

10,707.6

9%

Crude oil (mbbls)

82,046

65,288

26%

Natural gas liquids (mbbls)

423,198

366,321

16%

Mboe

2,457,358

2,216,206

11%

(1)

Product prices include realized gains and losses on risk management activities and financial instrument contracts.

(2)

Excluding interest and financing charges.

(3)

Reserves are “Company gross reserves”, which are defined as the working interest share of reserves prior to the deduction of interest
owned by others (burdens). Royalty interest reserves are not included in Company gross reserves.

(4)

See “Non-GAAP Financial Measures” in this news release and in the Company’s Management’s Discussion and Analysis for the year
ended December 31, 2018.

Conference Call March 6 at 9:00 a.m. MT (11:00 a.m. ET)

Tourmaline will host a conference call tomorrow, March 6, 2019 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 1796259.



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