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TORC Oil & Gas Ltd. Announces Second Quarter 2019 Financial & Operational Results


TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce its financial and operating results for the three and six months ended June 30, 2019.  The associated management’s discussion and analysis (“MD&A”) and unaudited interim financial statements as at and for the three and six months ended June 30, 2019 can be found at www.sedar.com and www.torcoil.com.

Highlights

Three months ended

Six months ended

(in thousands, except per share data)

June 30

2019

March 31

2019

June 30

2018

June 30

2019

June 30

2018

Financial

Adjusted funds flow, including

transaction related costs (1)

$81,125

$76,067

$74,637

$157,192

$138,649

Per share basic

$0.37

$0.35

$0.38

$0.72

$0.70

Per share diluted

$0.37

$0.34

$0.37

$0.71

$0.69

Adjusted funds flow, excluding

transaction related costs (1), (2)

$81,125

$76,067

$75,337

$157,192

$139,349

Per share basic

$0.37

$0.35

$0.38

$0.72

$0.71

Per share diluted

$0.37

$0.34

$0.38

$0.71

$0.70

Net cash from operating activities

$100,765

$53,930

$75,036

$154,695

$133,330

Net income

$11,464

$6,335

$13,321

$17,799

$18,545

Per share basic

$0.05

$0.03

$0.07

$0.08

$0.09

Per share diluted

$0.05

$0.03

$0.07

$0.08

$0.09

Exploration and development

Expenditures (1)

$34,854

$54,109

$30,004

$88,962

$71,674

Property acquisitions, net of

Dispositions (1)

$688

$146

$227,214

$834

$229,908

Net debt (1)

$363,895

$396,038

$367,035

$363,895

$367,035

Cash dividends declared (3)

$10,930

$9,761

$9,071

$20,691

$16,979

Dividends declared per common share

$0.072

$0.066

$0.064

$0.138

$0.124

Common shares

Shares outstanding, end of period

218,912

217,676

210,812

218,912

210,812

Weighted average shares (basic)

218,279

217,140

197,423

217,713

196,890

Weighted average shares (diluted)

221,752

220,530

200,787

221,195

200,153

Operations

Production

Crude oil (Bbls per day)

23,534

23,700

18,850

23,617

18,839

NGL (Bbls per day)

1,559

1,459

1,282

1,509

1,222

Natural gas (Mcf per day)

19,397

18,646

17,560

19,023

17,500

Barrels of oil equivalent (Boepd, 6:1)

28,326

28,267

23,059

28,297

22,978

Average realized price

Crude oil ($ per Bbl)

$70.03

$64.85

$75.44

$67.44

$71.47

NGL ($ per Bbl)

$12.28

$20.32

$31.13

$16.14

$28.99

Natural gas ($ per Mcf)

$0.67

$2.18

$0.84

$1.41

$1.28

Barrels of oil equivalent

($ per Boe, 6:1)

$59.32

$56.86

$64.04

$58.10

$61.12

Operating netback per Boe (6:1)

Operating netback (1)

$34.35

$32.64

$38.82

$33.51

$36.26

Operating netback (prior to hedging) (1)

$34.35

$32.64

$39.28

$33.51

$36.52

Adjusted funds flow netback per Boe (6:1)

Including transaction related costs (1)

$31.47

$29.90

$35.57

$30.69

$33.34

Excluding transaction related costs (1)

$31.47

$29.90

$35.90

$30.69

$33.51

Wells drilled:

Gross

13

34

8

47

34

Net

9.8

27.9

7.0

37.7

25.6

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 under GAAP and therefore may not be comparable with the calculation of similar measures for other companies.  See Non-GAAP Measurements within this document for additional information.

(2)

For ease of readability, in this press release, adjusted funds flow, excluding transaction related costs will be referred to as “cash flow”.

(3)

Cash dividends declared are net of the share dividend program participation.

PRESIDENT’S MESSAGE

The second quarter of 2019 represents the continued execution of TORC’s business plan.  TORC maintains a focus on the Company’s long term objectives of disciplined growth while maintaining financial flexibility and providing a sustainable dividend.  Operational momentum from TORC’s successful first quarter capital program was demonstrated in the second quarter as production volumes were maintained on significantly lower capital expenditures.

The Company’s key achievements in the second quarter of 2019 included the following:

  • Achieved record quarterly production of 28,326 boepd, up from 28,267 boepd in the first quarter of 2019 and 23,059 boepd in the second quarter of 2018;
  • Generated cash flow of $81.1 million relative to $76.1 million in the first quarter of 2019 and $75.3 million in the second quarter of 2018;
  • Generated cash flow per share of $0.37 as compared to $0.35 in the first quarter of 2019 and $0.38 in the second quarter of 2018;
  • Successfully drilled 13 (9.8 net) wells spending $34.9 million;
  • During the second quarter, TORC declared dividends of $15.7 million of which $4.8 million was paid under the share dividend program;
  • Achieved a payout ratio of 56% in the second quarter and 70% for the first half of 2019 while continuing to grow production; and
  • Exited the second quarter with net debt of approximately $363.9 million, down from $396.0 at the end of the first quarter, with $300.6 million drawn on the Company’s $500 million credit facility.

OPERATIONAL UPDATE

TORC’s second quarter production averaged 28,326 boepd. The solid performance of the Company’s existing low decline production base, combined with a successful drilling program, continued to deliver predictable production growth.

TORC spent a total of $34.9 million of exploration and development capital in the second quarter.  In the first six months of 2019, the Company executed on a development drilling program of 47 (37.7 net) wells spending $89.0 million, representing 49% of the Company’s $180 million capital program.  TORC remains well positioned to achieve 2019 production guidance.

SOUTHEAST SASKATCHEWAN 

TORC participated in the drilling of 9 (6.0 net) conventional wells in the second quarter following an active first quarter.  In the first half of 2019, the Company drilled 27 (20.5 net) conventional wells.  With 45 (33.7 net) wells budgeted to be drilled in 2019, 18 (13.2 net) additional conventional wells are planned to be drilled in the second half of 2019. TORC has identified more than 400 net undrilled conventional light oil locations in southeast Saskatchewan, providing years of high quality drilling inventory. The focus on TORC’s southeast Saskatchewan conventional properties is to maintain a stable production profile and maximize free cash flow from the assets.

As planned, TORC did not drill wells in the Torquay/Three Forks resource play during the second quarter of 2019.  During the second quarter, 2 (2.0 net) Torquay/Three Forks wells drilled in the first quarter were completed and brought on production.  In the second half of 2019, 11 (8.0 net) Torquay wells are scheduled to be drilled, for a total of 16 (12.5 net) wells in 2019.  TORC has identified over 150 net development locations in the Torquay/Three Forks play providing multiple years of drilling inventory.

On the unconventional Midale light oil resource play in southeast Saskatchewan, TORC drilled 4 (3.8 net) wells during the second quarter for a total of 11 (9.4 net) wells in the first half.  The Company plans to drill an additional 7 (5.5 net) unconventional Midale wells across the Company’s land position for both the development and further delineation of the play during the second half of 2019.  Through the continued consolidation and delineation of this play, TORC has identified 175 net undrilled locations on the Company’s land base.

CARDIUM

In 2019, TORC has budgeted to drill 9 (8.2 net) Cardium wells.  As planned, the Company drilled 4 (3.3 net) wells in the first half of 2019, all in the first quarter.  TORC’s Cardium program includes drilling an additional 5 (4.9 net) wells. TORC has identified more than 290 net undrilled Cardium locations for future development.  With a decline profile below 25% and a deep inventory of high quality development locations, the Cardium continues to contribute to the Company’s free cash flow growth strategy.

CAPITAL PROGRAM

TORC’s 2019 $180 million capital program is concentrated on the Company’s primary core areas in southeast Saskatchewan, focused on both conventional opportunities and unconventional plays, and the Cardium play in central Alberta.  TORC continues to focus on operational efficiencies with a goal of achieving results that exceed budget expectations.

The capital program maintains TORC’s balanced approach as the Company continues to focus on achieving long term sustainable growth, protecting the Company’s strong financial position, and maintaining a consistent decline profile to preserve repeatability of the business model.

Based on current commodity prices and budgeted cost structure, the Company expects to achieve significant free cash flow in 2019 above the current capital program and dividend.  This free cash flow will continue to position the Company to take advantage of opportunities to enhance the growth, sustainability and repeatability of the Company’s business model.

DIVIDEND

TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall strategy.  During the second quarter, TORC declared dividends of $15.7 million of which $4.8 millionwas paid under the share dividend plan.

The Board of Directors has confirmed a dividend of $0.025 per common share will be paid on August 15, 2019to shareholders of record on July 31, 2019.

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

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 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: 28,300 boepd

2019E Exit: 28,300 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

Development Inventory

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%

Capital Efficiency ~$28,000 per boepd (IP 365)

2019 Capital Program

$180 million

Monthly Dividend

$0.025 per share

Net Debt as at June 30, 2019 (4)

$364 million; $301 million drawn on a bank line of $500 million

Shares Outstanding

219 million (basic)

Tax Pools

Approximately $1.8 billion

Notes:

(1)

~88% light oil & NGLs.

(2)

All reserves information in this press release are gross reserves. The reserve information for TORC in the foregoing table is derived from the independent engineering report effective December 31, 2018 prepared by Sproule & Associates Limited (“Sproule”) evaluating the oil, NGL and natural gas reserves attributable to all of our properties (the “TORC Reserve Report”).

(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 refers to TORC’s estimated oil and gas production decline rate in the normal life cycle of a well.

(4)

See “Non-GAAP Measures”.

An updated corporate presentation can be found at www.torcoil.com.



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