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Tourmaline Realizes Strong Q2 Earnings and Continues to Focus on Free Cash Flow Generation


Tourmaline Oil Corp. (TSX:TOU) (“Tourmaline” or the “Company”) is pleased to release financial and operating results for the second quarter of 2019.

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

HIGHLIGHTS

  • 1H 2019 production average was 286,955 boepd, including impact of Q2 gas storage injections and gas price-related program deferrals.
  • With Gundy Phase 1 now onstream, the Company reconfirms full-year average production of 300,000 boepd (range 295,000-305,000 boepd) in conjunction with an accumulated $180.0 million of capital program reductions over the course of 2019.
  • Second half August production of 300,000-305,000 boepd is expected, prior to maximizing throughput at the Gundy BC complex in September.
  • Q2 2019 earnings before tax were $62.8 million ($154.9 million after tax), underscoring the profitability of Tourmaline’s EP business, even during periods of extremely low commodity prices.
  • Q2 2019 total capital spending was $198.2 million; 1H 2019 total capital spending was $582.6 million.
  • The full-year EP capital budget has been reduced by a further $25.0 million to $1.125 billion. Even though capital has again been revised down from the original $1.305 billion 2019 budget, there is no change in full-year guidance of 300,000 boepd. Incremental drill-and-complete capital cost reductions have provided the opportunity for these additional modest 2019 capital budget reductions.
  • Forecast full-year 2019 free cash flow(1) of $196.0 million is more than sufficient to fund the 2019 dividend payment of $125.0 million.
  • In the first six months of 2019, the Company generated $63.7 million of free cash flow, in excess of the first half dividend payment of $59.9 million.
  • The new 100% Gundy deep-cut facility was commissioned in late May, while the turbo-expander, with the associated incremental liquids production, started up during June.

PRODUCTION UPDATE

  • 1H 2019 production average was 286,955 boepd. With Gundy Phase 1 now onstream, the Company reconfirms full-year average production of 300,000 boepd (range 295,000-305,000 boepd). The range reflects the possibility of further low-gas price-related program deferrals.
  • Q2 production averaged 280,547 boepd, and although an 8% increase from Q2 2018, it was adversely affected by:
    • The deferral of approximately 60 mmcfpd of planned new gas well startups out of Q2 2019 due to low prices.
    • Unplanned interruptions on the Enbridge system in BC reduced Q2 average volumes by an additional 3,500 boepd, beyond the major planned Enbridge and TC Energy maintenance outages in May.
    • The injection of approximately 1.6 bcf of natural gas (3,000 boepd) into storage at Dawn and in California in Q2 during a period of low gas prices. These injected volumes will be sold in Q4 2019 and Q1 2020 during periods of higher anticipated prices.
    • The low Station 2 prices in BC resulted in the Company not aggressively pursuing flowing volumes to third-party processing options at Gundy Ck.
  • Second half August production of 300,000-305,000 boepd is expected, prior to maximizing throughput at the Gundy BC complex in September.

LIQUIDS OUTLOOK

  • Q2 2019 liquids production was 51,993 boepd, up 13% year-over-year, but behind original expectations. This was due to a series of operational issues in all three complexes:
    • Ongoing issues at the third-party Gordondale East plant on the Peace River High reduced oil volumes in the Peace River High complex by 2,000 bpd.
    • An unplanned pressure restriction on the Enbridge BC system that did not allow the Gundy plant to be produced at full volume in June, reducing June liquids volumes by approximately 2,500 bpd (condensate, NGLs).
    • Outage and turnarounds at the Deep Basin deep-cut complex accessed by the Company.
  • The Gundy plant will be able to access both Enbridge and the North Montney line in September, allowing for a full ramp-up to maximum gas and condensate/NGL production (estimated 5,000 bpd increase).
  • Frac operations on PRH complex DUC and completion of an NGL optimization project of the Spirit River 3-10 gas plant is expected to add approximately 2,500 bpd to volumes in the second half of 2019.
  • Given the lower than expected 1H 2019 oil and liquids volumes, the Company is revising the full-year total average liquid production estimate to 61,000 bpd from 66,000 bpd, providing a 28% increase over 2018. The exit 2019 liquids production estimate remains unchanged. The full-year 2019 total production guidance remains unchanged at 300,000 boepd.

CAPITAL PROGRAM

  • Q2 2019 total capital spending was $198.2 million; 1H 2019 total capital spending was $582.6 million.
  • The Company ensured that EP capital spending and the dividend payment were less than cash flow(2)during the first half of 2019.
  • The full-year EP capital budget has been reduced by a further $25.0 million to $1.125 billion. Even though capital has been further revised down from the original $1.305 billion 2019 budget, there is no change in full-year guidance of 300,000 boepd. Incremental drill-and-complete capital cost reductions have provided the opportunity for these further modest 2019 capital budget reductions.
  • Tourmaline deferred fifteen planned Q2 well completions into the second half of the year. The Company will frac and bring these wells onstream when natural gas prices improve. The current planned timing is October/November at the beginning of the winter heating season.

Q2 2019 FINANCIAL RESULTS

  • Q2 2019 earnings before tax were $62.8 million ($154.9 million after tax), underscoring the profitability of Tourmaline’s EP business, even during periods of extremely low commodity prices.
  • Q2 2019 cash flow was $226.5 million ($0.83/fully diluted share) down from Q1 2019 cash flow of $419.2 million, due primarily to a Q2 AECO index price of $1.04/mcf compared to $2.64/mcf in Q1.
  • The June 2019 AECO 5a index price was $0.49/mcf, and as disclosed above, Tourmaline reduced planned June incremental gas volumes accessing AECO by approximately 60 mmcfpd. July AECO 5a prices have averaged $1.29/mcf, improving due to a tightening supply/demand balance at that hub.
  • Q2 2019 Station 2 prices in BC were $0.61/mcf, also negatively impacting quarterly cash flow.
  • Lower realized Q2 prices at all the NYMEX-based pricing points also contributed to lower Q2 cash flow. The seven NYMEX-based hubs that the Company sells gas at were down 55% in aggregate from Q1 2019.
  • NGL prices in Q2 2019 were down 61% from realized prices in Q1 2019. Tourmaline anticipates approximately 5,500 bpd of propane sales at the Ridley Island export facility which is expected to improve the Company’s overall liquids pricing in the second half of 2019.
  • Tourmaline’s oil marketing terminal on the PRH was expanded during the second quarter. It is expected to generate $10.0 million per year of third-party and enhanced oil revenue to the Company’s expanding processing and water management businesses.
  • Given continuing low gas prices at both the two Canadian and seven U.S. hubs that Tourmaline accesses, as well as reduced 2019 liquids volumes, the Company has decided to reduce both forecast 2019 gas prices and full-year 2019 cash flow to $1.35 billion, down from $1.50 billion previously. This revision will provide $196.0 million of free cash flow after the planned capital program, more than sufficient to fund the 2019 dividend payment of $125.0 million.

EP UPDATE

  • The new 100% interest Gundy deep-cut facility was commissioned in late May while the turbo-expander, with the associated incremental liquids production, started up during June. The facility is producing increasing volumes of on-spec liquids. Current maximum gas throughput at the facility is 130-135 mmcfpd. Pressure restriction on the Enbridge system related to the Q4 2018 Ft. Nelson mainline pipeline rupture has limited volumes to this level. Gas production will be increased to 200 mmcfpd with the startup of the TC North Montney line in September. Related liquid production will also be increased at that time.
  • June operating costs for the NEBC Montney gas condensate complex were reduced to a record low $2.50/boe, driven by the startup of the new Tourmaline-operated plant at Gundy.
  • Tourmaline continues to build the DUC inventory in the Alberta Deep Basin. The Company anticipates fracing and bringing on production from 30-40 wells in the September-November timeframe with incremental gas volumes realizing anticipated improved winter pricing. With the Alberta Deep Basin now in a ‘maintenance capital’ mode, the Company plans to maximize production during the Q4 and Q1 winter periods with lower planned production from the complex during the summer months, on an annual basis.

___________________

(1)

“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” in this news release and the Company’s Q2 2019 Management’s Discussion and Analysis

(2)

“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 Q2 2019 Management’s Discussion and Analysis.

CORPORATE SUMMARY – SECOND QUARTER 2019

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

Change

2019

2018

Change

OPERATIONS

Production

Natural gas (mcf/d)

1,371,325

1,290,436

6%

1,405,081

1,309,478

7%

Crude oil and NGL (bbl/d)

51,993

45,857

13%

52,775

46,461

14%

Oil equivalent (boe/d)

280,547

260,930

8%

286,955

264,707

8%

Product prices(1)

Natural gas ($/mcf)

$

2.07

$

2.25

(8)%

$

2.84

$

2.61

9%

Crude oil and NGL ($/bbl)

$

39.08

$

47.93

(18)%

$

40.27

$

47.00

(14)%

Operating expenses ($/boe)

$

3.47

$

3.18

9%

$

3.48

$

3.27

6%

Transportation costs ($/boe)

$

3.67

$

3.41

8%

$

3.74

$

3.37

11%

Operating netback(3)($/boe)

$

9.60

$

12.10

(21)%

$

13.19

$

13.68

(4)%

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

$

0.49

$

0.52

(6)%

$

0.48

$

0.50

(4)%

FINANCIAL
($000, except share and per share)

Revenue

443,359

463,845

(4)%

1,107,660

1,014,011

9%

Royalties

16,194

19,990

(19)%

47,817

40,109

19%

Cash flow(3)

226,458

272,261

(17)%

645,700

624,509

3%

Cash flow per share (diluted)(3)

$

0.83

$

1.00

(17)%

$

2.37

$

2.30

3%

Net earnings

154,940

25,639

504%

242,650

155,227

56%

Net earnings per share (diluted)

$

0.57

$

0.09

533%

$

0.89

$

0.57

56%

Capital expenditures (net of dispositions)

198,179

191,773

3%

582,563

409,324

42%

Weighted average shares outstanding (diluted)

272,046,678

271,343,615

-%

Net debt(3)

(1,717,182)

(1,538,658)

12%

(1)

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

(2)

Excluding interest and financing charges.

(3)

See “Non-GAAP Financial Measures” in this news release and in the Company’s Q2 2019 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, August 1, 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 8788218.



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