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Tourmaline announces strong Q1 2020 results, reduces 2020 budget to maintenance capital, reconfirms 2020 dividend


CALGARY – Tourmaline Oil Corp. (TSX:TOU) (“Tourmaline” or the “Company”) is pleased to release  financial and operating results for the first quarter of 2020 and provide updates regarding 2020 budget and dividend.

HIGHLIGHTS

  • Q1 2020 cash flow(1) was $283.7 million ($1.05/diluted share) on Q1 E&P capital spending of $306.2 million.
  • Q1 2020 production averaged a record 308,349 boepd, a 5% increase over Q1 2019 (1,475 mmcfpd natural gas and 62,569 bpd oil, condensate, NGLs).
  • Full-year average production of 305,000 – 310,000 boepd is now forecast (representing 6% year-over-year growth) yielding estimated full-year cash flow of $1.0 billion based on strip pricing(2).
  • Reduced full-year 2020 EP capital budget from the originally-planned $925 million to a maintenance capital budget of $800 million with approximately $400 million available for the second half of 2020 – facilitating a forecast 2020 exit rate of 315,000 – 320,000 boepd.
  • Q1 2020 operating costs of $2.97/boe, down 15% from Q1 2019 and 9% from average 2019 operating costs of $3.28/boe.

2020 EP CAPITAL PROGRAM AND GUIDANCE

  • Tourmaline has reduced its 2020 EP capital expenditure budget from the originally-planned $925 million to a maintenance capital level of $800 million.
  • Full-year average production of 305,000 – 310,000 boepd is now forecast (representing 6% year-over-year growth), yielding estimated full-year cash flow of $1.0 billion based on strip pricing.
  • Q1 2020 EP spending was $306.2 million, less than originally planned. The Company plans Q2 EP spending of approximately $100 million, also less than originally planned, yielding 1H 2020 EP spending of approximately $400 million, providing considerable capital flexibility for the 2H of 2020.
  • The 2020 Tourmaline aggregate dividends of $130 million and the net Topaz aggregate dividends of $17 million will be paid from the estimated 2020 free cash flow(3) of $173 million.
  • 2021 average production of 320,000 boepd is now anticipated on EP spending of $900 million yielding cash flow of $1.27 billion ($4.70/diluted share) and estimated free cash flow of $337 million.
  • Tourmaline estimates that it will have $1.1 billion of available liquidity at December 31, 2020 on aggregate credit capacity of $2.875 billion including a revolver and term loan with a maturity of June 2024.
  • Estimated 2020 exit net debt(4)-to-cash flow of 1.8 times based on 2020 forecast cash flow.
  • Tourmaline’s cash flow is most sensitive to natural gas prices and Cdn/US dollar differential. The Company believes that the significant capital spending reductions which have been announced by most oil and gas producers in the past two weeks will result in a decreased supply of natural gas, strengthening prices in 2021. A CAD $0.10/mcf increase in the annual NYMEX natural gas price increases annual cash flow by approximately $50 million.
  • Tourmaline has an estimated up to $1.0 billion of Topaz equity that can be realized to fund 2020-2021 acquisition activities as well as reduce short-term debt. A second-half 2020 Topaz public liquidity event is anticipated as the Company believes conditions will be favourable to such a transaction once stability returns to the global financial markets.

 

PRODUCTION UPDATE AND OUTLOOK

  • Q1 2020 production averaged a record 308,349 boepd, a 5% increase over Q1 2019 (1,475 mmcfpd natural gas and 62,569 bpd oil, condensate, NGLs).
  • Tourmaline’s maintenance EP capital budget of $800 million, along with the two corporate acquisitions completed to date, is expected to yield 2020 average production of 305,000 – 310,000 boepd.
  • The Company has deferred a subset of the originally-planned Q2 EP activity until 2H 2020 and is also planning to fill natural gas storage positions in California and Dawn (6,000 boepd in Q2). This will yield anticipated Q2 average production volumes of 295,000 – 300,000 boepd. Injected storage volumes will be recovered in Q4 2020 when prices are expected to be higher, thus not affecting overall full-year 2020 average production levels.
  • 2020 EP activity will be phased so as to yield strong Q4 and exit 2020 production volumes. Current Q4 2020 average production estimates are 310,000 – 315,000 boepd with a 2020 anticipated exit of 315,000 – 320,000 boepd. The Company will be positioned to deliver strong year-over-year cash flow and production growth in 2021.
  • Given the very low NGL prices, Tourmaline has reduced liquids recovery at several operated plants thus far in Q2, reducing NGL liquids production volumes by approximately 2,000 bpd; the associated gas volume increase is 4.2 mmcfpd.
  • Should weak liquid prices and stronger-than-forecast natural gas prices continue, the Company can evolve the overall production mix from the current 80:20 gas:liquid split to 83:17 by late 2020/early 2021.

 

Q1 2020 FINANCIAL RESULTS

  • Q1 2020 cash flow was $283.7 million ($1.05/diluted share) on Q1 E&P capital spending of $306.2 million.
  • Given the very low oil prices prevailing at the end of Q1 2020, Tourmaline has incurred a $250 million non-cash impairment for the Peace River High complex. The two gas-weighted core complexes, NEBC and the Alberta Deep Basin, did not incur any impairments.
  • Q1 operating costs were $2.97/boe, below new 2020 forecast costs of $3.30/boe and were down 15% from Q1 2019 and 9% from average 2019 operating costs of $3.28/boe.

 

ACQUISITION UPDATE

  • Tourmaline acquired Polar Star Canadian Oil and Gas Inc. (“Polar Star”) on February 14, 2020, for total cash consideration of $12 million, including the assumption of working capital. The acquired British Columbia assets include: approximately 2,500 boepd of production; 2P reserves of 80.7 million boe; 106,000 net acres of Montney land; and a compressor station.
  • Tourmaline closed the acquisition of Chinook Energy Inc. (“Chinook”) on April 21, 2020, for total cash consideration of approximately $24.4 million, including assumed net debt. The Chinook NEBC assets include: approximately 3,500 boepd of production; 35.6 mmboe of 2P reserves; 54,000 acres of Montney land; a gas plant; a compressor station; and a 190 mmcfpd regional 12-inch pipeline.
  • Tourmaline will initially focus on optimizing production and reducing field costs, with the expectation that the Chinook/Polar Star assets will generate approximately $10 million to $12 million of cash flow annually at current gas prices. Tourmaline has reduced the operating costs of the acquired assets by approximately 45% to date. Minimal development of the assets is expected in the next two years, while Tourmaline assembles a regional facility plan as a key aspect of the future development of these assets, including a Gundy-scale, deep cut facility (200 mmcfpd, 15,000 bopd condensate and natural gas liquids).

 

MARKETING UPDATE

  • Tourmaline is Canada’s largest natural gas producer with forecast total average 2020 natural gas production of 1.5 bcf/day, including 530 mmcfpd transported and sold at six NYMEX-priced hubs.
  • Currently, Tourmaline has an average of 336 mmcfpd hedged for Q2 to Q4 of 2020 at a weighted-average fixed price of CAD $2.38/mcf; an average of 158 mmcfpd hedged at a basis to NYMEX of $(0.12) USD/mcf; and an average of 403 mmcfpd incremental volume exposed to export markets, including Dawn, ChicagoVentura, Sumas, Malin and PGE.
  • Natural gas fundamentals for 2021 are steadily improving. Tourmaline has been able to execute hedges above our 2021 AECO gas price assumption of CAD $2.62 /mcf and will continue to benefit from the strength in the forward natural gas price curve.
  • Tourmaline has diversification to the US and other hubs amounting to 615 mmcfpd in exit 2022 and 660 mmcfpd in exit 2023.
  • At present, Tourmaline has NYMEX WTI hedges of 13,611 bbls/d in place for the period April 2020 – December 2020 at a weighted-average price of USD $46.47/bbl and 4,500 bbls/d for calendar year 2021 at a weighted-average price of USD $51.23/bbl.
  • For the period of April 2020 – December 2020, Tourmaline also has sold forward physical and financial condensate basis differentials of 10,000 bbls/d at a weighted-average price of WTI less USD $(7.32)/bbl.
  • Tourmaline has 210,000 bbls of oil and condensate storage across the three operated core complexes providing additional flexibility in a very volatile liquid-pricing environment.

 

EP UPDATE

  • Tourmaline is currently operating three drilling rigs and plans to operate 8 to 10 drilling rigs during the second half of 2020.
  • Timing of 2H 2020 frac activity is flexible and will be controlled in part by Q3 and Q4 2020 commodity prices. The Company will maximize gas volumes in conjunction with anticipated improving winter 2020/21 natural gas prices.
  • Tourmaline drilled a total of 39.7 net wells during the first quarter.
  • The Company set new pacesetter drill-and-complete capital cost records in all three core-operated complexes, reducing average completed well costs by approximately 5% thus far in 2020. Tourmaline expects further capital cost reductions in 2H 2020.
  • Tourmaline is on track to realize record EP capital efficiencies in 2020 of $6,500 – $7,000/boepd.
  • Tourmaline drilled one of the first pads in Western Canada utilizing high line power in the Peace River High complex. This initiative completely eliminates diesel from the lease – the next step in emissions reduction beyond bi-fuel. Approximately 5,400 litres/day of diesel equivalent were eliminated, significantly reducing CO, NOx and SO2 emissions as well as leading to a monthly per-pad cost saving of $70,000. Tourmaline will continue to employ this methodology in future operations as part of the Company’s plan to reduce overall emissions intensity by a further 25%.

 

OPERATING ENVIRONMENT AND THE COVID-19 PANDEMIC

  • Since December 31, 2019, the outbreak of the COVID-19 pandemic has had a significantly negative impact on economic conditions around the world. During this period of uncertainty, the Company is committed to maintaining its strong balance sheet and financial liquidity. At March 31, 2020, the Company has $1.3 billion in unutilized borrowing capacity on its credit facilities, all of which is covenant based and not directly tied to changes in the Company’s oil and gas reserves, insulating the Company’s borrowing capacity against large swings in commodity price decks used to calculate reserve values. At March 31, 2020, the Company was not in breach of any covenants and has room under those covenants to allow for an increase in future borrowings to navigate through these uncertain times, if required. The Company has been actively monitoring all Government announcements to determine its eligibility for any relief that is being provided through this highly volatile and challenging period. The Company currently believes it has sufficient liquidity through cash flow to execute the remainder of the 2020 capital budget.
  • In response to the COVID-19 pandemic, the Company is following all rules and regulations as set out by the relevant health authorities and has implemented many health and safety protocols into its operations. Tourmaline and its staff have been able to adapt to the new work environment without significant disruptions at any operated facility or in day-to-day operations.
  • For more details on how Tourmaline has responded to the COVID-19 pandemic please see ‘Operating Environment and the Covid-19 Pandemic’ in the Company’s Q1 2020 Management’s Discussion and Analysis available on Tourmaline’s website and on SEDAR.

 

__________________________

(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 Q1 2020 Management’s Discussion and Analysis.

(2)   

Based on oil and gas commodity strip pricing at April 23, 2020.

(3)

“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 Q1 2020 Management’s Discussion and Analysis.

(4)  

“Net debt” is defined as bank debt plus working capital (adjusted for the fair value of financial instruments and lease liabilities).  See “Non-GAAP Financial Measures” in this news release and in the Company’s Q1 2020 Management’s Discussion and Analysis.

CORPORATE SUMMARY – FIRST QUARTER 2020

Three Months Ended March 31,

2020

2019

Change

OPERATIONS

Production

Natural gas (mcf/d)

1,474,681

1,439,212

2%

Crude oil, condensate and NGL (bbl/d)

62,569

53,565

17%

Oil equivalent (boe/d)

308,349

293,434

5%

Product prices(1)

Natural gas ($/mcf)

$

2.45

$

3.59

(32)%

Crude oil, condensate and NGL ($/bbl)

$

34.54

$

41.43

(17)%

Operating expenses ($/boe)

$

2.97

$

3.49

(15)%

Transportation costs ($/boe)

$

4.35

$

3.81

14%

Operating netback(3) ($/boe)

$

10.79

$

16.65

(35)%

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

$

0.58

$

0.46

26%

FINANCIAL
($000, except share and per share)

Total revenue from commodity sales
and realized gains

524,915

664,301

(21)%

Royalties

16,929

31,623

(46)%

Cash flow(3)

283,718

419,242

(32)%

Cash flow per share (diluted)(3)

$

1.05

$

1.54

(32)%

Net earnings (loss)

(35,812)

87,710

(141)%

Net earnings (loss) per share (diluted)

$

(0.13)

$

0.32

(141)%

Capital expenditures (net of dispositions)

317,614

384,384

(17)%

Weighted average shares outstanding (diluted)

270,940,484

272,043,159

-%

Net debt(3)

(1,838,128)

(1,713,032)

7%

(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 Q1 2020 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, May 7, 2020 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 9696365.



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