TORC Oil & Gas Ltd. announces second quarter 2020 financial & operational results; reinstates production guidance

July 29, 2020 PR Newswire

CALGARY, AB – 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, 2020. 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, 2020 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 2020	March 31 2020	June 30 2019	June 30 2020	June 30 2019

Financial
Adjusted funds flow, including
transaction related costs ⁽¹⁾	$5,694	$47,146	$81,125	$52,840	$157,192
Per share basic	$0.03	$0.21	$0.37	$0.24	$0.72
Per share diluted	$0.03	$0.21	$0.37	$0.23	$0.71

Adjusted funds flow, excluding
transaction related costs ^{(1), (2)}	$5,704	$47,166	$81,125	$52,870	$157,192
Per share basic	$0.03	$0.21	$0.37	$0.24	$0.72
Per share diluted	$0.03	$0.21	$0.37	$0.23	$0.71

Net cash from operating activities	$619	$57,955	$100,765	$58,574	$154,695

Net income (loss)	($41,023)	($879,895)	$11,464	($920,918)	$17,799
Per share basic	($0.18)	($3.96)	$0.05	($4.15)	$0.08
Per share diluted	($0.18)	($3.96)	$0.05	($4.15)	$0.08

Exploration and development
Expenditures ⁽¹⁾	$1,601	$64,700	$34,854	$66,302	$88,962
Property acquisitions, net of
Dispositions ⁽¹⁾	$1,083	$3,891	$688	$4,974	$834

Net debt ⁽¹⁾	$382,115	$382,696	$363,895	$382,115	$363,895

Cash dividends declared ⁽³⁾	$1,112	$12,222	$10,930	$13,334	$20,691
Dividends declared per common share	$0.005	$0.055	$0.072	$0.060	$0.138

Common shares
Shares outstanding, end of period	222,445	222,315	218,912	222,445	218,912
Weighted average shares (basic)	222,372	222,146	218,279	222,157	217,713
Weighted average shares (diluted)	225,054	227,093	221,752	226,877	221,195

Operations
Production
Crude oil (Bbls per day)	21,039	23,672	23,534	22,356	23,617
NGL (Bbls per day)	1,316	1,582	1,559	1,449	1,509
Natural gas (Mcf per day)	15,301	19,568	19,397	17,434	19,023
Barrels of oil equivalent (Boepd, 6:1)	24,905	28,515	28,326	26,711	28,297

Average realized price
Crude oil ($ per Bbl)	$23.33	$47.87	$70.03	$36.33	$67.44
NGL ($ per Bbl)	$4.24	$9.66	$12.28	$7.20	$16.14
Natural gas ($ per Mcf)	$1.72	$1.60	$0.67	$1.65	$1.41
Barrels of oil equivalent
($ per Boe, 6:1)	$20.99	$41.37	$59.32	$31.87	$58.10

Operating netback per Boe (6:1)
Operating netback ⁽¹⁾	$4.55	$20.75	$34.35	$13.20	$33.51
Operating netback (prior to hedging) ⁽¹⁾	$3.24	$20.00	$34.35	$12.19	$33.51

Adjusted funds flow netback per Boe (6:1)
Including transaction related costs ⁽¹⁾	$2.51	$18.17	$31.47	$10.87	$30.69
Excluding transaction related costs ⁽¹⁾	$2.52	$18.18	$31.47	$10.88	$30.69

Wells drilled:
Gross	–	33	13	33	47
Net	–	28.2	9.8	28.2	37.7
Success (%)	–	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. On May 5, 2020, TORC announced the temporary suspension of its monthly dividend.

PRESIDENT’S MESSAGE

During the first quarter, the World Health Organization declared COVID-19 to be a global pandemic. TORC’s top priority remains the health and safety of the Company’s employees, contractors, partners, service providers and the communities in which we operate. Accordingly, throughout the first and second quarters, the Company implemented measures to protect the well-being of all stakeholders and follow guidance of public health officials, while maintaining safe operations and business continuity.

To combat the spread of COVID-19, global responses to the pandemic caused a significant decline in economic activity, resulting in a substantial decrease in global crude oil demand and unprecedented volatility to oil prices. With the continued volatility in commodity prices and TORC’s focus on efficient operations, the Company identified and implemented various measures to preserve shareholder value, and maintain financial flexibility and a strong position.

TORC’s proactive responses to these events demonstrated the focus on the long-term objectives of delivering disciplined growth while displaying the resilience and flexibility of the Company’s business strategy and asset base. Under some very difficult circumstances over the past several months, TORC’s employees, consultants and contract operators performed exceptionally to protect all stakeholders’ interests.

The Company’s key achievements in the second quarter of 2020 included the following:

Proactively responded to coinciding events of the global pandemic and rapid decline in commodity prices:
- Significantly reduced the 2020 capital program;
- Suspension of the dividend;
- Identified and implemented various cost cutting measures in operating and general and administrative costs, including company-wide compensation and Director fee reductions;
- Shut-in production to preserve value for a stronger commodity price environment;
Due to voluntary shut-in volumes, quarterly production averaged 24,905 boepd, from 28,515 boepd in the first quarter of 2020 and 28,326 boepd in the second quarter of 2019;
Generated cash flow of $5.7 million relative to $47.2 million in the first quarter of 2020 and $81.1 million in the second quarter of 2019;
Generated cash flow per share of $0.03 as compared to $0.21 in the first quarter of 2020 and $0.37 in the second quarter of 2019;
Achieved a payout ratio of 67% in the second quarter despite significant commodity price volatility;
Exited the second quarter with net debt of approximately $382.1 million with $367.2 million drawn on the Company’s credit facility; and
Received formal lender commitments from all syndicate members confirming the Company’s credit facility at $425 million providing ample liquidity to continue to execute TORC’s business strategy going forward.

OPERATIONAL UPDATE

As a result of voluntarily shutting in production volumes, TORC’s second quarter production averaged 24,905 boepd.

TORC spent a total of $1.6 million of exploration and development capital in the second quarter bringing total spending for the first six months of 2020 to $66 million.

TORC’s production base continued with strong performance resulting from the Company’s successful first quarter drilling program and the long history of managing the production decline profile.

SOUTHEAST SASKATCHEWAN

TORC’s second quarter capital expenditures on the southeast Saskatchewan’s conventional assets were focused on well optimizations and maintenance capital. TORC has identified more than 400 net conventional light oil drilling locations in southeast Saskatchewan, providing multiple years of high quality drilling inventory.

As planned, TORC did not drill wells in the Torquay/Three Forks resource play during the second quarter of 2020. TORC maintains an inventory of 5 (4.0 net) drilled but uncompleted wells associated with the Company’s first quarter drilling program. Additionally, 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 did not drill wells during the second quarter following successfully drilling a total of 6 (5.7 net) wells in the first quarter. TORC has identified 175 net future unconventional Midale drilling locations on the Company’s land base to add value in future years.

CARDIUM

As budgeted, no Cardium wells were drilled in the second quarter. During the first quarter, TORC drilled 3 (3.0 net) Cardium development wells.

Also in the second quarter, the Company continued to consolidate land in the operating area of Kaybob with a small strategic working interest tuck-in acquisition. TORC has identified more than 290 net Cardium drilling locations for future development.

CAPITAL PROGRAM

In the first quarter of 2020, TORC’s capital spending was $65 million. On March 16, 2020, the Company announced the undertaking of a thorough review of the remaining 2020 capital program due to the ongoing uncertainty related to the significant decline in economic activity resulting from COVID-19 and the resulting volatility in global oil prices. The Company elected to significantly reduce total 2020 capital spending to $75 million from the original budget of $190 million. During the first six months of 2020, the Company has spent $66 million.

TORC now expects to spend $80 million in 2020 with the incremental $5 million to be spent primarily on optimizations and asset maintenance programs.

TORC’s 2020 $80 million capital budget exhibits a measured approach to the current uncertainty in world oil prices and reflects a balance between managing long-term growth and protecting the Company’s strong financial position.

REINSTATED PRODUCTION GUIDANCE

TORC anticipates that the revised $80 million 2020 capital budget will result in 2020 exit production of 25,000 boepd (83% light oil; 5% NGLs). Based on this production profile and the Company’s long term focus on production decline management, TORC expects that the Company’s production decline will decrease to approximately 20% by year-end 2020.

Based on current commodity prices and budgeted costs, the Company expects to achieve free cash flow above the current capital program during the remainder of 2020. The free cash flow will continue to position the Company to reduce debt and take advantage of opportunities to enhance the growth, sustainability and repeatability of the Company’s business model.

TORC’s asset base provides flexibility in volatile commodity price environments due to the following key characteristics: greater than 90% operated capital program to dictate capital spending, low decline rate, year-round access, low capital costs per well, no drilling commitments, limited take-or-pay contracts, and no land expiry concerns.

DIVIDEND

TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall long-term strategy. With the crude oil market experiencing a significant and rapid decline in world prices resulting from severe dynamics coinciding with significant impacts to both supply and demand uncertainty, TORC elected to temporarily suspend the monthly dividend during the second quarter.

TORC will continue to assess the free cash flow profile and dividend policy of the Company following an increase in economic activity and stability of oil market dynamics.

CREDIT FACILITY

TORC’s credit facility was confirmed at $425 million, with the borrowing base determination dates under the credit agreement amended to May and November, annually. The Company’s net debt position at the end of the second quarter was $382.1 million with $367.2 million drawn on the credit facility providing TORC with significant liquidity to execute on the Company’s business plan.

OUTLOOK

TORC has developed significant trust and credibility as a corporate citizen, which provides a solid foundation for the long-term success of the business. Sustainability of the business includes focusing on overall social responsibility to support strong values and relationships in the workplace, and communities where TORC operates.

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.

TORC has the following key operational and financial attributes:

Production	2020E Exit: 25,000 boepd (83% light oil 5% NGLs)

Total Proved plus Probable Reserves ⁽¹⁾	Greater than 139 mmboe (78% light oil; 6% NGLs)

Southeast Saskatchewan Light Oil Development Inventory	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

2020 Capital Program	$80 million
Monthly Dividend	Suspended
Net Debt as at June 30, 2020 ⁽²⁾	$382 million; $367 million drawn on a bank line of $425 million
Shares Outstanding	222 million (basic)
Tax Pools	Approximately $1.8 billion

Notes:

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, 2019 prepared by Sproule & Associates Limited (“Sproule”) evaluating the oil, NGL and natural gas reserves attributable to all of our properties (the “TORC Reserve Report”).
See “Non-GAAP Measures”.

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