Quarterly / Earnings Reports | First Quarter (1Q) Update

TORC Oil & Gas Talks Q1 Results; Ups Production Guidance

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   |    Tuesday,May 07,2019

TORC Oil & Gas Ltd. reported its Q1 2019 results.

Increases Production Guidance

Based on the strength of the underlying production base and the continued success of the Company’s drilling program TORC is increasing 2019 average production guidance to 28,300 boepd from 28,000 boepd previously, and 2019 exit production guidance to 28,300 boepd from 28,000 boepd previously, with no corresponding change in the capital program.

Summary

President's Commentary

TORC’s operational momentum from 2018 was maintained into the first quarter of 2019 with a continuing focus on the Company’s long term objectives of delivering disciplined growth in combination with preserving financial flexibility and providing a sustainable dividend.

TORC’s active and successful drilling program was focused in both southeast Saskatchewan and Cardium core areas where the Company’s quarterly objectives were to maintain 2018 year-end exit volumes while solidifying a higher base level of production to continue building future value.

TORC’s disciplined approach and strong underlying asset base continues to position the Company for strategic, disciplined, long term growth.

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

• Achieved record quarterly production of 28,267 boepd, up from 28,163 boepd in the fourth quarter of 2018 and 22,894 boepd in the first quarter of 2018;
• Generated cash flow of $76.1 million relative to $54.4 million in the fourth quarter of 2018 and $64.0 million in the first quarter of 2018;
• Generated cash flow per share of $0.35 per share as compared to $0.25 in the fourth quarter of 2018 and $0.33 per share in the first quarter of 2018;
• Successfully drilled 34 (27.9 net) wells spending $54.1 million;
• During the first quarter, TORC declared dividends of $14.3 million of which $4.6 million was settled under the share dividend program;
• Achieved a payout ratio in the quarter of 84% while continuing to organically grow production; and
• At quarter end, the Company’s net debt was $396.0 million with $351.7 million drawn on the credit facility. Subsequent to quarter end, TORC’s credit facility was reconfirmed at $500 million, providing the Company with significant financial flexibility and liquidity.

Ops Update

TORC’s first quarter production averaged 28,267 boepd (89% light oil and NGLs). Strong new well results and solid performance of the Company’s existing low decline production base contributed to the continued quarter over quarter growth of the Company’s production. TORC’s disciplined approach provides a solid foundation for future sustainable growth.

During the first quarter, TORC executed a development program, drilling 34 (27.9 net) wells focused on the conventional and unconventional assets in southeast Saskatchewan and the Cardium in central Alberta. TORC spent $54.1 million in the first quarter representing 30% of the Company’s 2019 $180 million capital budget.

SE Saskatchewan

TORC drilled 18 (14.5 net) southeast Saskatchewan conventional wells in the first quarter. TORC’s southeast Saskatchewan conventional assets are characterized by their lower risk nature and high rates of return driven by low capital costs, high netbacks and the favorable royalty regime in the province. With a long term decline profile of less than 20% and strong operating netbacks, the southeast Saskatchewan assets yield significant free cash flow to support TORC’s business model.

TORC has identified more than 400 net undrilled conventional light oil locations in southeast Saskatchewan providing years of high quality drilling inventory. In 2019, TORC plans to drill a total of 45 (33.7 net) conventional wells. The focus in TORC’s southeast Saskatchewan conventional properties is to maintain a stable production profile and maximize free cash flow from the assets.

On the Company’s unconventional asset base in southeast Saskatchewan, TORC drilled 5 (4.5 net) wells during the first quarter in the Torquay/Three Forks geological zone. With continued strong drilling and production results the Company deferred completion of the Torquay/Three Forks program wells until the second and third quarters. In 2019, TORC plans to drill a total of 16 (12.5 net) wells continuing to drive growth in this light oil, high netback resource play. TORC has identified over 150 net development locations in the Torquay/Three Forks play providing multiple years of drilling inventory.

TORC drilled 7 (5.6 net) wells in the unconventional Midale light oil play during the first quarter. The Company continues to be encouraged with the results from this play and plans to drill a total of 18 gross (14.9 net) wells spread across the Company’s land position for both the development and further delineation in 2019. TORC has identified more than 175 net future undrilled development locations across the Company’s asset base for unconventional Midale production.

Cardium

TORC drilled 4 (3.3 net) Cardium development wells in the first quarter. For 2019, the Company has budgeted to drill a total of 9 (8.2 net) Cardium wells representing less than 5% of TORC’s identified undrilled inventory.

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 meaningfully 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 the 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 enhance the growth, sustainability and repeatability of the Company’s business model. The Company maintains the flexibility to increase capital expenditures during the second half of 2019.

Increased Dividend

TORC’s dividend is reviewed regularly with the Board of Directors and is an important component of TORC’s overall strategy. During the first quarter, TORC declared dividends of $14.3 million of which $4.6 million was settled under the share dividend plan.

With continued production and cash flow per share growth, the Board of Directors have approved a 14% increase to the Company’s annual dividend. Accordingly, TORC’s annual dividend will increase to $0.30 per share ($0.025 per month) from $0.264 per share ($0.022 per month) effective for the May 2019 dividend payable in June.

The Company is committed to maintaining a disciplined approach. TORC’s priorities are to act prudently to protect TORC’s financial flexibility while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable and growing dividend.

Director Retirement

Mr. Raymond Chan is retiring from the Board of Directors of TORC and will not be standing for re-election at the Company’s 2019 Annual General Meeting of Shareholders to be held on May 8, 2019. Mr. Chan was a founding Board member of TORC and was Chairman of the Audit Committee since inception. The Board of Directors and Management of TORC would like to thank Mr. Chan for his valuable contribution, guidance and dedication and wish him the best in his retirement.

Outlook

TORC has built a sustainable growth platform of light oil focused assets and continues to enhance this platform. 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: