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Tourmaline Talks Fourth Quarter 2019 Results; 2020 Plan

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   |    Wednesday,March 04,2020

Tourmaline Oil Corp. reported financial and operating results for the full year and fourth quarter of 2019 as well as 2019 reserves results.

2019/2020 Capital Programs

• Full-year EP capital spending in 2019 was $1,033.1 million. The Company reduced its originally-planned program by approximately $270.0 million during the course of the year. Continued per-well capital cost improvements allowed the Company to largely achieve original EP targets on the reduced spending.
  
  
• The 2020 EP capital program remains at $925.0 million. Additionally, Tourmaline has the flexibility to reduce activity to a maintenance capital budget which is $100 million lower than the current plan. Tourmaline will monitor commodity prices and the natural gas supply/demand balance over the next few months; the full-year program may be revised in conjunction with the Q1 2020 results release in May 2020. The Company has already elected to defer a minimum of $25.0 million of originally-planned Q1 2020 EP expenditures into 2H 2020.
  
  
• Less than 15% of 2020 capital expenditures are directed towards facility expenditures, which will drive anticipated 2020 capital efficiencies of $6,500 – $7,000/boepd.
  
  
• Tourmaline continues to target a net debt⁽⁷⁾-to-cash flow range of 1.0 – 1.5 times. At December 31, 2019, net debt-to-cash flow was at 1.5 times (net debt to annualized Q4 2019 cash flow was at 1.3 times). Current targeted exit 2020 net debt-to-cash flow is 1.2 times.

Highlights:

• Tourmaline delivered full-year earnings of $319.7 million ($1.18/diluted share), again demonstrating the profitability of its core EP business.
  
  
• Annual cash flow⁽¹⁾ of $1.2 billion ($4.43/diluted share) and Q4 2019 cash flow of $335.9 million ($1.24/diluted share) provide a platform for continued economic growth in 2020.
  
  
• Free cash flow⁽²⁾ for 2019 of $144.9 million was a 27% increase over 2018. Q4 free cash flow of $67.1 million represents an annualized free cash flow yield of approximately 8%.
  
  
• Tourmaline bought back 1,053,000 shares in 2019 at $12.23/share pursuant to its NCIB. Tourmaline will continue to tactically pursue share buybacks funded by free cash flow on hand if distressed valuations continue.
  
  
• The Company grew average annual liquids volumes by 16% and total average production volumes by 10% in 2019, while containing capital spending at $1.29 billion (up only 6% from 2018).
  
  
• The Company posted record capital efficiency of $8,650/boepd (excluding acquisitions and dispositions) – a 23% improvement over 2018.
  
  
• Tourmaline added 250.7 mmboe of proved plus probable reserves (“2P”) after adding back annual production of 106.2 mmboe.
  
  
• 2P finding, development and acquisition costs (FD&A) in 2019 were $4.26/boe including changes in future development capital (“FDC”) ($5.13/boe excluding changes in FDC) based on total capital expenditures of $1.29 billion, total proved (“TP”) FD&A in 2019 were $6.15/boe including change in FDC ($6.63/boe excluding change in FDC). 2019 proved, developed producing (“PDP”) FD&A were $8.01/boe.
  
  
• Subsequent to the quarter, Tourmaline announced an update on its NEBC consolidation activities. Through two corporate transactions, Tourmaline has added 6,000 boepd of current production, 2P reserves of 116.3 mmboe⁽³⁾ and 160,000 acres of Montney lands for a combined cash purchase price of $33.4 million.

2019 Reserves

• Year-end 2019 PDP reserves of 527.4 mmboe were up 34% over year-end 2018 when including 2019 annual production of 106.2 mmboe⁽⁴⁾, TP reserves of 1.294 billion boe were up 16% over 2018 when including 2019 annual production and 2P of 2.602 billion boe were up 10% when including 2019 annual production.
  
  
• Continued improvement in drill-and-complete capital costs resulted in a significant reduction in FDC in the 2019 report.
  
  
• 2019 PDP finding and development (“F&D”) costs were $7.06/boe, including changes in FDC, a record low, yielding a PDP reserve recycle ratio⁽⁵⁾ of 1.6. Total proved F&D costs in 2019 were $4.94/boe including changes in FDC and 2P F&D was $2.66/boe including changes in FDC. 2P FD&A costs were $4.26/boe including changes in FDC yielding a 2019 2P FD&A recycle ratio of 2.7.
  
  
• Tourmaline replaced 236% of 2019’s annual production of 106.2 mmboe in 2019 with a 2P addition of 251 mmboe before 2019 production.
  
  
• Tourmaline added the 251 mmboe of 2P reserves in 2019 even though 66.8% of the 2019 drilling locations were converting previously-booked locations. In 2019, the Company rig-released 198.9 (net) wells, down 7% from 2018 (213.1 wells) as the Company moderated capital spending due to low commodity prices.
  
  
• Tourmaline’s 2P reserve value equates to $55.69/share utilizing the lower 2019 engineering price deck. TP reserve value is $32.42/share – PDP reserve value is $16.90/share.
  
  
• After 11 years of operation, Tourmaline now has 12.3 TCF of 2P natural gas reserves and 553 million barrels of 2P oil, condensate, and NGL reserves (January 1, 2020).
  
  
• For the seventh consecutive year, the Company enjoyed positive 2P technical revisions in its reserve report.

Production Update

• 2019 production averaged 290,865 boepd, Q4 2019 averaged 299,844 boepd. As announced on December 17, 2019, lengthy outages at the third-party Saturn deep-cut facility in the Alberta Deep Basin and on the NEBC Enbridge system reduced both quarterly liquid volumes and total production levels.
  
  
• Current average production is 310,500 boepd excluding the production impact of Polar Star Canadian Oil and Gas Inc. which closed in February 2020. Tourmaline has deferred a minimum of $25.0 million of first quarter capital expenditures from the planned EP program into 2H 2020 due to lower commodity prices, reducing 1H average production by approximately 2,500 boepd. The Company is on track to meet full-year 2020 guidance of 315,000 – 320,000 boepd inclusive of this capital deferral and the effects of weather-related freeze-offs in January. Closing of the recently-announced acquisitions will be accretive to production volumes, primarily in the second quarter.
  
  
• 2019 average liquids production was 55,338 bpd (oil, condensate, NGL), a 16% increase over 2018. Current 2020 liquids production is 64,300 bpd. The Company is targeting full-year 2020 liquids production of approximately 68,000 bpd (a 22% year-over-year increase).

Financials

• Full-year 2019 after-tax earnings were $319.7 million ($1.18/diluted share) as Tourmaline remained profitable despite a challenging year for natural gas prices. The Company has built one of the most stable, low-cost businesses in the North American energy sector.
  
  
• Fourth quarter 2019 cash flow was $335.9 million ($1.24/diluted share) and full-year 2019 cash flow was $1,205.5 million ($4.43/diluted share).
  
  
• Tourmaline generated $67.1 million of free cash flow in Q4 2019. The first quarter 2020 dividend of $0.12/share will be paid on March 31, 2020.
  
  
• The five-year EP development plan, released in mid-December, remains unchanged. It is expected to generate approximately $1.75 billion of free cash flow over the five years at strip pricing⁽⁶⁾. This cash is expected to be deployed into dividend increases, debt reduction, and share buybacks. The Company acquired 1,053,000 shares in 2019 through the NCIB at an average price of $12.23.
  
  
• Tourmaline continued to effectively manage all-in cash costs in 2019 (operating, transportation, general and administrative and financing) which totalled $8.18/boe compared to $7.87/boe in 2018.

Marketing Highlights

• For 2019, the Company posted a realized gas price across the portfolio of $2.59/mcf, a 46% premium over the average AECO 5A price for the year.
  
  
• For calendar year 2020, Tourmaline has an average of 252 mmcf/d hedged at a weighted-average fixed price of CAD $2.44/mcf, an average of 202 mmcf/d hedged at a basis to NYMEX of $(0.31) USD/mcf, an average of 410 mmcf/d incremental volume exposed to export markets, including Dawn, Chicago, Ventura, Sumas, Malin and PGE.
  
  
• In the first quarter of 2020, as part of the Company’s gas marketing diversification strategy, the Company signed a long-haul transportation agreement for 25 mmcfpd delivering to the US Gulf Coast which will commence on November 1, 2022.
  
  
• For 2H 2019, Tourmaline had in excess of 4,000 bbls/d of propane exposed to Argus Far East Index (AFEI) and realized wellhead prices in excess of CAD $23/bbl above Edmonton prices.
  
  
• For 2020, Tourmaline expects to have in excess of 5,000 bbls/d of propane exposed to AFEI.

E&P Highlights

• 2019 capital efficiency was approximately $8,650/boepd (excluding acquisitions and dispositions) – a record low for Tourmaline as the Company continued to reduce capital costs and deliver strong well results. The Company is forecasting a further improvement in capital efficiency in 2020.
  
  
• Q4 2019 operating costs were $3.06/boe, significantly less than originally forecast. NEBC full-year 2019 operating costs were a record low of $2.40/boe.
  
  
• Tourmaline rig-released 198.9 net wells in 2019, down 7% from 2018 and still achieved full-year production growth of 10% in 2019.
  
  
• Tourmaline operated up to 11 drilling rigs during Q1 2020, with 10 rigs now operating. The Company currently plans to operate three rigs through break-up in Q2 2020.
  
  
• Capital cost reduction/improvements continue to be achieved through monobore trials in the Alberta Deep Basin, application of rotary steerable technology and novel pad equipping approaches, amongst other technology-driven opportunities. NEBC Montney horizontal completed well costs are now averaging $2.9 million (drill, 35 stage-completions, equip.).

ESG Initiatives

As outlined in the Company’s Sustainability Report, published in February 2020, Tourmaline has made major strides in reducing emissions and continually improving overall environmental performance.

Major Environmental Performance Achievements

• 46% reduction in CO^₂ emissions intensity since 2013.
  
  
• Near elimination of all fresh water, in well stimulation operations, in British Columbia.
  
  
• Initiation of methane-reduction retrofit compliance plan resulting in over 3,400 high-bleed devices being replaced in 2019.
  
  
• An approximate 50% reduction in the surface area per producing well in the Company’s operating areas due to multi-pad well development.
  
  
• Broad replacement of diesel in Tourmaline’s drilling and completion operations with natural gas. Tourmaline now operates 15 natural gas fuel substitution units allowing for the displacement of 9.8 million litres of diesel per year.

Environmental Performance Targets

• Continued emphasis on reducing corporate emissions intensity by maintaining the Company’s top-decile performance relative to the Company’s peer group while targeting a 25% reduction in total methane emissions from 2018 levels by 2023.
  
  
• Reduce corporate emissions intensity by 25% by 2027 (scope 1) using 2018 as a baseline, by continuing to focus on overall efficiencies with the application of new, innovative technologies including the electrification of assets, when feasible.
  
  
• Continually improve the Company’s peer-leading performance on water usage in completion activities by reducing and eventually eliminating the usage of fresh water throughout its core gas operations.