CALGARY, AB, Nov. 4, 2020 /CNW/ - Tourmaline Oil Corp. (TSX:
TOU) ("Tourmaline" or the "Company") is pleased to release its
operating and financial results for the third quarter of 2020.
HIGHLIGHTS
- Two strategic corporate acquisitions, Modern Resources Inc.
("Modern") and Jupiter Resources Inc. ("Jupiter"), providing an
additional 76,000 boepd of current production, significant
accretive cash flow(1) and free cash
flow(2).
- Follow-on sale of a gross overriding royalty ("GORR") on the
Modern and Jupiter lands to Topaz Energy Corp. ("Topaz") for cash
proceeds of $130 million.
- 2021 forecasted average production of approximately 400,000
boepd, cash flow of $2 billion and
free cash flow on strip(3) of $856 million.
- Achieved 2020 production exit guidance of 322,500 - 327,500
boepd during October, prior to the new acquisitions.
- Dividend increased 17% ($0.02/share) to $0.14/share quarterly, effective December 2020.
- Strong Q3 results with cash flow of $279.9 million ($1.03/diluted share), total capital spending,
excluding acquisitions, of $241.2
million and average production of 298,202 boepd.
NORTH DEEP BASIN TRANSACTIONS
- Tourmaline announces two strategic corporate acquisitions,
Modern and Jupiter, boosting full-year 2021 average annual
production to approximately 400,000 boepd, an increase of 25% from
prior 2021 guidance of 320,000 boepd.
- The acquisitions also include over 900 net sections of
prospective land and over 445 mmboe of 2P reserves(4) in
the most prolific and economic area of the Alberta Deep Basin,
along with meaningful facilities and infrastructure.
- Tourmaline plans very modest growth (3-5%) from the Modern and
Jupiter assets in 2021-2022 to optimize efficiency and cost, and
then migrate to a maintenance capital/production model similar to
the balance of the Deep Basin complex. Production from the combined
Modern/Jupiter assets is expected to increase from the current
76,000 boepd to 85,000 boepd over the next two years.
- There are considerable operational, capital, land and facility
synergies between the Jupiter and Modern asset bases. The
acquisitions are expected to add over $300 million in annual cash flow and yield
$130 - $150
million per annum of free cash flow in 2022 and beyond –
sufficient to fund Tourmaline's existing dividend.
- Tourmaline has agreed to sell Topaz a GORR on the Modern and
Jupiter lands effective January 1,
2021 for $130 million (2% on
natural gas in 2021 and 3% in 2022 and thereafter, 2.5% on crude
oil and condensate). Net of GORR proceeds, combined acquisition
metrics are 2.6x 2021 cash flow (compared to 3.0x gross of Topaz
proceeds) and free cash flow yields(5) of 13% in 2021
and 20% in 2022, with related 2P reserve acquisition costs of
$1.44/boe.
MODERN ACQUISITION
- Tourmaline acquired Modern effective November 2, 2020, for total consideration of
approximately $144 million
($73.75 million cash and 1.5 million
Tourmaline common shares, and the assumption of current net
debt(6) of approximately $44
million).
- The Modern assets, located in the Alberta Deep Basin, include
current average production of 9,000 boepd, 2P reserves of 88 mmboe,
over 400 sections of land, the 100% owned-and-operated Route
natural gas processing plant, and a future drilling inventory of
over 200 locations.
- The Modern assets are low emission, efficiently operated and
generated free cash flow in 2020. Tourmaline expects to increase
the free cash flow yield from the Modern properties through the
Company's lower operating cost structure and a capital structure
with costs expected to be 30-40% lower per well, with similar
EURs.
JUPITER ACQUISITION
- Tourmaline is pleased to announce that it has entered into a
definitive agreement to acquire Jupiter for 24.2 million Tourmaline
common shares, representing a total consideration of approximately
$626 million(7), inclusive
of net debt estimated at approximately $200
million. All of the major shareholders of Jupiter have
entered into irrevocable support agreements with Tourmaline and
have agreed to vote an aggregate of approximately 92% of the
outstanding Jupiter common shares in favor of the transaction,
subject to the provisions of such support agreements. The
transaction is expected to close on December
16, 2020, subject to receipt of customary regulatory
approvals, including TSX approval.
- The Jupiter assets, located in the Alberta Deep Basin and
adjacent to the Modern assets, include current average production
of 67,000 boepd, estimated 2P reserves of 357 mmboe, over 500 net
sections of land (average working interest 84%), and working
interests in gas plants in the Resthaven and Kakwa areas. Current
production was acquired for approximately $9,300/boepd, 2P reserves for $1.75 boe.
- The greater Musreau-Resthaven-Kakwa portion of the Deep Basin,
where the Jupiter and Modern assets are located, provides
amongst the highest EUR wells and liquid yields in the entire Deep
Basin complex. Similar to the Modern lands, Tourmaline has been
delivering completed horizontals for 30-40% lower cost on
immediately offsetting acreage, with similar EURs.
- The Jupiter production base has an estimated decline rate of
25% for the 2021-2022 timeframe. Tourmaline estimates annual
maintenance capital of approximately $130
million (20-22 wells per year) to yield annual cash flow of
approximately $250 - 260 million on
production of 70,000-75,000 boepd in 2022. The Tier 1 drilling
inventory alone will support this level of drilling activity for an
estimated 13-15 years.
- The Jupiter assets generated free cash flow in 2020.
Tourmaline's lower operating and capital costs are expected to
increase the estimated free cash flow to over $120 million/year at strip pricing beginning in
2022 on annual production of 70,000 – 75,000 boepd.
- Jupiter infrastructure includes working interests in three
natural gas processing plants, two of which are operated by
Jupiter; 2020 operating costs are estimated at $4.25/boe.
- A substantial portion of Jupiter's existing gas production
accesses deep cut facilities in Resthaven-Kakwa yielding strong
overall liquid production. The Jupiter assets are currently
producing approximately 20,000 bpd (condensate and NGLs).
PRODUCTION UPDATE
- Q3 2020 average production was 298,202 boepd, within the Q3
guidance range of 295,000 - 300,000 boepd.
- Nine-month 2020 average production is 301,960 boepd.
- Achieved 2020 production exit guidance of 322,500 – 327,500
boepd during October, which included the impact of 2020
acquisitions completed at that time (Deep Basin, Polar Star,
Chinook).
- Stronger than forecast new well performance from post-breakup
EP activities in the Alberta Deep Basin and NEBC complexes allowed
the Company to achieve the 2020 exit production target almost a
full quarter earlier than forecast.
- 2020 exit production is expected to exceed 400,000 boepd with
successful completion of the Modern and Jupiter transactions.
- Tourmaline is now anticipating 2021 average production of
390,000 - 410,000 boepd (at the midpoint, approximately 1,880
mmcfpd of gas production and 87,000 bpd crude oil, condensate, and
NGLs).
Q3 2020 FINANCIAL RESULTS
- Q3 2020 cash flow was $279.9
million ($1.03 per
fully-diluted share) on total capital spending (excluding
acquisitions) of $241.2 million,
yielding free cash flow of $38.7
million in the quarter.
- Nine-month cash flow was $788.8
million on total capital spending (excluding acquisitions)
of $659.7 million.
- Nine-month free cash flow of $129.1
million.
- Full-year 2020 cash flow is estimated to be $1.225 billion based on full-year average
production of between 310,000 and 312,000 boepd, contingent upon
the production levels of Jupiter at the time of closing.
- Q3 2020 earnings were $4.8
million ($0.02 per
fully-diluted share).
- Q3 2020 operating costs of $3.26/boe and year-to-date operating costs of
$3.10/boe remain amongst the lowest
in the sector.
- The recent announcement of Tourmaline's investment grade credit
status, combined with low prevailing interest rates, contributed to
an effective interest rate of 1.57% for Q3 2020.
CAPITAL PROGRAMS
- The 2020 EP capital program has been increased to $835.0 million from $800.0
million. The incremental spending relates to fourth quarter
drilling on the Modern and Jupiter assets to maintain existing
production levels, early mobilization of one rig for winter
drilling to maintain production on the Chinook/Polar Star assets,
and the initial facility progress payment on the Gundy Phase 2
expansion to maintain the 1H 2022 onstream schedule.
- The 2021 EP capital program is $1.1
billion vs anticipated 2021 cash flow of $2.0 billion, including $160 million to maintain/optimize production on
the new Modern and Jupiter assets. The 2021 capital program also
includes $100 million for Gundy Phase
2 deep cut plant progress payments (total completed Phase 2 plant
cost estimate remains at $150
million; Phase 1 total cost was $180
million).
- Tourmaline remains on track for record 2020 EP capital
efficiencies of $6,750/boepd,
increasing modestly in 2021 to $7,000/boepd with the Gundy Phase 2 facility
expenditures.
- Total annual maintenance capital, including production
maintenance on the Polar Star, Chinook, Deep Basin, Modern and
Jupiter assets is estimated at $900
million for 2021 and is expected to systematically decline
in subsequent years.
- The 2021 capital program includes approximately 225 new wells
(net) across the three Company-operated core complexes.
2H 2020 EP ACTIVITY
- Tourmaline is currently operating 11 drilling rigs and will
increase the fleet to 12 rigs by year end to accommodate the
increased Alberta Deep Basin activity.
- New well performance consistently exceeded expectation overall
during Q3. Specific highlights included:
-
- The first Lower Montney well on the 16 section block acquired
in Q4 2019 at South Gundy, BC
tested at a final rate of 9.4 mmcfpd of gas and 560 bbls per day of
condensate on a 188.5-hour flow test. This is an important
delineation well that may lead to a significant new liquid-rich
Tier 1 inventory increase.
- The 16-7-58-25W5 Wild River Falher D well in the Alberta Deep
Basin tested at 29 mmcfpd at a FCP of 9MPa on a 79.5-hour test.
- The 10-10-52-18W5M Edson well
in the Alberta Deep Basin tested at 31.5 mmcfpd at a FCP 13.1 MPa
on a 127-hour test from the Cretaceous Wilrich Formation.
- The 2-3-49-19W5 Lambert Notikewin well in the Alberta Deep
Basin tested at 50 mmcfpd at a FCP of 24 MPa on a 68-hour
test.
MARKETING UPDATE
- Tourmaline has an average of 475 mmcfpd hedged for Q4 2020 at a
weighted-average fixed price of CAD $2.80/mcf; an average of 146 mmcfpd hedged at a
basis to NYMEX of $ (0.15) USD/mcf;
and an average of 379 mmcfpd incremental volume exposed to export
markets, including Dawn, Empress, Chicago, Ventura, Sumas, Malin and
PG&E.
- Natural gas fundamentals for 2021 are steadily improving.
Approximately 72% of Tourmaline's natural gas volumes are exposed
to the markets on the Western half of the continent (PG&E,
Malin, Sumas, Station 2, AECO) where 2021 gas supply diminishment
is anticipated to be the greatest.
- At PG&E, 95% of the total deliveries remain unhedged for
2021 at a market where forward prices continue to rally.
- Tourmaline has diversification to the US and other hubs
amounting to 620 mmcfpd exit 2022 and 665 mmcfpd exit 2023.
- The Company will continue to hedge volumes related to 2021 and
2022 over the next several months.
- Tourmaline has 4 bcf of natural gas in storage facilities at
Dawn, Ontario and PG&E,
San Francisco which it plans to
draw out through the winter months at attractive prices. During Q3,
the Company injected 0.97 bcf of natural gas into storage.
2021 FINANCIAL OUTLOOK AND FIVE-YEAR PLAN
- Anticipated 2021 cash flow, including the new acquisitions, is
$2.0 billion at current strip
pricing, yielding free cash flow of $856
million on capital spending of $1.1
billion (free cash flow yield of 19%). The 2021 free cash
flow will be utilized to fund modest, sustainable dividend
increases, debt reduction, and potential share buybacks.
- Tourmaline intends to reduce overall debt to cash flow to less
than one times during 2021 - and maintain net debt at approximately
$1.0 – 1.5 billion.
- Tourmaline is maintaining the same modest EP growth profile as
the previous five-year plan, with 3-5% per annum production
growth.
- Free cash flow over the five years at strip in the revised plan
has now grown to $3.5 billion.
DIVIDEND INCREASE
- Given continued growth in the Company's sustainable free cash
flow, Tourmaline has elected to increase the quarterly dividend
from 12 cents per share to
14 cents per share ($0.56/share per year).
- Tourmaline commenced paying a dividend in the first quarter of
2018. The current dividend increase represents the fourth time the
dividend has been increased since then.
TOPAZ UPDATE
- The Topaz IPO was successfully completed on October 26, 2020 and Topaz's common shares now
trade on the Toronto Stock Exchange (TSX:TPZ).
- Tourmaline sold 1.0 million Topaz common shares in connection
with the IPO at a price of $13.00/share for total gross proceeds of
$13.0 million.
- Tourmaline owns 58.1 million Topaz shares which had a market
value of $809.4 million as of
November 3, 2020. Tourmaline may fund
future acquisition activity by monetizing a portion of this equity,
or by the sale of additional GORR or infrastructure assets to
Topaz, should the existing or future cost structure of the acquired
assets allow for it.
- During Q3, Topaz closed the acquisition of 12.5% of Advantage
Oil and Gas Ltd.'s Glacier natural gas plant and associated 15-year
50 mmcf/d take-or-pay contract, which will provide Topaz
$12 million in annual income. Also,
Tourmaline sold 25% of the Company's Banshee gas plant in the
Alberta Deep Basin to Topaz for cash proceeds of $52.5 million. The sale provides Topaz with a
take-or-pay commitment of 25 mmcfpd at $0.60/mcf for a 15-year term. Topaz pays its
share of operating costs and annual maintenance costs at the
Banshee plant.
- Including the initial two non-operating working interest plant
sales to Topaz in November 2019,
Tourmaline has dropped down a total of 125 mmcfpd of processing
capacity to Topaz. This represents 6.5% of current total Tourmaline
processing capacity of 1,750 mmcfpd across 20 Tourmaline
plants.
- Tourmaline has reached an agreement (2% on natural gas in 2021
and 3% in 2022 and thereafter, 2.5% on crude oil and condensate)
with Topaz to sell a GORR on the Modern and Jupiter lands effective
January 1, 2021 for $130 million.
OPERATING ENVIRONMENT AND THE COVID-19 PANDEMIC
- The COVID-19 pandemic has had a significantly negative impact
on economic conditions around the world in 2020. During this period
of uncertainty, the Company is committed to maintaining its strong
balance sheet and financial liquidity. At September 30, 2020, the Company had $1.3 billion in unutilized borrowing capacity on
its credit facilities. At September 30,
2020, the Company was in compliance with all of its
covenants under its credit facilities and has room under those
covenants to allow for further deterioration of commodity prices or
an increase in future borrowings to navigate through these
uncertain times, if required. 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 applicable 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 Q3 2020 Management's Discussion
and Analysis available on Tourmaline's website at
www.tourmalineoil.com and on SEDAR at www.sedar.com.
_______________________________
|
(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 Q3 2020 Management's
Discussion and Analysis.
|
|
|
(2)
|
"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 Q3 2020 Management's Discussion
and Analysis.
|
|
|
(3)
|
Based on oil and
gas commodity strip pricing at October 27, 2020.
|
|
|
(4)
|
Reserves have
been evaluated as follows: Jupiter 2P reserves of 357 mmboe as at
December 31, 2019 have been evaluated by GLJ Petroleum Consultants,
an independent reserve evaluator and Modern 2P reserves of 88 mmboe
as at August 31, 2020 have been internally estimated by qualified
reserve engineers, for combined 2P reserves of 445 mmboe. Reserves
are working interest gross reserves before deduction of royalties
payable to others and without including any royalty
interests.
|
|
|
(5)
|
"Free cash flow
yield" is determined by dividing Free Cash Flow by consideration
paid, including the assumption of net debt.
|
|
|
(6)
|
"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 Q3 2020 Management's Discussion and
Analysis.
|
|
|
(7)
|
Based on a
Tourmaline share price of $17.60.
|
CORPORATE SUMMARY – THIRD QUARTER 2020
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
OPERATIONS
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
1,413,983
|
1,402,468
|
1%
|
|
1,437,867
|
1,404,200
|
2%
|
Crude oil, condensate
and NGL (bbl/d)
|
62,538
|
55,833
|
12%
|
|
62,315
|
53,806
|
16%
|
Oil equivalent
(boe/d)
|
298,202
|
289,578
|
3%
|
|
301,960
|
287,839
|
5%
|
Product
prices(1)
|
|
|
|
|
|
|
|
Natural gas
($/mcf)
|
$
|
2.60
|
$
|
1.89
|
38%
|
|
$
|
2.48
|
$
|
2.52
|
(2)%
|
Crude oil, condensate
and NGL ($/bbl)
|
$
|
31.31
|
$
|
38.24
|
(18)%
|
|
$
|
29.73
|
$
|
39.56
|
(25)%
|
Operating expenses
($/boe)
|
$
|
3.26
|
$
|
3.11
|
5%
|
|
$
|
3.10
|
$
|
3.35
|
(7)%
|
Transportation costs
($/boe)
|
$
|
4.56
|
$
|
3.84
|
19%
|
|
$
|
4.50
|
$
|
3.77
|
19%
|
Operating
netback(3) ($/boe)
|
$
|
10.76
|
$
|
9.10
|
18%
|
|
$
|
9.92
|
$
|
11.81
|
(16)%
|
Cash general and
administrative
expenses ($/boe)(2)
|
$
|
0.55
|
$
|
0.48
|
15%
|
|
$
|
0.59
|
$
|
0.48
|
23%
|
FINANCIAL ($000, except share and per
share)
|
|
|
|
|
|
|
|
Total revenue from
commodity sales and realized gains
|
518,061
|
440,089
|
18%
|
|
1,486,529
|
1,547,749
|
(4)%
|
Royalties
|
8,596
|
12,654
|
(32)%
|
|
36,900
|
60,471
|
(39)%
|
Cash
flow(3)
|
279,923
|
223,984
|
25%
|
|
788,818
|
869,684
|
(9)%
|
Cash flow per share
(diluted)(3)
|
$
|
1.03
|
$
|
0.82
|
26%
|
|
$
|
2.91
|
$
|
3.20
|
(9)%
|
Net earnings
(loss)
|
4,826
|
15,750
|
(69)%
|
|
(10,880)
|
258,400
|
(104)%
|
Net earnings (loss)
per share (diluted)
|
$
|
0.02
|
$
|
0.06
|
(67)%
|
|
$
|
(0.04)
|
$
|
0.95
|
(104)%
|
Capital expenditures
(net of dispositions)
|
354,695
|
384,307
|
(8)%
|
|
812,341
|
966,870
|
(16)%
|
Weighted average
shares outstanding (diluted)
|
|
|
|
|
270,832,477
|
272,055,634
|
-%
|
Net
debt(3)
|
|
|
|
|
(1,788,068)
|
(1,914,413)
|
(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 Q3
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, November 5, 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 6868253.
Reader Advisories
CURRENCY
All amounts in this news release are stated in Canadian dollars
unless otherwise specified.
FORWARD-LOOKING INFORMATION
This news release contains forward-looking information and
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. The use of any of the words
"forecast", "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "on track", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are
intended to identify forward-looking information. More particularly
and without limitation, this news release contains forward-looking
information concerning Tourmaline's plans and other aspects of its
anticipated future operations, management focus, objectives,
strategies, financial, operating and production results and
business opportunities, including the following: anticipated
petroleum and natural gas production and production for various
periods including estimated production levels for 2020, 2021, 2022
and 2020 exit production; planned storage withdrawals realizing
higher commodity prices; capital expenditure budgets for various
periods including 2020 and 2021; estimated cash flow for various
periods including 2021 and 2022; estimated available liquidity and
credit capacity; estimated 2021 exit net debt-to-cash flow;
expectations for future natural gas price increases; expectations
for future opportunities for Topaz in 2021 and benefits to be
realized therefrom; future capital efficiencies to be realized; the
future declaration and payment of dividends and the timing and
amount thereof including the aggregate amount of dividends to be
paid in 2020 and the availability of free cash flow to fund such
dividends; cost reduction initiatives; projected operating and
drilling costs including anticipated reductions in operating costs;
the timing for facility expansions and facility start-up dates; the
benefits to be derived from the Modern and Jupiter acquisitions
including statements with respect to the operational, capital, land
and facility synergies of the acquisitions and the acquisition
being accretive to cash flow and free cash flow; the timing for the
completion of the Jupiter acquisition; growth plans for the Modern
and Jupiter assets; the intention to put in place further hedges in
the coming months; the statements made under the heading "2021
Financial Outlook and Five Year Plan"; as well as Tourmaline's
future drilling prospects and plans, business strategy, future
development and growth opportunities, prospects and asset base. The
forward-looking information is based on certain key expectations
and assumptions made by Tourmaline, including expectations and
assumptions concerning the following: prevailing and future
commodity prices and currency exchange rates including in the case
of 2021 and 2022 production estimates, commodity price assumptions
for natural gas (NYMEX (US) - $3.11/mcf and $2.78/mcf for 2021 and 2022, respectively, AECO -
$2.99/mcf and $2.68/mcf for 2021 and 2022, respectively), and
crude oil (WTI (US) - $41.24/bbl and
$42.20 for 2021 and 2022,
respectively) and an exchange rate assumption of 0.76 (US/CAD) for
2021 to 2022; the degree to which Tourmaline's operations and
production will be disrupted by circumstances attributable to the
COVID-19 pandemic and the responses of governments and the public
to the pandemic; applicable royalty rates and tax laws; interest
rates; future well production rates and reserve volumes; operating
costs, the timing of receipt of regulatory approvals; the
performance of existing wells; the success obtained in drilling new
wells; anticipated timing and results of capital expenditures; the
sufficiency of budgeted capital expenditures in carrying out
planned activities; the timing, location and extent of future
drilling operations; the benefits to be derived from acquisitions;
the state of the economy and the exploration and production
business including the impacts of the COVID-19 pandemic and
the responses of governments and the public to the pandemic
thereon; the availability and cost of financing, labour and
services; and ability to market crude oil, natural gas and NGL
successfully. Without limitation of the foregoing, future dividend
payments, if any, and the level thereof is uncertain, as the
Company's dividend policy and the funds available for the payment
of dividends from time to time is dependent upon, among other
things, free cash flow, financial requirements for the
Company's operations and the execution of its growth strategy,
fluctuations in working capital and the timing and amount of
capital expenditures, debt service requirements and other
factors beyond the Company's control. Further, the ability of
Tourmaline to pay dividends will be subject to applicable laws
(including the satisfaction of the solvency test contained in
applicable corporate legislation) and contractual restrictions
contained in the instruments governing its indebtedness, including
its credit facility.
Statements relating to "reserves" are also deemed to be forward
looking information, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
Although Tourmaline believes that the expectations and
assumptions on which such forward-looking information is based are
reasonable, undue reliance should not be placed on the
forward-looking information because Tourmaline can give no
assurances that it will prove to be correct. Since forward-looking
information addresses future events and conditions, by its very
nature it involves inherent risks and uncertainties. Actual results
could differ materially from those currently anticipated due to a
number of factors and risks. These include, but are not limited to:
the risks associated with the oil and gas industry in general such
as operational risks in development, exploration and production;
delays or changes in plans with respect to exploration or
development projects or capital expenditures; the uncertain impacts
of COVID-19 on Tourmaline's business, and the societal, economic
and governmental response to COVID-19; the uncertainty of estimates
and projections relating to reserves, production, revenues, costs
and expenses; health, safety and environmental risks; commodity
price and exchange rate fluctuations; interest rate fluctuations;
marketing and transportation; loss of markets; environmental risks;
competition; incorrect assessment of the value of acquisitions,
including the Modern and Jupiter acquisitions; failure to complete
or realize the anticipated benefits of acquisitions or
dispositions; ability to access sufficient capital from internal
and external sources; uncertainties associated with counterparty
credit risk; failure to obtain required regulatory and other
approvals; changes in legislation, including but not limited to tax
laws, royalties and environmental regulations; and political party
policy changes or mandates resulting from governmental elections in
Canada and in the United States. Readers are cautioned that
the foregoing list of factors is not exhaustive.
Additional information on these and other factors that could
affect Tourmaline, or its operations or financial results, are
included in the Company's most recently filed Management's
Discussion and Analysis (See "Forward-Looking Statements" therein),
Annual Information Form (See "Risk Factors" and "Forward-Looking
Statements" therein) and other reports on file with applicable
securities regulatory authorities and may be accessed through the
SEDAR website (www.sedar.com) or Tourmaline's website
(www.tourmalineoil.com).
The forward-looking information contained in this news release
is made as of the date hereof and Tourmaline undertakes no
obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, unless expressly required by applicable securities
laws.
FINANCIAL OUTLOOK
Also included in this news release are estimates of Tourmaline's
2021 exit net debt-to-cash flow ratio as well as 2021 cash flow and
2022 cash flow from the Jupiter and Modern acquisitions, which are
based on, among other things, the various assumptions as to
production levels, capital expenditures, annual cash flows and
other assumptions disclosed in this news release and including
Tourmaline's estimated average production of 390,000 – 410,000
boepd for 2021 and 75,000 – 85,000 boepd average 2022 production
related to the Modern and Jupiter acquisitions. Commodity price
assumptions for natural gas (NYMEX (US) - $3.11/mcf and $2.78/mcf for 2021 and 2022, respectively, AECO -
$2.99/mcf and $2.68/mcf for 2021 and 2022, respectively), and
crude oil (WTI (US) - $41.24/bbl and
$42.20/bbl for 2021 and 2022,
respectively) and an exchange rate assumption of $0.76 (US/CAD) for 2021 and 2022. To the extent
such estimates constitute financial outlooks, they were approved by
management and the board of directors of Tourmaline on November 4, 2020 and are included to provide
readers with an understanding of Tourmaline's anticipated 2021 exit
net debt-to-cash flow ratio and cash flow and free cash flow based
on the capital expenditure, production and other assumptions
described herein and readers are cautioned that the information may
not be appropriate for other purposes. In particular, readers are
cautioned that estimates for 2022 are provided for illustration
only as budgets and forecasts beyond 2021 have not been finalized
and are subject to a variety of factors including prior year's
results.
NON-GAAP FINANCIAL MEASURES
This news release includes references to "free cash flow", "cash
flow", "net debt" and "net capital expenditures" which are
financial measures commonly used in the oil and gas industry and do
not have a standardized meaning prescribed by International
Financial Reporting Standards ("GAAP"). Accordingly, the Company's
use of these terms may not be comparable to similarly defined
financial measures presented by other companies. Management uses
the term "free cash flow", "cash flow", "net debt" and "net capital
expenditures" for its own performance measures and to provide
shareholders and potential investors with a measurement of the
Company's efficiency and its ability to generate the cash necessary
to fund a portion of its future growth expenditures, to pay
dividends or to repay debt. Investors are cautioned that these
non-GAAP financial measures should not be construed as an
alternative to net income or cash from operating activities
determined in accordance with GAAP as an indication of the
Company's performance. Free cash flow is calculated as cash flow
less total net capital expenditures and is prior to dividend
payments. Cash flow is defined as cash provided by operations
before changes in non-cash operating working capital. Net debt is
defined as bank debt plus working capital (adjusted for the fair
value of financial instruments and lease liabilities). Net capital
expenditures is defined as the sum of E&P capital program and
other corporate expenditures, net of non-core dispositions. See
"Non-GAAP Financial Measures" in the most recently filed
Management's Discussion and Analysis for additional information
regarding these non-GAAP financial measures including
reconciliations to the most directly comparable GAAP financial
measures.
OIL AND GAS METRICS
This news release contains certain oil and gas metrics which do
not have standardized meanings or standard methods of calculation
and therefore such measures may not be comparable to similar
measures used by other companies and should not be used to make
comparisons. Such metrics have been included in this document to
provide readers with additional measures to evaluate the Company's
performance; however, such measures are not reliable indicators of
the Company's future performance and future performance may not
compare to the Company's performance in previous periods and
therefore such metrics should not be unduly relied upon.
INITIAL PRODUCTION RATES
Any references in this news release to initial production rates
are useful in confirming the presence of hydrocarbons; however,
such rates are not determinative of the rates at which such wells
will continue production and decline thereafter and are not
necessarily indicative of long-term performance or ultimate
recovery. While encouraging, readers are cautioned not to place
reliance on such rates in calculating the aggregate production for
the Company. Such rates are based on field estimates and may be
based on limited data available at this time.
ESTIMATED ULTIMATE RECOVERY (EUR)
This news release contains a metric commonly used in the oil and
natural gas industry, "estimated ultimate recovery" (EUR). The term
EUR is the estimated quantity petroleum that is potentially
recoverable or has already been recovered from a well. EUR does not
have a standardized meaning and may not be comparable to similar
measures presented by other companies. As such, it should not be
used to make comparisons. Management uses EUR for its own
performance measurements and to provide shareholders with measures
to compare the Company's performance over time; however, such
measure is not a reliable indicator of the Company's future
performance and future performance may not compare to the
performance in previous periods and therefore should not be unduly
relied upon. EUR was determined internally by the Company by a
non-independent qualified reserves evaluator incorporating current
well results and historical well performance from the Company's
analogous pools in the nearby area.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to Tourmaline's 2020 exit
rate production, Q3 2020, Q3 YTD 2020, current and 2021 average
daily production and various average daily production references
from recently announced acquisitions. The following table is
intended to provide supplemental information about the product type
composition for each of the production figures that are provided in
this news release:
|
Light and
Medium
Crude Oil(1)
|
|
Conventional
Natural Gas
|
|
Shale Natural
Gas
|
|
Natural Gas
Liquids(1)
|
|
Oil Equivalent
Total
|
|
Company Gross
(Bbls)
|
|
Company Gross
(Mcf)
|
|
Company Gross
(Mcf)
|
|
Company Gross
(Bbls)
|
|
Company Gross
(Boe)
|
2020 Exit Rate
Production
|
31,708
|
|
874,753
|
|
650,054
|
|
39,158
|
|
325,000
|
Q3 2020 Average
Daily
Production
|
27,248
|
|
841,423
|
|
572,560
|
|
35,290
|
|
298,202
|
Q3 2020 YTD
Average
Daily Production
|
27,695
|
|
880,616
|
|
557,251
|
|
34,620
|
|
301,960
|
Current Average
Daily
Production
|
31,482
|
|
905,782
|
|
635,873
|
|
39,076
|
|
327,500
|
2021 Average
Daily
Production
|
32,680
|
|
1,201,174
|
|
679,834
|
|
53,819
|
|
400,000
|
Current Modern
Average
Daily Production
|
810
|
|
42,210
|
|
-
|
|
1,170
|
|
9,000
|
Current Jupiter
Average
Daily Production
|
2,973
|
|
292,225
|
|
-
|
|
15,323
|
|
67,000
|
2022 Jupiter
Average
Daily Production
|
3,217
|
|
316,214
|
|
-
|
|
16,581
|
|
72,500
|
Future
Modern/Jupiter
Average Daily Production
|
4,200
|
|
373,722
|
|
-
|
|
18,513
|
|
85,000
|
|
|
(1)
|
For the purposes
of this disclosure, condensate has been combined with Light and
Medium Crude Oil as the associated revenues and certain costs of
condensate are similar to Light and Medium Crude Oil. Accordingly,
NGLs in this disclosure exclude condensate.
|
RESERVES DATA
Jupiter 2P reserves of 357 mmboe as at December 31, 2019 have been evaluated by GLJ
Petroleum Consultants, an independent reserve evaluator and Modern
2P reserves of 88 mmboe as at August 31,
2020 have been internally estimated by qualified reserve
engineers. Reserves are working interest gross reserves before
deduction of royalties payable to others and without including any
royalty interests.
There are numerous uncertainties inherent in estimating
quantities of crude oil, natural gas and NGL reserves and the
future cash flows attributed to such reserves. The reserve and
associated cash flow information set forth above are estimates
only. In general, estimates of economically recoverable crude oil,
natural gas and NGL reserves and the future net cash flows
therefrom are based upon a number of variable factors and
assumptions, such as historical production from the properties,
production rates, ultimate reserve recovery, timing and amount of
capital expenditures, marketability of oil and natural gas, royalty
rates, the assumed effects of regulation by governmental agencies
and future operating costs, all of which may vary materially. For
those reasons, estimates of the economically recoverable crude oil,
NGL and natural gas reserves attributable to any particular group
of properties, classification of such reserves based on risk of
recovery and estimates of future net revenues associated with
reserves prepared by different engineers, or by the same engineers
at different times, may vary. The Company's actual production,
revenues, taxes and development and operating expenditures with
respect to its reserves will vary from estimates thereof and such
variations could be material.
The estimates of reserves and future net revenue for individual
properties may not reflect the same confidence level as estimates
of reserves and future net revenue for all properties, due to
effects of aggregations. The estimated values of future net revenue
disclosed in this news release do not represent fair market value.
There is no assurance that the forecast prices and cost assumptions
used in the reserve evaluations will be attained and variances
could be material.
ESTIMATES OF DRILLING LOCATIONS
Unbooked drilling locations are the internal estimates of
Tourmaline based on Tourmaline's prospective acreage and an
assumption as to the number of wells that can be drilled per
section based on industry practice and internal review. Unbooked
locations do not have attributed reserves or resources (including
contingent and prospective). Unbooked locations have been
identified by Tourmaline's management as an estimation of
Tourmaline's multi-year drilling activities based on evaluation of
applicable geologic, seismic, engineering, production and reserves
information. There is no certainty that Tourmaline will drill all
unbooked drilling locations and if drilled there is no certainty
that such locations will result in additional oil and natural gas
reserves, resources or production. The drilling locations on which
Tourmaline will actually drill wells, including the number and
timing thereof is ultimately dependent upon the availability of
funding, regulatory approvals, seasonal restrictions, oil and
natural gas prices, costs, actual drilling results, additional
reservoir information that is obtained and other factors. While a
certain number of the unbooked drilling locations have been
de-risked by Tourmaline drilling existing wells in relative close
proximity to such unbooked drilling locations, the majority of
other unbooked drilling locations are farther away from existing
wells where management of Tourmaline has less information about the
characteristics of the reservoir and therefore there is more
uncertainty whether wells will be drilled in such locations and if
drilled there is more uncertainty that such wells will result in
additional oil and gas reserves, resources or production.
BOE EQUIVALENCY
Per barrel of oil equivalent amounts have been calculated using
a conversion rate of six thousand cubic feet of natural gas to one
barrel of oil equivalent (6:1). Barrel of oil equivalents (boe) may
be misleading, particularly if used in isolation. A boe conversion
ratio of 6 mcf:1 bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. In addition, as the
value ratio between natural gas and crude oil based on the current
prices of natural gas and crude oil is significantly different from
the energy equivalency of 6:1, utilizing a conversion on a 6:1
basis may be misleading as an indication of value.
GENERAL
See also "Forward-Looking Statements", and "Non-GAAP Financial
Measures" in the most recently filed Management's Discussion and
Analysis.
CERTAIN DEFINITIONS:
bbl
|
barrel
|
bbls/day
|
barrels per
day
|
bbl/mmcf
|
barrels per million
cubic feet
|
bcf
|
billion cubic
feet
|
bcfe
|
billion cubic feet
equivalent
|
bpd or
bbl/d
|
barrels per
day
|
boe
|
barrel of oil
equivalent
|
boepd or
boe/d
|
barrel of oil
equivalent per day
|
bopd or
bbl/d
|
barrel of oil,
condensate or liquids per day
|
CO2
|
carbon
dioxide
|
DUC
|
drilled but
uncompleted wells
|
EUR
|
estimated ultimate
recovery
|
FCP
|
flowing casing
pressure
|
gj
|
gigajoule
|
gjs/d
|
gigajoules per
day
|
mbbls
|
thousand
barrels
|
mmbbls
|
million
barrels
|
mboe
|
thousand barrels of
oil equivalent
|
mboepd
|
thousand barrels of
oil equivalent per day
|
mcf
|
thousand cubic
feet
|
mcfpd or
mcf/d
|
thousand cubic feet
per day
|
mcfe
|
thousand cubic feet
equivalent
|
mmboe
|
million barrels of
oil equivalent
|
mmbtu
|
million British
thermal units
|
mmbtu/d
|
million British
thermal units per day
|
mmcf
|
million cubic
feet
|
mmcfpd or
mmcf/d
|
million cubic feet
per day
|
MPa
|
megapascal
|
mstb
|
thousand stock tank
barrels
|
NGL or
NGLs
|
natural gas
liquids
|
NOx
|
nitrogen
oxide
|
SO2
|
sulphur
dioxide
|
tcf
|
trillion cubic
feet
|
MANAGEMENT'S DISCUSSION AND ANALYSIS AND CONSOLIDATED
FINANCIAL STATEMENTS
To view Tourmaline's Management's Discussion and Analysis and
Interim Condensed Consolidated Financial Statements for the periods
ended September 30, 2020 and 2019,
please refer to SEDAR (www.sedar.com) or Tourmaline's website at
www.tourmalineoil.com.
ABOUT TOURMALINE OIL CORP.
Tourmaline is an investment grade Canadian senior crude oil and
natural gas exploration and production company focused on providing
strong and predictable long-term growth and a steady return to
shareholders through an aggressive exploration, development,
production and acquisition program in the Western Canadian
Sedimentary Basin by building its extensive asset base in its three
core exploration and production areas and exploiting and developing
these areas to increase reserves, production and cash flows at an
attractive return on invested capital.
SOURCE Tourmaline Oil Corp.