CALGARY, AB, June 11, 2021 /CNW/ - Tourmaline Oil Corp. (TSX:
TOU) ("Tourmaline" or the "Company") is pleased to announce that it
has entered into a definitive agreement to acquire privately owned
Black Swan Energy Ltd. ("Black Swan") for a total consideration of
approximately $1.1 billion Cdn,
consisting of 26 million Tourmaline common shares and the
assumption of net debt(1) up to a maximum of
$350 million, including all
transaction costs. The transaction is expected to close in the
second half of July 2021, subject to
regulatory approvals.
The acquisition represents a further important component of the
Company's ongoing North Montney
consolidation strategy. Tourmaline envisions the North Montney as the key sub-basin for
supplying Canadian LNG, as the Company expects the North Montney to be the primary growth driver
in the entire Western Canadian Sedimentary Basin for the next
decade. The Black Swan acquisition complements Tourmaline's
core Gundy development and, along
with the more recent Polar Star, Chinook, and Saguaro transactions,
will establish Tourmaline as the largest current North Montney producer with the most extensive
future drilling and project inventory. As a Senior Canadian
producer, Tourmaline now expects to average approximately 500,000
boepd of production by mid-2022.
BLACK SWAN ACQUISITION OVERVIEW
- Tourmaline will acquire expected average production of over
50,000 boepd at close, post the first phase of the Nig Creek
expansion, which expands again to 60,000 boepd in 1H 2022 upon
completion of the deep cut installation.
- Tourmaline acquires existing 2P reserves of 491.9 million boe
(GLJ - December 31, 2020), 1,600
Montney horizontal internally
estimated drilling locations (237 booked in GLJ 2P Reserve
category), and 230,000 net acres of Montney rights. All the acquired reserves are
in the Aitken core development area.
- The acquisition includes material Montney land positions at Laprise, Beg, Jedney
and Sojer that complement extensive existing Tourmaline North
Montney acreage positions. Black Swan had not booked material
reserves on these additional, highly prospective, acreage
positions.
- Significant key gas processing and transportation
infrastructure including operatorship and 50% working interest in
the two new Black Swan gas plants at greater Aitken, with existing
capacity of 265 mmcfpd, which can be expanded to 360 mmcfpd. These
plants and pipelines represent important components of Tourmaline's
planned North Montney regional gas
and liquid processing and transportation infrastructure
complex.
- The existing Black Swan developed block at Aitken features
amongst the highest performance Tier 1 Montney subsurface assets
with per well EUR of 8-10 bcf and strong initial liquid yields
(40-70 bbl/mmcf, 50-60% C5(+)). As of 2020YE, there were 99
producing Upper Montney horizontals and an additional 220 Upper
Montney 2P undeveloped locations currently at Aitken (GLJ –
December 31, 2020).
- Existing Black Swan cash costs(2) are top quartile
at under $10.00/boe. Tourmaline
envisages considerable cost synergies on a go forward basis.
- Black Swan's three largest shareholders as well as all
directors and officers have entered into agreements with Tourmaline
in support of the transaction representing, in aggregate, over
98.5% of Black Swan's outstanding common shares.
- The board of directors of each Black Swan and Tourmaline have
unanimously approved the transaction.
- Scotia and Stifel FirstEnergy acted as financial advisors to
Tourmaline and Peters & Co. Limited acted as financial advisor
to Black Swan.
TOURMALINE PLANS AND OUTLOOK
- The Black Swan acquisition will facilitate Tourmaline evolving
into a 500,000 boepd company during 2022, with anticipated mid-2022
gas production of 2.25-2.30 bcf/day and total liquid production of
115,000 bpd (oil, condensate, NGLs).
- The acquisition is expected to grow Tourmaline's North Montney production to approximately
175,000 boepd during 2022, inclusive of the Gundy Phase 2 expansion
commencing production in January
2022.
- The Company's envisioned North Conroy expansion is expected to
increase Tourmaline North Montney production by an additional
100,000 boepd post 2025.
- Tourmaline expects the Black Swan assets to generate a
$150-200 million/year in free cash
flow ("FCF")(3) at strip pricing(4) in 2022
and beyond. The FCF accelerates in 2023 after existing Black Swan
natural gas hedges expire.
- Tourmaline will complete the Nig Creek Phase 2 plant expansion
growing production to 60,000 boepd in 1H 2022 and plans to maintain
production at those levels. There is a current available drilling
inventory in the core Aitken development to maintain production at
these levels for approximately 15 years. Annual maintenance capital
is estimated at $65 - 70 million
(16-18 wells/year).
- An expansion of the North Aitken plant, with deep cut
capability installation, is currently scheduled in the 2024-2025
timeframe, adding an incremental 15,000 boepd to the Black Swan
production base. Tourmaline will match this incremental project to
the timing of incremental Basin egress capacity that the Company
secures.
- Tourmaline expects to be able to reduce cash and capital costs
for the Black Swan assets, improving margins/FCF generation
commencing in 2022.
DIVIDEND INCREASE
- Given the magnitude of the sustainable FCF generated from the
Black Swan assets, as well as Tourmaline's low-cost structure, the
Board of Directors of Tourmaline has approved a 1 cent/share per quarter dividend increase (6.25%
increase) effective in Q3 2021.
_____________________________
|
(1)
|
"Net debt" is defined
as bank debt, and senior notes plus working capital (adjusted for
the fair value of financial instrument and excludes commodity
hedging) and includes all transaction costs.
|
(2)
|
Cash costs are
defined as operating, transportation, general and administrative
and financing costs.
|
(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 2021
Management's Discussion and Analysis.
|
(4)
|
Based on oil and gas
commodity strip pricing at June 4, 2021.
|
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: the benefits of the Black
Swan acquisition including the anticipated FCF to be generated from
the Black Swan assets; future dividend increases and levels;
anticipated petroleum and natural gas production and production
growth for various periods including estimated production levels
for 2022 and beyond; the timing for the completion of the Gundy
Phase 2 expansion; the shift to greater Conroy area over the next
five years to develop a separate operated complex in the
North Montney; the benefits to be
derived from the startup of LNG Canada and the growth prospects of
the North Montney; targeted future
drill/complete capital costs in the North
Montney play area; the timing for the completion of the
transaction with Topaz; the statements contained under the heading
"Tourmaline Plans and Outlook"; 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; prevailing and future
commodity prices and currency exchange rates; 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
successful completion of acquisitions (including the Black Swan
acquisition) and dispositions and the benefits to be derived
therefrom; the state of the economy and the exploration and
production business; 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 natural 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 uncertainty of
estimates and projections relating to reserves, production,
revenues, costs and expenses; health, safety and environmental
risks; pandemics (including COVID-19); 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; failure to
complete or realize the anticipated benefits of acquisitions
(including the Black Swan acquisition) or dispositions; ability to
access sufficient capital from internal and external sources;
failure to obtain required regulatory and other approvals; and
changes in legislation, including but not limited to tax laws,
royalties and environmental regulations.
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.
RESERVES DATA
The reserves data set forth in this new release is based upon
internal estimates. 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.
BOE EQUIVALENCY
In this news release, production and reserves information may be
presented on a "barrel of oil equivalent" or "BOE" basis. BOEs 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.
FINANCIAL OUTLOOKS
Also included in this news release are estimates of 2022 cash
flow and free cash flow, 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 estimated average production
related to the acquired assets of 50,000 boepd at close and growing
to 60,000 boepd in 2022 as well as total Tourmaline production of
500,000 boepd during 2022. Commodity price assumptions for
natural gas (NYMEX (US) - $2.96/mcf,
$2.92/mcf, $2.72/mcf, $2.70/mcf and $2.69/mcf for 2021 – 2025, respectively; AECO -
$3.13/mcf, $2.77/mcf, $2.49/mcf, $2.51/mcf and $2.52/mcf for 2021 – 2025, respectively), and
crude oil (WTI (US) - $64.64/bbl,
$63.07/bbl, $58.76/bbl, $55.94/bbl and $54.25/bbl for 2021 – 2025, respectively) and an
exchange rate assumption of $0.82
(US/CAD) for 2021, $0.83 for 2022 and
$0.82 for 2023 – 2025. Further, in
the case of years subsequent to 2021, readers are cautioned that
such estimates are provided for illustration only and are based on
budgets and forecasts that have not been finalized and are subject
to a variety of additional factors and contingencies including
prior years' results. To the extent such estimates constitute
financial outlooks, they were approved by management and the Board
of Directors of Tourmaline on June 11,
2021 and are included to provide readers with an
understanding of Tourmaline's anticipated 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.
NON-GAAP FINANCIAL MEASURES
This news release includes references to "free cash flow", "cash
flow", and "net debt" 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 measures presented by other companies.
Management uses the term "free cash flow", "cash flow", and "net
debt" 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 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. 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 December 31,
2020 Management's Discussion and Analysis for the definition
and description of these terms.
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.
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.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to expected acquired
average daily production, Q1 2022 average daily production from the
acquired assets, Tourmaline's total mid-2022 production levels and
Tourmaline's overall North Montney
production. 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)
|
Acquired Average
Daily
Production at
close.......
|
2,500
|
|
-
|
|
231,000
|
|
9,000
|
|
50,000
|
Q1 2022 Average
Daily
Production from
acquired
assets.............
|
3,125
|
|
-
|
|
275,000
|
|
11,040
|
|
60,000
|
Mid-2022 Average
Daily
Production
assets
|
40,500
|
|
1,261,650
|
|
1,048,350
|
|
74,500
|
|
500,000
|
Total North
Montney
Average Daily
Production....................
|
16,200
|
|
-
|
|
768,000
|
|
30,800
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
(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.
|
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.
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
|
DUC
|
drilled but
uncompleted wells
|
EUR
|
estimated ultimate
recovery
|
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
|
natural
gas
|
conventional natural
gas and shale gas
|
NGL or
NGLs
|
natural gas
liquids
|
tcf
|
trillion cubic
feet
|
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.
Website: www.tourmalineoil.com
SOURCE Tourmaline Oil Corp.