CALGARY, AB, July 15, 2021 /CNW/ - Tourmaline Oil Corp. (TSX:
TOU) ("Tourmaline" or the "Company") is pleased to announce the
closing of two strategic North
Montney transactions, a North Montney GORR transaction with
Topaz Energy Corp. ("Topaz") and a significant long-term gas supply
agreement with Cheniere Energy, Inc. ("Cheniere").
BLACK SWAN ENERGY CLOSING
- Tourmaline is pleased to announce the closing of its
acquisition of Black Swan Energy Ltd. ("Black Swan").
- Tourmaline will complete the ongoing Nig Creek plant expansion, bringing production
from the Black Swan assets to 60,000 boepd early in Q2 2022.
- With the closing of the Black Swan acquisition, Tourmaline is
currently producing 465,000–475,000 boepd.
- Tourmaline expects to reach the 500,000 boepd production
milestone during Q2 of 2022 and, at approximately 105,000 bpd, has
exceeded the 100,000-bpd liquid production milestone (oil,
condensate, NGLs).
PARAMOUNT BIRCH
- Tourmaline has acquired Paramount Resources Ltd.'s
("Paramount") lands and assets in the Birch area of the
North Montney trend. The acquired
assets include 2,400 boepd of current production from 15 Montney
horizontals, 2P reserves of 40 mmboe(1), and an
estimated 105 future Tier 1 locations for total consideration of
approximately $88 million before
customary closing adjustments.
- The Birch transaction completes the consolidation of key
available assets along the future eastern leg of planned Tourmaline
infrastructure and lies in immediate proximity to the Black Swan
lands.
- These are Tier 1 Montney assets, with EUR, deliverability and
economics similar to the Black Swan inventory (8 - 10 bcf, 400 -
500 mbbl/well).
TOPAZ TRANSACTIONS
- Tourmaline closed the previously announced NEBC Montney GORR
and infrastructure transaction with Topaz on July 1, 2021, receiving $245 million of cash proceeds.
- Tourmaline has also entered into an agreement with Topaz on the
Black Swan and Paramount Birch assets in NEBC, whereby Tourmaline
will grant a GORR to Topaz (4% on gas for 2021-2023, reducing to 3%
in 2024, 2.5% on condensate) in exchange for cash consideration of
$145 million. The closing is
scheduled for August 3, 2021.
- Topaz, which was created in part to facilitate participation in
the recognized developing generational M&A opportunities in 2H
2019, has provided Tourmaline with $573
million of cash proceeds through GORR and select
infrastructure drop down transactions in the 2020 / 2021
timeframe.
- Topaz has, in part, allowed Tourmaline to execute on its
consolidation strategy while continuing to deleverage its balance
sheet. Tourmaline's net debt(2) at September 30, 2019, was $1.9 billion; the estimated net debt at year-end
2021 is $1.3 billion(3).
Comparing Q4 2021(4) to Q3 2019, quarterly production
will have grown by 64%, cash flow(5) by greater than
200%, and free cash flow ("FCF")(6) by greater than
$300 million. Debt to cash flow will
drop from 2.1 times in mid-2019 to 0.5 times by exit 2021.
CONSOLIDATION / FUTURE M&A
- Tourmaline's two-year consolidation initiative in the Alberta
Deep Basin and BC Montney
complexes is now essentially complete.
- The Company may pursue smaller asset deals or land purchases of
a non-material nature, likely in 2022. There are currently no
further large transactions planned.
- Tourmaline's focus will now shift to achieving the envisaged
synergies and enhanced FCF opportunities from the numerous assets
acquired over the last 18 months. Continued reduction in cash
costs(7) and Tourmaline's lower drill/complete capital
costs are the key vehicles for accelerating this FCF
generation.
- Tourmaline has embarked upon a comprehensive internal margin
improvement initiative to reduce all elements of the cash cost
equation. Each $1.00/boe of margin
improvement will yield approximately $180
million of annual FCF in 2022. Given the very low staff
levels that the Company has always maintained (currently 250 head
office employees), staff reductions are not part of this
initiative.
FREE CASH FLOW LOOK-BACK / KEY SCREENING CRITERIA
- Tourmaline's key screening criteria for M&A activities has
been that the acquired assets or companies must generate FCF within
12 months of acquisition and a FCF yield comparable to or better
than that delivered by the ongoing five-year EP organic growth
plan.
- The 2020 M&A strategy
involved four corporate acquisitions for total consideration
(including assumption of net debt, cash proceeds and issuance of
common shares) of $795 million before
accounting for Topaz cash proceeds. These four transactions are
expected to generate approximately $170
million of FCF in 2021 and approximately $290 million in 2022 at strip
pricing(8). A FCF yield of 21 - 36% vs the organic EP
growth plan of 10 - 12% in 2021/2022.
- Including all 2020/2021 transactions, Tourmaline has acquired
1.2 million net acres, 1.4 billion boe net 2P
reserves(9), 4,500 gross drilling locations since Q4
2019. These assets are currently producing 157,000 boepd and are
expected to generate over $500
million of FCF in 2022.
LONG-TERM LNG EXPORT MARKETING ARRANGEMENT WITH CHENIERE
ENERGY
- Tourmaline, Canada's largest
natural gas producer, and Cheniere, the largest LNG company in
the United States, have entered
into a long-term marketing arrangement whereby Tourmaline will
supply 140,000 mmbtu per day (approximately 140 mmcfpd) to the
Corpus Christi liquefaction terminal for a 15-year term commencing
in January 2023.
- The LNG Netback Supply Arrangement provides international price
exposure to JKM ("Platts Japan-Korea Marker") for Tourmaline, for
effectively one cargo per month. JKM is currently trading at
approximately US$12.98/mmbtu.
- Tourmaline has secured long-term firm transportation with TC
Energy Corporation on existing pipeline systems for total tolls of
US$0.86/mmbtu, allowing Tourmaline's
low-emission natural gas from the Company's Alberta Deep Basin or
BC Montney complexes to access
Asian LNG market pricing while further diversifying Tourmaline's
sales points for natural gas.
NORMAL COURSE ISSUER BID
- Tourmaline is also pleased to announce that the Toronto Stock
Exchange (the "TSX") has approved the renewal of Tourmaline's
normal course issuer bid (the "NCIB").
- The NCIB allows Tourmaline to purchase up to 14,943,420 common
shares (representing 5% of its 298,868,400 outstanding common
shares as of July 9, 2021) over a
period of twelve months commencing on July
20, 2021. The NCIB will expire no later than July 19, 2022. Under the NCIB, common shares may
be repurchased in open market transactions on the TSX and other
alternative trading platforms in Canada and in accordance with the rules of the
TSX governing NCIB's. The total number of common shares Tourmaline
is permitted to purchase is subject to a daily purchase limit of
349,086 common shares, representing 25% of the average daily
trading volume of 1,396,344 common shares on the TSX calculated for
the six-month period ended June 30,
2021, however, Tourmaline may make one block purchase per
calendar week which exceeds the daily repurchase restrictions. Any
common shares that are purchased under the NCIB will be cancelled
upon their purchase by Tourmaline.
- Under its most recent normal course issuer bid, Tourmaline
obtained approval to purchase up to 13,538,778 of its common
shares, of which Tourmaline made no purchases.
- Tourmaline believes that at times, the prevailing share price
does not reflect the underlying value of the common shares and the
repurchase of its common shares for cancellation may represent an
attractive opportunity to enhance Tourmaline's per share metrics
and thereby increase the underlying value of its common shares to
its shareholders. Tourmaline may use the NCIB as another tool to
enhance total long-term shareholder returns and may be used in
conjunction with management's disciplined free funds flow capital
allocation strategy.
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(1)
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Reserves have been
internally estimated by qualified reserve engineers.
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(2)
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"Net debt" is defined
as bank debt and senior unsecured notes plus working capital
deficit (adjusted for the fair value of financial instruments,
short-term lease liabilities, short-term decommissioning
obligations and unrealized foreign exchange in working capital
deficit). See "Non-GAAP Financial Measures" in this news release
and in the Company's Q1 2021 Management's Discussion and
Analysis.
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(3)
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Based on net debt of
$1.4 billion as forecast in the Five-Year Plan Guidance released on
June 11, 2021 and pro forma the August 3, 2021 proceeds of $145
million from Topaz and the $45 million paid to Paramount in
connection with the purchase of Birch area assets.
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(4)
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Based on Five-Year
Plan Guidance released on June 11, 2021.
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(5)
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"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 Q1 2021 Management's
Discussion and Analysis.
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(6)
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"Free cash flow" or
"FCF" 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.
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(7)
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Cash costs are
defined as operating, transportation, general and administrative
and financing costs.
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(8)
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Based on oil and gas
commodity strip pricing at July 8, 2021.
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(9)
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All but approximately
140 mmboe of the acquired net 2P reserves have been evaluated by
GLJ Petroleum Consultants or Deloitte LLP, independent reserve
evaluators, as at the respective transaction dates. The
remaining 140 mmboe has been internally estimated by qualified
reserve engineers.
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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 Company's various acquisitions activities, including Black Swan
and the four corporate acquisitions completed in 2020, including
the anticipated FCF to be generated from the acquired assets;
anticipated petroleum and natural gas production and production
growth for various periods including estimated production levels
for 2022; the timing for the completion of the transaction with
Topaz; that Tourmaline's focus will shift to achieving the
envisaged synergies and enhanced FCF opportunities from the
numerous assets acquired over the last 18 months; the anticipated
continued reduction in cash costs and lower drill/complete capital
costs being the key vehicles for accelerating this FCF generation;
the benefits and purpose of the NCIB; the benefits to be obtained
from Tourmaline's consolidation initiatives; the statements
contained under the heading "Free Cash Flow Look-Back/Key Screening
Criteria"; 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, FCF, 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 and Birch acquisitions) 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 2021 and
2022 cash flow and FCF from Tourmaline's various mergers and
acquisitions activities, 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. Commodity price assumptions for natural
gas (NYMEX (US) - $3.23/mcf and
$3.19/mcf for 2021 and 2022,
respectively; AECO - $3.47/mcf and
$3.10/mcf for 2021 and 2022,
respectively), and crude oil (WTI (US) - $66.53/bbl and $64.66/bbl for 2021 and 2022, respectively) and
an exchange rate assumption of $0.80
(US/CAD) for 2021 and 2022. 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 July 15,
2021 and are included to provide readers with an
understanding of Tourmaline's anticipated cash flow and FCF 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 "FCF", "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 "FCF", "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. FCF 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 most
recently filed 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 total current average
daily production, early Q2 2022 average daily production from the
acquired Black Swan assets, Tourmaline's total mid-2022 production
levels and production from the acquired Paramount assets. 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:
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Light and
Medium
Crude Oil(1)
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Conventional
Natural Gas
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Shale Natural
Gas
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Natural Gas
Liquids(1)
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Oil Equivalent
Total
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Company Gross
(Bbls)
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Company Gross
(Mcf)
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Company Gross
(Mcf)
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Company Gross
(Bbls)
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Company Gross
(Boe)
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Total Current
Average
Daily Production.............
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38,220
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1,182,600
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1,007,400
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66,780
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470,000
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Early Q2 2022
Average
Daily Production from
Black Swan assets.........
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3,125
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-
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275,000
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11,040
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60,000
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Total Mid-2022
Average
Daily Production.............
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40,500
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1,261,650
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1,048,350
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74,500
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500,000
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Average Daily
Production
from acquired Paramount
assets.............................
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280
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-
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11,100
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270
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2,400
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(1)
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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.
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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
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barrel
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bbls/day
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barrels per
day
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bbl/mmcf
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barrels per million
cubic feet
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bcf
|
billion cubic
feet
|
bcfe
|
billion cubic feet
equivalent
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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
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barrel of oil,
condensate or liquids per day
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DUC
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drilled but
uncompleted wells
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EUR
|
estimated ultimate
recovery
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gj
|
gigajoule
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gjs/d
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gigajoules per
day
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GORR
|
gross overriding
royalty
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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
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mmbtupd or
mmbtu/d
|
million British
thermal units per day
|
mmcf
|
million cubic
feet
|
mmcfpd or
mmcf/d
|
million cubic feet
per day
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MPa
|
megapascal
|
mstb
|
thousand stock tank
barrels
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natural
gas
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conventional natural
gas and shale gas
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NGL or
NGLs
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natural gas
liquids
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tcf
|
trillion cubic
feet
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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.