CALGARY, AB, Sept. 22, 2021 /CNW/ - Tourmaline Oil
Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to
announce a guidance update, the approved budget for 2022 and
details on its free cash flow ("FCF")(1) allocation
strategy, including the declaration of a special cash dividend and
an increase in its regular quarterly cash dividend.
2H 2021/2022 EP CAPITAL BUDGET
- The recently approved 2022 EP capital budget of $1.125 billion is expected to deliver average
production of 500,000-510,000 boepd, $3.7
billion of cash flow ("CF")(2) and $2.5 billion of FCF on strip
pricing(3). The 2022 EP capital budget, essentially
a maintenance program, is $62 million
less than previous estimates given specific facility projects and
select drilling accelerated into 2H 2021. Production, CF, and
FCF are all higher than previous 2022 guidance. The Company
expects capital efficiencies to improve further in 2022 as a
significant portion of the planned 2022 facility expenditures have
been accelerated into 2H 2021.
- The 2021 EP capital program has been increased to $1.375 billion with the 2H 2021 increase focused
on liquids business/production increases and related liquids margin
improvements, and the modest acceleration of drilling
activities. Full-year 2021 average production is now expected
to be 440,000-445,000 boepd and increased full-year CF of
$3.0 billion is now anticipated along
with $1.6 billion of FCF. The
majority of the incremental facility capital is being expended in
Q3, yielding estimated capital spending of $420 million in Q3 and $350 million in Q4. The updated 2H 2021/2022 EP
capital program is consistent with previous guidance.
- Material reduction in drilling times throughout 2021,
particularly in NEBC, will result in completion of the originally
planned full-year 2021 drilling program by November. BC
Montney per-well drilling times
have been reduced by approximately 20% in 2021 (two days less per
well). As a result, the Company has elected to accelerate the
drilling of approximately 21 wells from 2022 into Q4 2021 in order
to maintain the existing top-tier, Company operated drilling fleet
at full capacity, rather than release rigs at this time. The
majority of these incremental wells will not be completed and
brought on production until 2022.
- The Company will monitor natural gas supply/demand balances and
schedule new production startups appropriately through the course
of winter and the balance of 2022. Tourmaline has incremental
egress on the GTN system of 100 mmcfpd in 2022 and a further 50
mmcfpd in 2023, as well as 140 mmcfpd of egress to the Gulf Coast
accessing international LNG commencing in 2023. Total volumes
on the GTN system will grow from 330 mmcfpd currently to 480 mmcfpd
by 2H 2023, with over 80% of these volumes accessing the
California market.
Incremental Company gas volumes in 2022/2023 will not be directed
at AECO or Station 2.
- Acceleration of both the Gundy Phase 2 and Nig Creek deep cut
installations/expansions will add approximately 15,000 bpd of
condensate and natural gas liquids ("NGLs") (including 5,000 bpd of
propane) by exit 2021/Q1 2022. Liquids margins will also be
improved through utilization of Company operated facilities rather
than third party processing options. Margin improvement will
also be realized through an increase in Ripet propane
exports. 2022 average annual liquids production of
approximately 115,000 bpd is now expected, up 2,000 bpd from
previous estimates. Edmonton
propane and butane prices are up over 200% and 40%, respectively,
over the past 12 months.
2021 FREE CASH FLOW ALLOCATION TO DATE
- FCF in 2021 to date has been consistently directed towards
modest, sustainable base dividend increases and continued net
debt(4) reduction until the long-term net debt target of
$1.0 to $1.2
billion is achieved.
- The base dividend has now been increased twice in 2021; in
aggregate a 21% increase over the Q4 2020 dividend level. The
net debt target is now anticipated to be achieved during Q4
2021.
FREE CASH FLOW ALLOCATION STRATEGY
- Tourmaline intends to return the vast majority of FCF to
shareholders on a go-forward basis.
- This FCF return will be achieved through modest, sustainable
base dividend increases, special dividends when appropriate, and
tactical share buybacks.
- Given stronger than anticipated 2021 commodity prices and
production volumes, and early achievement of the long-term net debt
target, Tourmaline is in a position to increase its base quarterly
dividend by $0.01/share to
$0.18/share payable on December 31, 2021, which represents an annualized
payout of $0.72/share as well as
declare a special cash dividend of $0.75/share, payable on October 7, 2021, to shareholders of record on
October 1, 2021 with an ex-dividend
date of September 29, 2021.
Given the observance of Canada's
new statutory holiday on September
30th, this day will be considered a
non-settlement day and as such the TSX requires the ex-dividend
date on dividends with an October 1,
2021 record date to be September
29, 2021. This special cash dividend is designated as
an "eligible dividend" for Canadian income tax purposes.
- Based on current strip pricing, the Company will be in a
position to continue to distribute special dividends, the size of
which will depend upon the magnitude of excess FCF generated by
elevated commodity prices in 2022 and beyond, and the relative
return offered by other FCF allocation opportunities.
- On current strip, 2022 FCF is estimated to be $2.5 billion which represents over $7.50/diluted share and a 19% free cash yield
based on a $40 share price.
- FCF above the required maintenance capital and the long term
3-5% per annum growth embedded in the five-year EP program may also
be allocated to modest asset acquisitions in existing core
complexes and continued capital investments in liquids midstream
opportunities.
- The Company expects annual expenditures of up to $250 million for these 'bolt-on' style asset
acquisitions and land sales, generally proximal to existing
Tourmaline operated infrastructure. Future acquisitions will
have similar FCF accretion metrics to the successful 2019-2021
acquisition program already completed. In Q3 2021, the
Company closed one $9.0 million asset
acquisition in the Peace River High complex (449 boepd, 5.4 mmboe
2P reserves, 12 gross (10.1 net) tier 1 Charlie Lake oil locations,
associated minor facilities, based on internal estimates).
- Liquids midstream expenditures are expected to continue over
the next several years and the Company is evaluating a series of
opportunities within existing core complexes. These are high
return projects. The Nig Creek deep cut installation provides
an estimated return of over 100% over the next four years.
The Company intends to grow the corporate liquids midstream
business segment and views these investments as a profitable
allocation option for growing future FCF.
- The Company expects exit 2021 net debt of approximately
$960 million, after giving effect to
the Q4 2021 special dividend. The Company intends to keep
long term net debt in the $1.0-$1.2 billion
range.
500,000 BOEPD 2021 EXIT
- The Company expects to achieve the 500,000 boepd average
production milestone by exit 2021, earlier than originally
anticipated. The accelerated timing is driven by the impact
of improved drilling efficiencies and acceleration of the
aforementioned liquids midstream projects.
- Tourmaline estimates annual maintenance EP capital of
$1.0-$1.05
billion to maintain average production at the 500,000 boepd
level.
SHARE BUYBACKS
- Tourmaline renewed its NCIB effective July 20, 2021 and plans to utilize buybacks under
the NCIB to complement the return to shareholders.
- The Board has also approved the repurchase of up to
$1.0 billion in common shares over
the next two years through issuer bids, contingent upon share price
performance, and subject to the terms of the issuer bid and receipt
of necessary regulatory approvals, including the TSX.
|
__________________________________________________
|
(1)
|
"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 Q2 2021 Management's Discussion and
Analysis.
|
|
|
(2)
|
"Cash flow" or
"CF" 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 Q2 2021
Management's Discussion and Analysis.
|
|
|
(3)
|
Based on oil and
gas commodity strip pricing at September 15, 2021.
|
|
|
(4)
|
"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 Q2 2021 Management's Discussion
and Analysis.
|
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 growth for
various periods including estimated production levels for 2021 and
2022; expected improvements in capital efficiencies in 2022; CF,
FCF, net debt and capital spending target levels for 2021 and 2022;
the timing for wells to be brought on production; the expected
increase in liquids midstream expenditures and the level of their
expected return on investment and FCF benefits; the methods of
returning FCF to shareholders and plans to distribute additional
special dividends in the future and the timing and frequency
thereof; expected production levels in 2021 and 2022; expected
full-year 2021 and 2022 EP capital spending levels; the future
declaration and payment of regular and special dividends and the
timing and amount thereof including any future increase; CF and FCF
levels; production levels supported by certain of the Company's
reserves and drilling inventory; capital spending over various
periods; net debt reduction targets; improvements in capital
efficiency; projected operating and drilling costs; the timing for
facility expansions and facility start-up dates; sustainability and
environmental improvement initiatives; anticipated future commodity
prices including the expectation for future increases above current
levels; the ability to generate, and the amount of, anticipated CF
and FCF including in 2021 and 2022; 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 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; 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 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.
In addition, pandemics, epidemics or outbreaks of an infectious
disease in Canada or worldwide,
including COVID-19 or other illnesses could have an adverse impact
on the Company's results, business, financial condition or
liquidity. If the pandemic is further prolonged, including through
subsequent waves, or if additional variants of COVID-19 emerge
which are more transmissible or cause more severe disease, or if
other diseases emerge with similar effects, the adverse impact on
the economy could worsen. It remains uncertain how the
macroeconomic environment, and societal and business norms will be
impacted following this COVID-19 pandemic. Unexpected developments
in financial markets, regulatory environments, or consumer
behaviour may also have adverse impacts on the Company's results,
business, financial condition or liquidity, for a substantial
period of time. The Company's business, financial condition,
results of operations, cash flows, reputation, access to capital,
cost of borrowing, access to liquidity, and/or business plans may,
in particular, and without limitation, be adversely impacted as a
result of the pandemic and/or decline in commodity prices as a
result of: the shut-down of facilities or the delay or
suspension of work on major capital projects due to workforce
disruption or labour shortages caused by workers becoming infected
with COVID-19, or government or health authority mandated
restrictions on travel by workers or closure of facilities or
worksites; suppliers and third-party vendors experiencing
similar workforce disruption or being ordered to cease
operations; reduced cash flows resulting in less funds from
operations being available to fund capital expenditure
budgets; reduced commodity prices resulting in a reduction in
the volumes and value of reserves; crude oil storage
constraints resulting in the curtailment or shutting in of
production; counterparties being unable to fulfill their
contractual obligations on a timely basis or at all; the
inability to deliver products to customers or otherwise get
products to market caused by border restrictions, road or port
closures or pipeline shut-ins, including as a result of pipeline
companies suffering workforce disruptions or otherwise being unable
to continue to operate; and the ability to obtain additional
capital including, but not limited to, debt and equity financing
being adversely impacted as a result of unpredictable financial
markets, commodity prices and/or a change in market fundamentals.
The COVID-19 pandemic has also created additional operational risks
for the Company, including the need to provide enhanced safety
measures for its employees and customers; comply with rapidly
changing regulatory guidance; address the risk of, attempted
fraudulent activity and cybersecurity threat behaviour; and protect
the integrity and functionality of the Company's systems, networks,
and data as a larger number of employees work remotely. The Company
is also exposed to human capital risks due to issues related to
health and safety matters, and other environmental stressors as a
result of measures implemented in response to the COVID-19
pandemic, as well as the potential for a significant proportion of
the Company's employees, including key executives, to be unable to
work effectively, because of illness, quarantines,
sheltering-in-place arrangements, government actions or other
restrictions in connection with the pandemic. The extent to which
the COVID-19 pandemic continues to impact the Company's results,
business, financial condition or liquidity will depend on future
developments in Canada, the U.S.
and globally, including the development and widespread availability
of efficient and accurate testing options, and effective treatment
options or vaccines. Despite the approval of certain vaccines by
the regulatory bodies in Canada
and the U.S., the ongoing evolution of the development and
distribution of an effective vaccine also continues to raise
uncertainty.
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.
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 Tourmaline's
2021 exit net debt as well as 2021 and 2022 CF and FCF, 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 442,500 boepd for 2021
and 500,000 boepd for 2022. Commodity price assumptions for
natural gas (NYMEX (US) - $3.77/mcf
and $4.27/mcf for 2021 and 2022,
respectively; AECO - $3.77/mcf and
$4.08/mcf for 2021 and 2022,
respectively), and crude oil (WTI (US) - $66.22/bbl and $67.66/bbl for 2021 and 2022, respectively) and
an exchange rate assumption of $0.80
(CAD/US) for 2021 and 0.79 for 2022. To the extent such estimates
constitute financial outlooks, they were approved by management and
the Board of Directors of Tourmaline on September 22, 2021 and are included to provide
readers with an understanding of Tourmaline's anticipated CF 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" (free cash flow),
"CF" (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 most
recent 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.
SUPPLEMENTAL INFORMATION REGARDING PRODUCT TYPES
This news release includes references to 2021 and 2022 average
daily 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)
|
2021 Average
Daily
Production.............
|
37,700
|
1,255,000
|
812,000
|
60,300
|
442,500
|
2022 Average
Daily
Production.............
|
42,600
|
1,224,000
|
1,085,000
|
72,600
|
500,000
|
|
|
|
|
|
|
(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.
|
General
See also "Forward-Looking Statements", and "Non-GAAP Financial
Measures" in the most recently filed Management's Discussion and
Analysis.
CERTAIN
DEFINITIONS:
|
|
1H
|
first half
|
2H
|
second
half
|
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
|
CF
|
cash flow
|
DUC
|
drilled but
uncompleted wells
|
EP
|
exploration and
production
|
FCF
|
free cash
flow
|
gj
|
gigajoule
|
gjs/d
|
gigajoules per
day
|
LNG
|
liquefied natural
gas
|
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
|
NCIB
|
normal course issuer
bid
|
NEBC
|
northeast British
Columbia
|
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.
SOURCE Tourmaline Oil Corp.