CALGARY, May 5, 2020 /CNW/ - TORC Oil & Gas Ltd.
("TORC" or the "Company") (TSX: TOG) is pleased to announce
financial and operating results for the three months ended
March 31, 2020. The associated
Management's Discussion and Analysis ("MD&A") and unaudited
interim financial statements as at and for the quarter ended
March 31, 2020 can be found at
www.sedar.com and www.torcoil.com.
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Highlights
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Three months
ended
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(in thousands,
except per share data)
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March
31
2020
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December
31
2019
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March 31
2019
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Financial
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Adjusted funds flow,
including transaction costs (1)
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$47,146
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$74,037
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$76,067
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Per share
basic
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$0.21
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$0.33
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$0.35
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Per share
diluted
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$0.21
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$0.33
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$0.34
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Adjusted funds flow,
excluding transaction costs (1), (2)
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$47,166
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$74,037
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$76,067
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Per share
basic
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$0.21
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$0.33
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$0.35
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Per share
diluted
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$0.21
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$0.33
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$0.34
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Net cash from
operating activities
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$57,955
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$67,933
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$53,930
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Net income
(loss)
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($879,895)
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($60,593)
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$6,335
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Per share
basic
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($3.96)
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($0.27)
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$0.03
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Per share
diluted
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($3.96)
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($0.27)
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$0.03
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Exploration and
development expenditures (1)
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$64,700
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$34,026
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$54,109
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Property acquisitions,
net of dispositions
(1)
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$3,891
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$6,416
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$146
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Net debt
(1)
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$382,696
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$349,689
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$396,038
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Cash dividends
declared (3)
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$12,222
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$11,460
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$9,761
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Dividends declared per
common share
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$0.055
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$0.075
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$0.066
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Common
shares
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Shares outstanding,
end of period
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222,315
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221,812
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217,676
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Weighted average
shares (basic)
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222,146
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221,080
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217,140
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Weighted average
shares (diluted)
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227,093
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224,088
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220,530
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Operations
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Production
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Crude oil (Bbls per
day)
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23,672
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23,415
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23,700
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NGL (Bbls per
day)
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1,582
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1,616
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1,459
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Natural gas (Mcf per
day)
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19,568
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20,079
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18,646
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Barrels of oil
equivalent (Boepd, 6:1)
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28,515
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28,378
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28,267
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Average realized
price
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Crude oil ($ per
Bbl)
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$47.87
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$63.05
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$64.85
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NGL ($ per
Bbl)
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$9.66
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$12.71
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$20.32
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Natural gas ($ per
Mcf)
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$1.60
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$2.07
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$2.18
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Barrels of oil
equivalent ($ per Boe, 6:1)
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$41.37
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$54.22
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$56.86
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Operating netback per
Boe (6:1)
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Operating netback
(1)
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$20.75
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$30.86
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$32.64
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Operating netback
(prior to hedging) (1)
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$20.00
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$30.86
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$32.64
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Adjusted funds flow
netback per Boe (6:1)
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Including transaction
related costs (1)
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$18.17
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$28.36
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$29.90
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Excluding transaction
related costs (1)
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$18.18
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$28.36
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$29.90
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Wells
drilled:
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Gross
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33
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14
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34
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Net
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28.2
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11.7
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27.9
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Success (%)
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100
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100
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100
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(1)
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Management uses these
non-GAAP financial measures to analyze operating performance,
leverage and investing activity. These measures do not have a
standardized meaning under GAAP and therefore may not be comparable
with the calculation of similar measures for other companies.
See Non-GAAP Measurements within this document for
additional information.
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(2)
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For ease of
readability, in this press release, adjusted funds flow,
excluding transaction related costs will be referred to as
"cash flow".
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(3)
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Cash dividends
declared are net of the share dividend program participation. The
share dividend program was indefinitely suspended, effective for
the January 2020 dividend, paid in February 2020.
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PRESIDENT'S MESSAGE
The first quarter of 2020 was a continuation of TORC's
operational momentum from 2019 with a consistent focus on the
Company's long-term objectives of delivering disciplined growth in
combination with providing a dividend, while preserving financial
flexibility.
TORC's active first quarter drilling program was concentrated in
southeast Saskatchewan and the
Cardium core areas where the Company continued to achieve strong
results.
TORC's disciplined approach and strong underlying assets
continue to position the Company for long-term strategic
growth.
Highlights in the first quarter of 2020 included the
following:
- Achieved record quarterly production of 28,515 boepd, up from
28,378 boepd in the fourth quarter of 2019 and 28,267 boepd in the
first quarter of 2019;
- Generated cash flow of $47.2
million relative to $74.0
million in the fourth quarter of 2019 and $76.1 million in the first quarter of 2019;
- Generated cash flow per share of $0.21 as compared to $0.33 in the fourth quarter of 2019 and
$0.35 per share in the first quarter
of 2019;
- Successfully drilled 33 (28.2 net) wells spending $65 million;
- During the first quarter, TORC paid dividends of $16.7 million of which $1.7 million was paid under the share dividend
program. The share dividend program was indefinitely suspended
following the January dividend;
- Successfully closed a $3 million
tuck-in acquisition in the Company's southeast Saskatchewan core area at quarter-end adding
over 200 boepd (greater than 90% light oil), of high netback, low
decline assets with a high quality light oil drilling
inventory;
- Net income for the first quarter was negatively impacted by the
severe economic dislocation that has led to a significant decrease
to current and forecasted crude oil prices. This resulted in a
non-cash accounting charge of $853
million to net book value. Revisions to forecasted crude oil
prices could result in reversals or additional impairment charges
impacting net income;
- At quarter end, the Company's net debt was $382.7 million with $309.3
million drawn on the Company's $500
million credit facility; and
- In March 2020, the World Health
Organization declared COVID-19 to be a global pandemic. Global
responses to combat the spread of COVID-19 have resulted in a
sudden decline in economic activity and a significant decrease in
global crude oil demand. In addition, global crude oil supply
increased significantly due to a geopolitically driven crude oil
price war. These events have resulted in an unprecedented decline
in crude oil prices, creating an uncertain and volatile economic
environment, adversely affecting the Company's operating results
and financial position.
TORC'S RESPONSE TO COVID-19
TORC's top priority is the health and safety of the Company's
employees, contractors, partners, service providers and the
communities in which TORC operates. During the first quarter,
the Company introduced measures to protect the well-being of all
stakeholders and follow the guidance of public health officials,
while maintaining safe operations and business continuity.
With the continued volatility in commodity prices and TORC's
focus on effective and efficient operations, the Company has
identified and implemented various cost cutting measures, as
detailed below, including the reduction in the capital program, the
suspension of the dividend, along with implementing savings in
operating and general and administrative costs, including
company-wide compensation reductions.
TORC is committed to taking the necessary steps to preserve
shareholder value and financial flexibility to maintain a position
of strength in the current environment.
OPERATIONAL UPDATE
TORC's first quarter production averaged 28,515 boepd (83% light
oil; 6% NGLs). Strong new well results and continued solid
performance of the Company's existing low decline production base
across TORC's core areas contributed to the continued growth of the
Company's production.
TORC spent a total of $65 million
during the first quarter drilling 33 (28.2 net) wells on a
development program focused on the conventional and unconventional
assets in southeast Saskatchewan
and the Cardium in central Alberta.
SOUTHEAST SASKATCHEWAN
TORC drilled 19 (15.5 net) southeast Saskatchewan conventional wells in the first
quarter. The southeast Saskatchewan conventional assets are
characterized by their low capital costs, higher capital
efficiencies, favorable royalty regime and decline profile of less
than 20%. TORC has identified more than 400 net undrilled
conventional light oil locations in southeast Saskatchewan providing years of high quality
drilling inventory.
On the Company's unconventional asset base in southeast
Saskatchewan, TORC drilled 5 (4.0
net) wells during the first quarter in the Torquay/Three Forks geological zone.
With the continued strong drilling and production results, the
Company deferred completion of the Torquay/Three Forks program wells. TORC
has identified over 150 net development locations in the
Torquay/Three Forks play providing
multiple years of drilling inventory.
TORC drilled 6 (5.7 net) wells in the unconventional
Midale light oil play during the
first quarter. The Company continues to be encouraged with
the results from this play. TORC has identified more than 175
net future undrilled development locations across the Company's
asset base for unconventional Midale production.
CARDIUM
TORC drilled 3 (3.0 net) Cardium development wells in the first
quarter. The Cardium program included two wells that were
completed with higher intensity fracs. The Company is
encouraged with the initial results and continued strong production
profiles from both of these wells.
TORC has identified more than 290 net undrilled Cardium
locations for future development. With a decline profile
below 25% and a deep inventory of high quality development
locations, the Cardium continues to support the Company's long-term
strategy.
CAPITAL PROGRAM
In the first quarter of 2020, TORC's capital spending was
$65 million. On March 16, 2020, the Company announced the
undertaking of a thorough review of the remaining 2020 capital
program due to the collapse of oil prices. With ongoing
uncertainty related to economic circumstances, TORC has elected to
significantly reduce 2020 capital spending to $75 million from the original budget of
$190 million, in order to maintain
financial flexibility.
TORC's 2020 $75 million capital
budget exhibits a measured approach to the current uncertainty in
world oil prices and reflects a balance between managing long-term
organic growth and protecting the Company's strong financial
position.
TORC continues to focus on initiatives to preserve financial
flexibility and improve capital efficiencies and operating
costs.
TORC's asset base has the following characteristics to provide
operational versatility to maintain financial flexibility: greater
than 90% operated capital program to dictate capital spending, low
decline rate, year-round access, low capital costs per well, no
drilling commitments, limited take-or-pay contracts, and no land
expiry concerns.
PRODUCTION GUIDANCE
Due to the continued weakness in oil prices, TORC has curtailed
approximately 4,000 boepd (88% light oil; 4% NGLs) of the Company's
current production. TORC maintains the flexibility to reduce
production volumes, which could be material, if economics warrant
such action.
To maintain production flexibility related to shut-in decisions,
TORC is suspending 2020 corporate production guidance.
TORC will be responsive to changes in commodity prices, and has
the ability to shut-in and restore production volumes to
pre-shut-in levels when economically viable. TORC expects
that any curtailed production can be restored quickly and without a
negative impact to the associated reservoirs.
TORC will examine on a continuous basis the ability to
reasonably estimate and provide future production guidance.
MONTHLY DIVIDEND SUSPENSION
TORC's dividend is reviewed regularly with the Board of
Directors and is an important component of TORC's overall long-term
strategy. The crude oil market has experienced a significant
and rapid decline in world prices resulting from severe dynamics
coinciding to significantly impact both supply and demand
uncertainty. Due to this significant uncertainty and
volatility, TORC has elected to temporarily suspend the monthly
dividend.
TORC will continue assessing the free cash flow profile and
dividend policy of the Company following an increase in economic
activity and stability of oil market dynamics.
The previously announced April dividend of $0.005 per share will be paid on May 15, 2020 to shareholders of record on
April 30, 2020.
Consistent with TORC's focus on protecting the Company's balance
sheet, it is prudent to continue to move quickly to remain well
positioned to ensure sustainability of the business model and
maintaining a disciplined approach. TORC's priorities are to
act prudently to protect TORC's financial flexibility while
positioning the Company to continue to achieve per share growth
over the long term while paying out a dividend.
CREDIT FACILITY
As at March 31, TORC was drawn
$309 million on the Company's
$500 million credit facility.
On April 27, 2020, TORC received
approval to extend the revolving period under the credit facility
agreement from April 30, 2020 to
May 29, 2020 with respect to
determining the borrowing base available under the credit
facility. The purpose of the extension is to permit TORC's
banking syndicate time to further assess market dynamics, including
the proposed Export Development Canada and Business Development
Bank programs, and develop a renewal that provides TORC with
maximum flexibility through the current environment.
OUTLOOK
The stability of the high quality, low decline, light oil assets
in southeast Saskatchewan and the
low risk Cardium development inventory in central Alberta, combined with exposure to
unconventional light oil resource plays in southeast Saskatchewan, positions TORC to provide value
creation through a disciplined long term focused growth plus
dividend strategy.
TORC has developed significant trust and credibility as a
corporate citizen, which provides a solid foundation for the
long-term success of the business. Sustainability of the business
includes focusing on overall social responsibility to support
strong values and relationships in the workplace and communities
where TORC operates.
TORC has the following key operational and financial
attributes:
Total Proved plus
Probable Reserves (1)
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Greater than 139
mmboe (78% light oil; 6% NGLs)
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Southeast
Saskatchewan Light Oil Development Inventory
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Greater than 400 net
undrilled conventional locations
Greater than 150 net
undrilled Torquay/Three Forks locations
Greater than 175 net
undrilled unconventional Midale locations
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Cardium Light Oil
Development Inventory
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Greater than 290 net
undrilled locations
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2020 Capital
Program
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$75
million
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Monthly
Dividend
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Suspended
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Net Debt as at March
31, 2020 (2)
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$382.7 million;
$309.3 million drawn on a bank line of $500 million
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Shares
Outstanding
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222 million
(basic)
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Tax Pools
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Approximately $1.8
billion
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Notes:
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(1)
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All reserves
information in this press release are gross reserves. The reserve
information for TORC in the foregoing table is derived from the
independent engineering report effective December 31, 2019 prepared
by Sproule & Associates Limited ("Sproule") evaluating the oil,
NGL and natural gas reserves attributable to all of our properties
(the "TORC Reserve Report").
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(2)
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See "Non-GAAP
Measures".
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READER ADVISORIES
Forward Looking Statements
This press release contains forward‐looking statements and
forward‐looking information (collectively "forward‐looking
information") within the meaning of applicable securities laws
relating to the Company's plans, strategy, business model, focus,
objectives and other aspects of TORC's anticipated future
operations and financial, operating and drilling and development
plans and results, including, expected future production and
potential production curtailment, production mix, reserves,
drilling inventory, net debt, cash flow and free cash flow,
financial flexibility and liquidity, capital costs, operating
netbacks, operational efficiencies, decline rate and decline
profile, product mix, capital expenditure program, capital
efficiencies, commodity prices, royalties, tax pools and future
growth. In addition, and without limiting the generality of the
foregoing, this press release contains forward‐looking information
regarding: the focus and allocation of TORC's 2019 capital budget,
anticipated average and exit production rates, available free cash
flow, management's view of the characteristics and quality of the
Company's assets and the opportunities available to the Company,
COVID-19 response plans, future capital efficiencies and operating
costs, expectations regarding the renewal of TORC's credit
facility. TORC's dividend policy and plans, and other matters
ancillary or incidental to the foregoing.
Forward‐looking information typically uses words such as
"anticipate", "believe", "project", "target", "guidance", "expect",
"goal", "plan", "intend" or similar words suggesting future
outcomes, statements that actions, events or conditions "may",
"would", "could" or "will" be taken or occur in the future. The
forward‐looking information is based on certain key expectations
and assumptions made by TORC's management, including expectations
concerning the impact (and the duration thereof) that the COVID-19
pandemic will have on the demand for crude oil, NGLs and natural
gas, our supply chain, including our ability to obtain the
equipment and services we require, and our operations, prevailing
commodity prices, exchange rates, interest rates, applicable
royalty rates and tax laws; capital efficiencies; decline rates;
future production rates and estimates of operating costs;
performance of existing and future wells; reserve and resource
volumes; anticipated timing and results of capital expenditures;
the success obtained in drilling new wells; the sufficiency of
budgeted capital expenditures in carrying out planned activities;
the timing, location and extent of future drilling operations; the
state of the economy and the exploration and production business;
results of operations; performance; business prospects and
opportunities; the availability and cost of financing, labour and
services; the impact of increasing competition; ability to market
oil and natural gas successfully and TORC's ability to access
capital
Statements relating to "reserves" are also deemed to be
forward looking statements, 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 the Company 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 TORC can give no
assurance that they will prove to be correct. Since
forward‐looking information addresses future events
and conditions, by its very nature they involve inherent risks and
uncertainties. The Company's actual results, performance or
achievement could differ materially from those expressed in, or
implied by, the forward‐looking information and,
accordingly, no assurance can be given that any of the events
anticipated by the forward‐looking information will
transpire or occur, or if any of them do so, what benefits that the
Company will derive there from. Management has included the above
summary of assumptions and risks related to
forward‐looking information provided in this press
release in order to provide securityholders with a more complete
perspective on TORC's future operations and such information may
not be appropriate for other purposes.
Readers are cautioned that the foregoing lists of factors are
not exhaustive. Additional information on these and other factors
that could affect TORC's operations or financial results are
included in reports on file with applicable securities regulatory
authorities and may be accessed through the SEDAR website
(www.sedar.com).
These forward‐looking statements are made as of
the date of this press release and TORC disclaims any intent or
obligation to update publicly any forward‐looking
information, whether as a result of new information, future events
or results or otherwise, other than as required by applicable
securities laws.
Dividends
The payment and the amount of dividends declared in any month
will be subject to the discretion of the board of directors and
will depend on the board of director's assessment of TORC's outlook
for growth, capital expenditure requirements, funds from
operations, potential acquisition opportunities, debt position and
other conditions that the board of directors may consider relevant
at such future time. The amount of future cash dividends, if any,
may also vary depending on a variety of factors, including
fluctuations in commodity prices and differentials, production
levels, capital expenditure requirements, debt service
requirements, operating costs, royalty burdens and foreign exchange
rates.
Non‐GAAP
Measurements
This press release includes non-GAAP measures commonly used
in the oil and natural gas industry. These non-GAAP measures do not
have a standardized meaning prescribed by International Financial
Reporting Standards ("IFRS", or alternatively, "GAAP") and
therefore may not be comparable with the calculation of similar
measures by other companies. For details, descriptions and
reconciliations of these non-GAAP measurements, see the Company's
Management's Discussion and Analysis for the three months ended
March 31, 2020.
"Adjusted funds flow, including transaction related
costs" represents cash flow from operating activities
prior to changes in non-cash operating working capital and
settlement of decommissioning obligations. "Adjusted funds flow,
excluding transaction related costs" represents cash flow from
operating activities prior to changes in non-cash operating working
capital, settlement of decommissioning obligations and transaction
related costs. Management considers these measures to be useful as
they assist in the determination of the Company's ability to
generate liquidity necessary to finance capital expenditures,
settlement of decommissioning obligations and funding of its
dividend. Transaction related costs are incurred during asset
and/or corporate acquisitions and are typically not considered a
cost incurred in the normal course of business. As a result,
excluding transaction related costs from adjusted funds flow
further assists in the determination of the Company's ability to
generate liquidity in the normal course of business.
For ease of readability, in this press release, "adjusted funds
flow, excluding transaction related costs" is also referred to as
"cash flow". TORC calculates cash flow per share using the same
method and shares outstanding that are used in the determination of
earnings per share.
"Net debt" is calculated as current assets
(excluding financial derivative assets) less: i) current
liabilities (excluding financial derivative liabilities) and ii)
bank debt. Management considers this measure to be useful in
determining the Company's leverage.
"Operating netback" or "netback"
represents revenue and realized gain or loss on financial
derivatives, less royalties, operating expenses and transportation
expenses and has been presented on a per Boe basis. Management
believes that in addition to net income, operating netback is a
useful measure as it assists in the determination of the Company's
operating performance and profitability.
"Exploration and development
expenditures" represents expenditures on
property, plant and equipment ("PP&E") excluding: acquisitions,
non-cash PP&E additions and capitalized general and
administrative expenses. See Capital Expenditures in the MD&A
for further details.
"Property acquisitions, net of
dispositions" represents additions to
PP&E related to the Company's asset and/or corporate
acquisition and disposition activity.
"Free cash flow" represents
adjusted funds flow, excluding transaction related costs, less i)
exploration and development expenditures", and ii) cash dividends
paid. Management considers this measure to be useful in
determining its ability to finance capital expenditures and fund
its dividend.
"Payout ratio" represents cash
dividends paid, plus exploration and development expenditures,
divided by adjusted funds flow, excluding transaction related
costs. The Company considers this to be a key measure of
sustainability.
Oil and Gas Disclosures
The term "boe" or barrels of oil equivalent may be
misleading, particularly if used in isolation. A boe conversion
ratio of six thousand cubic feet of natural gas to one barrel of
oil equivalent (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. Additionally,
given that the value ratio based on the current price of crude oil,
as compared to natural gas, is significantly different from the
energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may
be misleading as an indication of value.
This press release discloses drilling locations in three
categories: (i) proved locations; (ii) probable locations; and
(iii) unbooked locations. Proved locations and probable locations
are derived from the reserves evaluation prepared by Sproule as of
December 31, 2019 and account for
drilling locations that have associated proved and/or probable
reserves, as applicable. Unbooked locations are internal estimates
prepared by a qualified reserves evaluator based on TORC'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. Of the 1015 net drilling locations identified herein, 357
are proved locations, 133 are probable locations and 525 are
unbooked locations. Of the 400 net conventional drilling locations
identified herein, 161 are proved locations, 56 are probable
locations and 183 are unbooked locations. Of the 150 net
Torquay/Three Forks drilling
locations identified herein, 51 are proved locations, 27 are
probable locations and 72 are unbooked locations. Of the 175 net
unconventional Midale drilling
locations identified herein, 78 are proved locations, 17 are
probable locations and 80 are unbooked locations. Of the 290 net
Cardium drilling locations identified herein, 68 are proved
locations, 33 are probable locations and 189 are unbooked
locations. Unbooked locations have been identified by management as
an estimation of our multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information. There is no certainty that TORC will
drill all unbooked drilling locations and, if drilled, there is no
certainty that such locations will result in additional oil and gas
reserves or production. The drilling locations on which we actually
drill wells will ultimately depend upon the availability of
capital, regulatory approvals, seasonal restrictions, oil and
natural gas prices, costs, actual drilling results, additional
reservoir information that is obtained and other factors. While
certain of the unbooked drilling locations have been derisked by
drilling existing wells in relative close proximity to such
unbooked drilling locations, some of other unbooked drilling
locations are farther away from existing wells where management 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 or
production.
Unbooked locations have been identified by management as an
estimation of our multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information. There is no certainty that TORC will
drill all unbooked drilling locations and, if drilled, there is no
certainty that such locations will result in additional oil and gas
reserves or production. The drilling locations on which we actually
drill wells will ultimately depend upon the availability of
capital, regulatory approvals, seasonal restrictions, oil and
natural gas prices, costs, actual drilling results, additional
reservoir nformation that is obtained and other factors. While
certain of the unbooked drilling locations have been derisked by
drilling existing wells in relative close proximity to such
unbooked drilling locations, some of other unbooked drilling
locations are farther away from existing wells where management 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 or
production.
SOURCE TORC Oil & Gas Ltd.