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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.
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.
"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.
"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.
Based on oil and gas commodity strip pricing at September 15, 2021.
"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.
All amounts in this news release are stated in Canadian dollars unless otherwise specified.
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.
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.
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
Shale Natural Gas
2021 Average Daily
2022 Average Daily
For the purposes of this disclosure, condensate has been combined with Light and Medium Crude Oil as the associated revenues and certain costs of
See also "Forward-Looking Statements", and "Non-GAAP Financial Measures" in the most recently filed Management's Discussion and Analysis.
barrels per day
barrels per million cubic feet
billion cubic feet
billion cubic feet equivalent
bpd or bbl/d
barrels per day
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
drilled but uncompleted wells
exploration and production
free cash flow
gigajoules per day
liquefied natural gas
thousand barrels of oil equivalent
thousand barrels of oil equivalent per day
thousand cubic feet
mcfpd or mcf/d
thousand cubic feet per day
thousand cubic feet equivalent
million barrels of oil equivalent
million British thermal units
million British thermal units per day
million cubic feet
mmcfpd or mmcf/d
million cubic feet per day
thousand stock tank barrels
conventional natural gas and shale gas
normal course issuer bid
northeast British Columbia
NGL or NGLs
natural gas liquids
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.
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