CALGARY, Dec. 11, 2017 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce the Company’s Board of Directors has approved a 2018 capital budget of $165 million. TORC’s strategic objectives associated with the 2018 capital budget are consistent with the Company’s long term objectives of delivering disciplined per share growth in combination with maintaining financial flexibility while paying a sustainable dividend.
TORC’s 2018 capital budget is specifically focused on:
- Investing in higher rate of return, lower risk light oil opportunities across the Company’s extensive development drilling inventory;
- Achieving per share production growth and maximizing free cash flow through an efficient capital program focused on high graded development drilling opportunities while also testing select delineation opportunities to organically expand the Company’s development drilling inventory;
- Maintaining the Company’s decline profile;
- Directing the pace of the capital program to maintain spending flexibility throughout the year; and
- Maintaining TORC’s strong financial position and flexibility to take advantage of additional growth opportunities as they arise.
TORC’s capital program in 2018 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (over 80%), and the remainder allocated to operational and facility optimization to maximize production efficiency. The capital program is concentrated on the Company’s primary core areas in southeast Saskatchewan, focused on both conventional and unconventional opportunities, along with the Cardium play in central Alberta.
2018 BUDGET HIGHLIGHTS
SOUTHEAST SASKATCHEWAN
TORC’s asset base in southeast Saskatchewan is comprised of both conventional assets and unconventional light oil resource plays. TORC’s primary focus on the conventional asset base is to maintain production and maximize free cash flow through the efficient exploitation of identified conventional light oil pools. TORC’s unconventional light oil resource plays provide current and future organic growth opportunities for the Company.
In 2018, TORC plans to drill 44 gross (37.2 net) conventional wells. With more than 400 net undrilled conventional locations identified, the 2018 budget represents less than 10% of TORC’s conventional development locations. These locations are characterized by their lower risk nature and high rates of return driven by their lower capital costs, high netbacks and the attractive royalty regime in Saskatchewan. Southeast Saskatchewan conventional activity will comprise approximately 30% of the Company’s 2018 drilling, completion and tie-in capital budget.
On the Company’s unconventional asset base in southeast Saskatchewan, TORC has been active on the Torquay/Three Forks light oil resource play. During 2017, TORC executed on a development program drilling 13 gross (10.0 net) successful wells in the play. Based on the Company’s results from this program, TORC will continue to increase capital allocated to this resource play with plans to drill 17 gross (13.5 net) wells during 2018 representing less than 10% of the 150 net identified Torquay/Three Forks development locations on the Company’s land base. The Torquay/Three Forks activity in southeast Saskatchewan will comprise approximately 30% of the 2018 drilling, completion and tie-in capital budget.
TORC has also established prospective land positions in a number of areas that have the potential for unconventional Midale exploitation. Based on detailed technical analysis, as well as competitor offset well results, TORC has been active on the emerging unconventional Midale light oil resource play in the fourth quarter of 2017 drilling six gross (4.6 net) wells. TORC plans to increase capital allocated to this light oil resource play in 2018 with plans to drill 12 gross (11.0 net) wells spread across the Company’s land position for both the development and further delineation of this play.
Together, the conventional and unconventional southeast Saskatchewan capital allocation represents approximately 77% of the overall drilling, completion and tie-in capital budget during 2018.
CARDIUM
In 2018, TORC plans to drill 12 gross (10.5 net) wells across the Company’s land position in the Cardium to maintain production. With a decline profile of less than 25%, the Cardium play continues to generate substantial free flow in the current commodity price environment supporting the sustainability and repeatability of the Company’s business objectives.
TORC has currently identified over 290 net light oil focused development locations on the Company’s asset base for future growth. TORC’s development plans for the Cardium represents approximately 23% of the drilling, completion and tie-in activity in 2018.
ACQUISITION AND DISPOSITION ACTIVITY
During the fourth quarter of 2017, TORC completed three asset acquisitions along with two minor non-core asset dispositions. The net production addition was 900 boepd (greater than 90% light oil and liquids) (the “Acquired Assets”) for aggregate consideration comprised of the issuance of 5.8 million TORC common shares and $25.0 million in cash.
The majority of the Acquired Assets are located in TORC’s core operating area in southeast Saskatchewan and include high quality inventory of both conventional (26 net) and unconventional (32 net) locations. The Acquired Assets also included a strategic top-up acquisition in the Cardium play. Year to date, TORC has replaced more than 100% of the 2017 drill program in both southeast Saskatchewan and in the Cardium play through strategic acquisitions.
PRODUCTION GUIDANCE
With TORC’s strong performance of the Company’s underlying production base, continued drilling success along with the recent net acquisition activity, TORC is increasing 2017 average production guidance to 20,800 boepd (88% light oil & liquids) from 20,600 boepd and exit guidance to 22,500 boepd (87% light oil & liquids) from 21,500 boepd.
TORC anticipates that the $165 million 2018 capital budget will result in 2018 average production of 23,000 boepd (87% light oil & liquids) and exit production of 23,800 boepd (87% light oil and liquids) while continuing to maintain a decline profile below 25%.
DISCIPLINED BUDGET
TORC’s priorities are to act prudently to protect the financial flexibility of the Corporation while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable dividend.
TORC’s year-end 2017 net debt is estimated to be approximately $285 million on a bank line of $400 million, positioning TORC with financial flexibility and a strong balance sheet. In the current commodity price environment, the Company expects to achieve free cash flow after delivering organic per share growth and paying the current dividend. This free cash flow continues to position the Company to take advantage of opportunities as they arise.
TORC has budgeted for a modest increase to service costs due to increasing industry activity levels. TORC has initiated a 2018 commodity hedging program to further protect our core capital spending requirements and dividend policy and currently has 1,500 bopd hedged in calendar 2018.
Consistent with previous capital expenditure programs, TORC’s 2018 capital budget is weighted to the second half of the year providing flexibility to adjust capital spending in response to fluctuations in the commodity price environment.
OUTLOOK
TORC has built a sustainable growth platform of light oil focused assets. 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 the light oil resource plays in the Torquay/Three Forks and unconventional Midale in southeast Saskatchewan, positions TORC to provide a sustainable dividend along with value creation through a disciplined long term focused growth strategy.
TORC has the following key operational and financial attributes:
High Netback Production (1) |
2017E Average: 20,800 boepd 2017E Exit: 22,500 boepd 2018E Average: 23,000 boepd 2018E Exit: 23,800 boepd
|
Total Proved plus Probable Reserves (2) |
Greater than 107 mmboe (~83% light oil & liquids) |
Southeast Saskatchewan Conventional Light Oil Development Inventory |
Greater than 400 net undrilled locations |
Torquay/Three Forks Light Oil Development Inventory |
Greater than 150 net undrilled locations |
Cardium Light Oil Development Inventory |
Greater than 290 net undrilled locations |
Sustainability Assumptions (3) |
Corporate decline ~23% Capital Efficiency ~$26,000/boepd (IP 365)
|
2018 Capital Program |
$165 million |
Annual Dividend (paid monthly) |
$0.02 per share $47 million $33 million (net of assumed 30% SDP participation)
|
Net Debt & Bank Debt (4) |
~$285 million (2017 year-end estimate)
|
Shares Outstanding |
196.2 million (basic) (2017 year-end estimate) |
Tax Pools |
Approximately $1.6 billion |
Notes: |
|
(1) |
~87/88% light oil & NGLs. |
(2) |
All reserves information in this press release are gross reserves. The reserve information in the foregoing outlook table is derived from the independent engineering report effective December 31, 2016 prepared by Sproule & Associates Limited (“Sproule”) evaluating the oil, NGL and natural gas reserves attributable to all of our properties (the “TORC Reserve Report”). The reserves associated with net acquisitions completed in 2017 are based on TORC’s internal evaluation prepared by a qualified reserves evaluator in accordance NI-51-101 and COGE Handbook. |
(3) |
Refers to full cycle capital efficiency which is the all-in corporate capital budget divided by the IP365 of the associated wells. Corporate decline refers to TORC’s estimated oil and gas production decline rate in the normal life cycle of a well. |
(4) |
See “Non-GAAP Measures”. |