CALGARY, Dec. 14, 2015 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce the Company's Board of Directors has approved a 2016 capital budget of $90 million. TORC's strategic objectives associated with the 2016 capital budget are consistent with the Company's long term objectives of delivering disciplined growth in combination with maintaining financial flexibility while providing a sustainable dividend over the long term.
TORC's 2016 capital budget exhibits a measured approach to the continued uncertainty in the world oil price environment and reflects a balance between managing long term objectives, protecting the Company's strong financial position and sustaining the dividend.
TORC's 2016 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;
- Maintaining current production levels and maximizing free cash flow through an efficient capital program focused on high graded drilling opportunities;
- Maintaining a focus on the Company's decline profile;
- Directing the pace of the capital program to maintain spending flexibility throughout the year given the ongoing volatility of crude oil prices; and
- Maintaining TORC's strong financial position and flexibility to take advantage of additional growth opportunities as they arise.
TORC's capital program in 2016 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (greater than 75%) with 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 opportunities and the emerging Torquay/Three Forks play, and the Cardium play in central Alberta.
2016 BUDGET HIGHLIGHTS
SOUTHEAST SASKATCHEWAN
In southeast Saskatchewan, TORC plans to drill 31 (23.2 net) conventional wells. With more than 360 net undrilled locations identified, the 2016 budget represents approximately 6% of TORC's currently identified conventional 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 favorable royalty regime in Saskatchewan. Southeast Saskatchewan conventional activity will comprise approximately 40% of the Company's 2016 drilling, completion and tie-in capital budget.
In addition to the conventional program in southeast Saskatchewan, TORC plans to drill 6 (5.0 net) development wells into the Torquay/Three Forks resource play in 2016. The Torquay/Three Forks activity in southeast Saskatchewan will comprise approximately 25% of the 2016 budget. When combined with the conventional program, southeast Saskatchewan represents approximately 65% of the overall drilling, completion and tie-in capital budget.
CARDIUM
TORC plans to drill 10 gross (9.1 net) wells across the Company's land position in the Cardium. With more than 290 net undrilled light oil focused development locations identified, the 2016 budget represents less than 5% of TORC's currently identified development drilling inventory. TORC's development plans for the Cardium represents approximately 35% of the drilling, completion and tie-in activity in 2016.
PRODUCTION GUIDANCE
The Company remains positioned to achieve the previously announced 2015 exit guidance of 18,200 boepd while maintaining a corporate decline profile of approximately 23%. TORC anticipates that the $90 million 2016 capital budget will result in 2016 average and exit production of approximately 18,200 boepd (~87% light oil and liquids) with a consistent decline profile.
DIVIDEND
TORC's dividend is reviewed regularly with the Board of Directors and is an important component of TORC's overall strategy. TORC is well positioned to sustain a current dividend of $0.045 per share per month and will continue to monitor and review realized commodity prices, capital efficiencies and cash costs on a timely basis to maintain financial flexibility and long term sustainability.
TORC is pleased to confirm that the December, 2015 dividend of $0.045 per common share will be paid on January 15, 2016.
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 is committed to maintaining a disciplined approach during the current volatility in the world oil markets.
The Company continues to diligently focus on capital efficiency improvements through the combination of operational improvements and capital cost reductions. TORC's $90 million 2016 capital budget is based on current capital cost realizations. TORC anticipates further cost reductions would be realized in a decreasing commodity price environment.
TORC's year-end 2015 net debt is estimated to be approximately $300 million with approximately $245 million drawn on a bank line of $450 million, positioning TORC with financial flexibility and a strong balance sheet.
The Canadian Pension Plan Investment Board (“CPPIB”), a strategic investor in TORC, continues to be fully committed to the Share Dividend Plan (“SDP”) with its entire 25% ownership position. Including CPPIB's 25% participation in the SDP, the SDP participation has been averaging between 35%-40% during the second half of 2015.
Assuming a 35% participation in the SDP, the cash requirement of TORC's dividend policy is approximately $56 million for 2016. Combined with the $90 million capital budget, TORC's total cash requirement in 2016 is estimated to be approximately $146 million.
TORC anticipates a continuation of a weak crude oil price environment for the first half of 2016, with an improving outlook during the second half of the year, resulting in an estimated average price for the year of US$45 WTI ($0.72 US$/C$ exchange rate). Under these assumptions, TORC's all in cash payout ratio for 2016 will be approximately 100%.
Consistent with this commodity price assumption and the pace of previous capital expenditure programs, TORC's 2016 capital budget is weighted to the second half of the year, with approximately $35 million of expenditures planned in the first half of 2016 and $55 million planned during the second half. In addition, the Company has the operational flexibility to adjust its current 2016 budget to continue to prudently protect the Company's financial flexibility in a sustained low price environment but also take advantage of a potentially increasing 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 emerging light oil resource play in the Torquay/Three Forks 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) |
2016E Average and Exit: ~18,200 boepd |
Reserves (2) |
Greater than 87 mmboe (86% light oil & liquids) Total Proved plus Probable |
Cardium Light Oil Development Inventory |
~290 net undrilled locations |
Southeast Saskatchewan Light Oil Development Inventory |
~360 net undrilled locations |
Sustainability Assumptions |
Corporate decline ~23% Full Cycle Capital Efficiency ~$22,000/boepd (IP 365) (3) |
2016 Capital Program |
$90 million |
Annual Dividend (paid monthly) |
$0.54 per share $86 million $56 million (net of assumed 35% SDP participation) |
Net Debt & Bank Line |
~$300 million (estimated as at year end 2015) Bank line of $450 million |
Shares Outstanding |
160 million (basic) |
Tax Pools |
Approximately $1.5 billion |
Notes: |
||
(1) |
>87% light oil & NGLs respectively |
|
(2) |
The reserve information in the foregoing table is derived from (i) our reserves as at December 31, 2014, from the independent engineering report dated March 5, 2015 and effective December 31, 2014 prepared by Sproule Associates Limited (“Sproule”) evaluating the oil, NGL and natural gas reserves attributable to all of our properties; (ii) the reserves associated with the strategic acquisition completed during the second quarter from reports prepared by Sproule and McDaniel & Associates Ltd. (“McDaniel”) as of April 30, 2015 which were mechanical updates of the reserves associated with these acquired assets as of December 31, 2014 ; and (iii) reserves estimates effective November 1, 2014 internally prepared by a qualified reserves evaluator in accordance with National Instrument 51101 and the COGE Handbook attributable to certain assets acquired by us pursuant to an acquisition completed on February 25, 2015. Since these reserves were estimated as at different dates, they have been generated based on different assumptions in respect of commodity pricing and other metrics. As a result, the presentation of our reserves on a consolidated pro forma basis, would not reflect the actual combined estimated of our reserves at December 31, 2014 and should not necessarily be viewed as predictive of our reserves and future production. |
|
(3) |
Full cycle capital efficiency refers to the all-in corporate capital budget divided by the IP365 of the associated wells. |
An updated corporate presentation can be found at www.torcoil.com.