CALGARY, Dec. 14, 2016 /CNW/ – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce the Company’s Board of Directors has approved a 2017 capital budget of $130 million. TORC’s strategic objectives associated with the 2017 capital budget are consistent with the Company’s long term objectives of delivering disciplined per share growth in combination with maintaining financial flexibility while providing a sustainable dividend over the long term.
TORC’s 2017 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 drilling opportunities;
- 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 2017 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (approximately 80%) 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 Torquay/Three Forks play, as well as the Cardium play in central Alberta.
2017 BUDGET HIGHLIGHTS
SOUTHEAST SASKATCHEWAN
In southeast Saskatchewan, TORC plans to drill 38 (31.5 net) conventional wells. With more than 400 net undrilled conventional locations identified, the 2017 budget represents less than 10% of TORC’s currently identified 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 35% of the Company’s 2017 drilling, completion and tie-in capital budget.
In addition to the conventional program in southeast Saskatchewan, TORC has been active on the emerging Torquay/Three Forks light oil resource play. During 2016, TORC executed on a development program drilling 8 (7.0 net) successful wells in the play. Based on the Company’s encouraging results from this program, combined with competitor results in the area, TORC will continue to increase capital allocation to this resource play with plans to drill 15 (12.5 net) development and delineation wells during 2017.
During 2016, TORC has been successful in reducing the all in costs of the Torquay/Three Forks wells from $3.2 million at the beginning of the year, to below $2.8 million currently, primarily through improving operational efficiencies. These capital cost reductions combined with the high netback nature of the Torquay/Three Forks play are anticipated to drive attractive economics going forward.
TORC has initially identified 150 net Torquay/Three Forks development locations on its land base. These locations, in addition to the more than 400 net conventional locations identified by TORC provide an inventory of more than 550 undrilled locations in southeast Saskatchewan for future drilling opportunities.
The Torquay/Three Forks activity in southeast Saskatchewan will comprise approximately 35% of the 2017 drilling, completion and tie-in capital budget. When combined with the conventional program, southeast Saskatchewan represents approximately 70% of the overall drilling, completion and tie-in capital budget.
CARDIUM
TORC plans to drill 12 gross (10.7 net) wells across the Company’s land position in the Cardium. With more than 290 net undrilled light oil focused development locations identified, the 2017 budget represents less than 4% of TORC’s currently identified Cardium development drilling inventory. TORC’s development plans for the Cardium represents approximately 30% of the drilling, completion and tie-in activity in 2017.
PRODUCTION GUIDANCE
The Company remains positioned to achieve the previously announced 2016 exit guidance of 19,600 boepd while maintaining a corporate decline profile of approximately 23%. TORC anticipates that the $130 million 2017 capital budget will result in 2017 average production of 19,900 boepd (87% liquids) and exit production of 20,600 boepd (87% light oil and liquids) while continuing to maintain a decline profile of approximately 23%.
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 $0.02 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, 2016 dividend of $0.02 per common share will be paid on January 16, 2017.
Beginning with the January 2017 dividend which is paid to be paid in February 2017, TORC will eliminate the discount associated with the Company’s Share Dividend Plan (“SDP”).
The Canadian Pension Plan Investment Board (“CPPIB”), a strategic investor in TORC, continues to be fully committed to the SDP with its entire 25% ownership position.
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 2016 net debt is estimated to be approximately $285 million with less than $220 million drawn on a bank line of $400 million, positioning TORC with financial flexibility and a strong balance sheet.
TORC has budgeted for a modest increase to service costs due to increasing industry activity levels. TORC has initiated an active commodity hedging program to further protect our core capital spending requirements and dividend policy and currently has 2,000 bblpd hedged in calendar 2017.
Consistent with previous capital expenditure programs, TORC’s 2017 capital budget is weighted to the second half of the year, with approximately 35% of the expenditures planned in the first half of 2017 and 65% planned during the second half. This spending profile provides the Company the operational flexibility to adjust its current 2017 budget to continue to prudently protect the Company’s financial flexibility but also take advantage of an 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 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 Exit: 19,600 boepd 2017E Average: 19,900 boepd 2017E Exit: 20,600 boepd
|
Total Proved plus Probable Reserves (2) |
Greater than 96 mmboe (~84% light oil & liquids) |
Cardium Light Oil Development Inventory |
Greater than 290 net undrilled locations |
Southeast Saskatchewan Light Oil |
Greater than 400 net undrilled conventional locations Greater than 150 net Torquay/Three Forks locations |
Sustainability Assumptions (3) |
Corporate decline ~23% Capital Efficiency ~$24,000/boepd (IP 365)
|
2017 Capital Program |
$130 million |
Annual Dividend (paid monthly) |
$0.02 per share $44 million $26 million (net of assumed 40% SDP participation) |
Net Debt & Bank Debt (4) |
$285 million Less than $220 million drawn on a bank line of $400 million |
Shares Outstanding |
183 million (basic) |
Tax Pools |
Approximately $1.6 billion |
Notes:
(1) |
~87% light oil & NGLs. |
(2) |
All reserves information in this press release are gross reserves. The reserve information in the foregoing table is derived (i) in respect of our reserves as at December 31, 2015, from the independent engineering report effective December 31, 2015 prepared by Sproule & Associates Limited (“Sproule”) evaluating the oil, NGL and natural gas reserves attributable to all of our properties (the “TORC Reserve Report”); and (ii) in respect of the reserves associated with the acquired assets (and certain assets acquired pursuant to tuck-in acquisitions completed by TORC in the second quarter of 2016) as at May 31, 2016 based on TORC’s internal evaluation prepared by a qualified reserves evaluator in accordance with NI 51-101 and the COGE Handbook. Since the reserves reflected in the above table were estimated as at different dates, they have been generated based on different assumptions in respect of commodity pricing among other metrics. As a result, the presentation of our reserves on a consolidated pro forma basis for the acquisitions would not reflect the actual combined estimated of our reserves and those of the assets acquired at December 31, 2015 and should not necessarily be viewed as predictive of our reserves and future production. |
(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”. |