- Third quarter 2022 before tax cash flow(1)(2) (“CF”) was $1.056 billion and $1.051 billion after tax ($3.06 per diluted share(3)), a 38% increase over third quarter 2021 CF.
- Third quarter 2022 free cash flow(4) (“FCF”) was $568.3 million ($1.65 per diluted share).
- The Company will pay a special dividend of $2.25/share on November 18 to shareholders of record on November 9 and beginning in Q4, will increase the quarterly base dividend by 11% to $0.25/share providing for an annualized dividend of $1.00/share. Including the payments of both the Q4 special dividend and base dividend, the Company will pay a total of $7.90/share in dividends in 2022, resulting in approximately a 10% yield based on an October 14, 2022 closing share price of $76.51.
- Third quarter 2022 EP capital spending was $468.8 million, within previous guidance.
- Net debt(5) at September 30, 2022, was $564.6 million, well below the long-term net debt target of $1.0–$1.2 billion.
- At current strip pricing, full-year 2022 CF of $4.76 billion(6) is now anticipated ($13.90 per diluted share).
- Tourmaline’s 2023 EP capital program is estimated at $1.6 billion. The 2023 EP program is expected to deliver an annual average production of 545,000 boepd, and CF at strip pricing of $5.4 billion, yielding FCF of $3.7 billion in 2023.
- Q3 2022 production was 481,897 boepd, within the guidance range of 480,000-485,000 boepd.
- The Company is executing its Q4 2022 production plan with anticipated November average production between 520,000-530,000 boepd and anticipated December average production between 530,000-540,000 boepd.
- 2023 average production guidance remains at 545,000 boepd (2,500 mmcfpd of natural gas and over 125,000 bpd of oil, condensate, and NGLs).
- Consistent with the previously released EP growth plan, production is expected to average 700,000 boepd in 2028 after completion of both phases of the North Montney Conroy BC development in the 2025-2028 time frame.
- Q3 2022 before tax CF was $1.056 billion and $1.051 billion after tax ($3.06/diluted share after tax), a 38% increase over Q3 2021.
- Tourmaline generated FCF of $568.3 million in the third quarter of 2022.
- Q3 2022 net earnings were $2,097.9 million ($6.11/fully diluted share).
- Net debt at Sept 30, 2022 was $564.6 million, well below the long-term net debt target of $1.0 billion to $1.2 billion.
- Average realized natural gas price in Q3 2022 was $5.37/mcf as the Company continued to benefit from rising natural gas prices when compared to Q3 2021.
- Tourmaline currently has 754 mmcfpd accessing US markets through long-term firm transport agreements, increasing to 854 mmcfpd in Q2 2023, and to 926 mmcfpd at exit 2023. Tourmaline is amongst the most diversified of all North American large gas producers from a market access standpoint.
- Tourmaline has 20 mmcfpd of February/March 2023 JKM hedged at USD $54.78/mcf, 40 mmcfpd of Summer 2023 at USD $31.26/mcf, and 20 mmcfpd of Summer 2024 at USD $27.13/mcf. This provides fixed price protection on a portion of Tourmaline’s 140 mmcfpd Gulf Coast LNG deal for which physical gas deliveries will commence on January 1, 2023. The 2023 JKM strip price was USD $35.01/mmbtu as of October 28, 2022.
- Tourmaline has an average of 711 mmcfpd hedged for 2023 at a weighted average fixed price of CAD $5.77/mcf, an average of 110 mmcfpd hedged at a basis to NYMEX of USD $0.12/mcf, and an average of 754 mmcfpd of unhedged volumes exposed to export markets in 2023, including Dawn, Iroquois, Empress, Chicago, Ventura, Sumas, US Gulf Coast, JKM, Malin, and PG&E.
- Realized NGL prices averaged $43.48/bbl in Q3 2022, up 28% from Q3 2021. Tourmaline is the largest NGL producer in Canada.
- The Company is pursuing multiple additional market diversification opportunities for both natural gas and natural gas liquids.
- Q3 2022 EP capital spending was $468.8 million, forecast full year 2022 EP capital spending remains at approximately $1.5 billion.
- Full year 2023 EP capital budget remains at approximately $1.6 billion. The Company updated its EP plan in its July 27, 2022 press release which included additional capital in 2022 and 2023 to account for inflationary pressures.
- Tourmaline expects 2023 CF of $5.4 billion and FCF of $3.7 billion at strip pricing as of October 14, 2022. The current 7-year EP growth plan is expected to deliver estimated FCF of $19.4 billion on total capital spending (excluding acquisitions and dispositions) of $13.4 billion.
- Commencing in Q4 2022, Tourmaline will increase the quarterly base dividend by 11% to $0.25/share providing for an annualized dividend of $1.00/share. The Q4 base dividend is expected to be paid on December 30, 2022 to shareholders of record on December 15, 2022.
- Tourmaline has also elected to declare and pay a Q4 2022 special dividend of $2.25/share on November 18, 2022 to shareholders of record on November 9, 2022. This special cash dividend is designated as an “eligible dividend” for Canadian income tax purposes.
- Including the payments of both the Q4 special dividend and base dividend, the Company will pay a total of $7.90/share in dividends in 2022, resulting in approximately a 10% yield based on an October 14, 2022 closing share price of $76.51.
- The Company continues to focus on returning the majority of FCF to shareholders through base dividend increases, special dividends, and share buybacks. The magnitude of the special dividends will be a function of commodity prices and available quarterly FCF. The Company now anticipates returning greater than 75% of FCF in 2022, achieving a year end net debt to cash flow ratio of approximately 0.1x, which positions the Company to return 50-90% of FCF in 2023 while also growing production by approximately 7%. A component of FCF will also be used for modest incremental EP investments, including new pool/new zone exploration opportunities, asset acquisitions within existing core complexes, and select margin improving infrastructure investments.
- Tourmaline completed the previously announced Rising Star Resources Ltd. (“Rising Star”) acquisition during the third quarter of 2022, for $67.8 million in cash and $123.4 million in Topaz Energy Corp. (“Topaz”) shares owned by Tourmaline.
- In September 2022, the Company also sold a royalty interest in developed and undeveloped lands, including some Rising Star lands, to Topaz for cash consideration of $51.0 million, net of customary closing adjustments.
- Subsequent to closing the Rising Star acquisition, Tourmaline sold non-core assets acquired from Rising Star for cash consideration of $16.7 million plus certain undeveloped lands. Net production from the Rising Star assets after the non-core dispositions is approximately 3,500-4,000 boepd.
- Tourmaline is currently operating 13 rigs across the three EP complexes. The Company drilled 86 net wells and completed 75 net wells in the third quarter of 2022.
- The Company expects to tie in, and bring on production, a total of approximately 75 net wells in November and December with approximately 24 DUCs carried over into 2023.
- Tourmaline is operating eight rigs in the Alberta Deep Basin, four rigs in the NEBC Montney complex, and one rig in the Peace River High.
- Continuous improvement in new technology applications and drilling methodologies has resulted in a 37% improvement in meters drilled per day (from April 2020 to July 2022) in the Company’s BC Montney area.
- The Q4 2022 and 2023 EP programs include multiple new zone and new pool exploration tests across the three operated complexes as the Company expands the highly successful, and somewhat unique, exploration effort.
- In July 2021, the Company entered into a 15-year natural gas supply agreement (“Agreement”), under which it will deliver 140,000 mmbtu per day (approximately 140 mmcfpd) commencing in January 2023. Under the terms of the Agreement, Tourmaline will deliver natural gas to its counterparty at a delivery point in
Louisiana, USA and receive a Japan Korea Marker (“JKM”) index price less deductions for transport and liquefaction. This transaction is viewed by the Company as another way to continue to expand its sophisticated market diversification strategy. - During the third quarter of 2022, the Company identified that, although it had previously accounted for the Agreement in a manner that was consistent with the convention in the oil and gas industry for executory physical delivery sales contract, after further review of this complex accounting issue, the Agreement was determined to contain an embedded derivative. The embedded derivative arises as a result of the volumes being delivered to a counterparty in the United States while Tourmaline ultimately receives a JKM index price. It was further determined that this embedded derivative should be accounted for separately based on the forecast pricing spread between JKM and NYMEX, as these markets were deemed to not be closely related.
- As a result of this review, a natural gas embedded derivative is being recognized at its fair value at each reporting period over the life of the Agreement. Refer to note 4 of the Q3 interim condensed consolidated financial statements for further details of the natural gas embedded derivative and the determination of its fair value. The embedded derivative will result in the Company recording unrealized gains (losses) based on the relative movements in the JKM and NYMEX price forecasts. The Company will not record realized gains (losses) in its financial statements until it begins delivering natural gas under the contract.
- Accordingly, the Company’s Q3 2022 interim condensed consolidated financial statements and MD&A include restated values for the first and second quarters of 2022 reflecting higher earnings than those contained in the financial statements previously issued for those periods. This change does not affect cash flow, cash-related items, net debt or production volumes, and impacts only non-cash earnings on the Company’s consolidated income statements as well as the fair value of the financial instruments on the Company’s balance sheet. A description of these changes is contained under the heading “Accounting Restatement” in the Q3 MD&A and note 2 of the interim condensed consolidated financial statements for Q3 2022. Other than the change in accounting treatment for the Agreement, there are no other changes to the previously filed 2022 interim financial reports, which are available under the Company’s SEDAR profile at www.sedar.com.
Tourmaline plans to release the Company’s latest sustainability report in December 2022.
Highlights over the past 12 months include:
- Tourmaline achieved its net 25% methane reduction target in 2021, three years earlier than targeted in the Company’s five-year environmental performance improvement plan, despite growing production by 17% from 265,044 boepd in 2018 to 310,598 boepd in 2020.
- In 2021, the Company’s Emission Testing Centre (“ETC”), the first of its kind in the world, at the West Wolf gas plant, became fully operational. The ETC is critical in evolving new technology and methodologies to continue materially reducing methane and other emissions over the entire EP business
- Tourmaline has received preliminary platinum ratings from the Project Canary (Trustwell) assessment of a series of Company-operated NEBC assets, with an average score of 131 achieved. Tourmaline is the first Canadian gas company with a Trustwell score and ranks in the top 10% in North America.
- All of the Tourmaline-contracted rig fleet is displacing diesel with natural gas or running fully electric. Tourmaline was operating three Cat Tier 4 DGB natural gas powered frac spreads in Western Canada in July 2022. The evolving diesel displacement initiative continues to reduce both emissions and costs for the Company.
- Tourmaline has invested approximately $25 million over the past 5 years in water recycling and water management facilities as part of an ongoing effort to ultimately eliminate fresh water in well-stimulation activities. In September 2022, over 70% of the Company’s completions-related water usage was recycled water.
- Tourmaline is a major participant in the Natural Gas Innovation Fund (NGIF), an effort to produce lower emission natural gas across the whole spectrum of natural gas operations. The Company is sponsoring emerging cleantech companies in the areas of diesel displacement, methane emission monitoring and reduction, waste heat recovery, carbon capture, and water recycling.
__________________________________________________________ |
|
(1) |
This news release contains certain specified financial measures consisting of non-GAAP financial measures, non-GAAP financial ratios, capital management measures and supplementary financial measures. See “Non-GAAP and Other Financial Measures” in this news release for information regarding the following non-GAAP financial measures, non-GAAP financial ratios, capital management measures and supplementary financial measures used in this news release: “cash flow”, “capital expenditures”, “free cash flow”, “operating netback”, “operating netback per boe”, “cash flow per diluted share”, “free cash flow per diluted share”, “adjusted working capital”, and “net debt”. Since these specified financial measures do not have standardized meanings under International Financial Reporting Standards (“GAAP”), securities regulations require that, among other things, they be identified, defined, qualified and, where required, reconciled with their nearest GAAP measure and compared to the prior period. See “Non-GAAP and Other Financial Measures” in this news release and in the Company’s most recently filed Management’s Discussion and Analysis (the “Q3 MD&A”), which information is incorporated by reference into this news release, for further information on the composition of and, where required, reconciliation of these measures. |
(2) |
“Cash flow” is a non-GAAP financial measure defined as cash flow from operating activities adjusted for the change in non-cash working capital (deficit) and current income taxes. See “Non-GAAP and Other Financial Measures” in this news release. |
(3) |
“Cash flow per diluted share” is a non-GAAP financial ratio. Cash flow, a non-GAAP financial measure, is used as a component of the non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures” in this news release and in the Q3 MD&A |
(4) |
“Free cash flow” is a non-GAAP financial measure defined as cash flow less capital expenditures, excluding acquisitions and dispositions. Free cash flow is prior to dividend payments. |
(5) |
“Net debt” is a capital management measure. See “Non-GAAP and Other Financial Measures” in this news release and in the Q3 MD&A. |
(6) |
Based on oil and gas commodity strip pricing at October 14, 2022. |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
2022 |
2021 |
Change |
2022 |
2021 |
Change |
||
OPERATIONS |
|||||||
Production |
|||||||
Natural gas (mcf/d) |
2,240,641 |
2,146,477 |
4 % |
2,314,655 |
1,994,091 |
16 % |
|
Crude oil, condensate and NGL |
108,457 |
98,743 |
10 % |
111,430 |
93,951 |
19 % |
|
Oil equivalent (boe/d) |
481,897 |
456,489 |
6 % |
497,206 |
426,300 |
17 % |
|
Product prices(1) |
|||||||
Natural gas ($/mcf) |
$ 5.37 |
$ 3.88 |
38 % |
$ 5.52 |
$ 3.67 |
50 % |
|
Crude oil, condensate and NGL |
$ 63.77 |
$ 49.21 |
30 % |
$ 68.35 |
$ 44.52 |
54 % |
|
Operating expenses ($/boe) |
$ 4.36 |
$ 3.76 |
16 % |
$ 4.27 |
$ 3.70 |
15 % |
|
Transportation costs ($/boe) |
$ 4.66 |
$ 4.17 |
12 % |
$ 4.86 |
$ 4.17 |
17 % |
|
Operating netback(3) ($/boe) |
$ 23.68 |
$ 18.35 |
29 % |
$ 25.82 |
$ 17.22 |
50 % |
|
Cash general and |
$ 0.55 |
$ 0.51 |
8 % |
$ 0.57 |
$ 0.56 |
2 % |
|
FINANCIAL |
|||||||
Total revenue from commodity sales |
1,743,856 |
1,213,376 |
44 % |
5,566,374 |
3,139,918 |
77 % |
|
Royalties |
293,820 |
109,423 |
169 % |
822,765 |
219,746 |
274 % |
|
Cash flow(3) |
1,051,400 |
761,333 |
38 % |
3,481,302 |
1,960,890 |
78 % |
|
Cash flow per share (diluted)(3) |
$ 3.06 |
$ 2.32 |
32 % |
$ 10.18 |
$ 6.33 |
61 % |
|
Net earnings(4) |
2,097,929 |
361,057 |
4,81 % |
4,517,415 |
1,029,743 |
339 % |
|
Net earnings per share (diluted) |
$ 6.11 |
$ 1.10 |
455 % |
$ 13.21 |
$ 3.32 |
298 % |
|
Capital expenditures (net of |
415,447 |
56,108 |
640 % |
1,373,365 |
1,142,910 |
20 % |
|
Weighted average shares outstanding |
341,926,025 |
309,744,281 |
10 % |
||||
Net debt(3) |
(564,633) |
(1,465,090) |
(61) % |
(1) |
Product prices include realized gains and losses on risk management activities and financial instrument contracts. |
(2) |
See “Non-GAAP and Other Financial Measures” in this news release and in the Q3 MD&A. |
(3) |
Excluding interest and financing charges. |
(4) |
The first and second quarters of 2022 have been restated. See the “Accounting Restatement” section and note 2 of the interim condensed |