- Second quarter 2022 cash flow(1)(2) (“CF”) was a record $1.35 billion ($3.95 per diluted share(3)), a 137% increase over second quarter 2021 cash flow.
- Net debt(4) at June 30, 2022, was $430.0 million, well below the long-term debt target of $1.0–$1.2 billion. This places Tourmaline in an excellent position to concurrently fund the Conroy project and to continue its free cash flow(5) (“FCF”) allocation strategy.
- Second quarter 2022 free cash flow was a record $1.1 billion ($3.25 per diluted share) enabling the Company to declare a special dividend of $2.00 per common share to be paid August 12, 2022 to shareholders of record on August 5, 2022. Tourmaline’s trailing 12-months of distributed dividends now total $6.28 per share (inclusive of this August 2022 special dividend), an implied 9% trailing yield(6).
- Second quarter 2022 EP capital spending was $228.9 million, within previous guidance.
- Second quarter 2022 net earnings were $822.9 million ($2.40 per diluted share).
- At current strip pricing, full-year 2022 CF of $5.0 billion(7) is now anticipated ($14.69 per diluted share).
- Tourmaline’s 2023 EP capital program is estimated at $1.6 billion reflecting the 12-13 rig program for the full year and increased inflation contingencies over the May 2022 plan. The EP program is expected to deliver an annual average production of 545,000 boepd, and cash flow at strip pricing of $5.1 billion, yielding FCF of $3.5 billion in 2023.
- The new EP growth plan extends through 2028 and incorporates the current 12-13 drilling rig fleet in 2H 2022 and through the balance of the plan and also includes phase 1 of the Conroy North Montney development project, commencing production through new Tourmaline facilities in Q1 2026 and phase 2 in 2028.
- The new EP growth plan (2022-2028) generates $31.4 billion of CF and $18.0 billion of FCF at strip pricing (July 18, 2022) on total EP spending of $12.7 billion. Average annual production growth during the plan is approximately 6%, total production growth over the period of the plan is 40%.
- Second quarter 2022 production average was 502,937 boepd (506,086 boepd prior to storage injections in California and Dawn), within the previously disclosed guidance range and a 23% increase over second quarter 2021 production of 410,339 boepd.
- A third quarter 2022 average production range of 485,000-495,000 boepd is forecast reflecting planned facility turnarounds, temporary in-field frac-related shut-ins, and incorporating considerable third-party pipeline maintenance in August.
- The modest EP activity increase post break-up will lead to a higher Q4 2022 production forecast of 520,000 to 525,000 boepd, up from 510,000 boepd in the previous forecast. A full-year 2022 average production forecast of 507,000 boepd is now anticipated, including the impact of the Rising Star Resources Ltd. (“Rising Star”) acquisition from August onwards (as further described below).
- Full-year 2022 average liquids production of over 115,000 boepd is expected, up 19% from average 2021 levels (condensate, oil, NGLs).
- Second quarter 2022 cash flow was a record $1.35 billion ($3.95 per diluted share), a 137% increase over second quarter 2021 cash flow.
- Second quarter 2022 free cash flow was a record $1.1 billion ($3.25 per diluted share).
- At current strip pricing (July 18, 2022), full-year 2022 cash flow of $5.0 billion is now anticipated ($14.69 per diluted share).
- Second quarter 2022 net earnings were $822.9 million ($2.40 per diluted share).
- Given the strong commodity price outlook and anticipated record free cash flow in 2022, Tourmaline intends to return a minimum of 60% of FCF to shareholders in 2022. The Company has also declared a Q3 2022 special dividend of $2.00/share that will be paid on August 12, 2022 to shareholders of record on August 5, 2022. The special dividends are designated as “eligible dividends” for Canadian income tax purposes.
- Total trailing twelve-month dividends of $6.28/share (inclusive of the August 2022 special dividend) have provided for a dividend yield of 9%(8).
- Tourmaline intends to pay quarterly special dividends through the balance of 2022 and 2023. The magnitude of these special dividends will be a function of commodity prices and available quarterly free cash flow. The Company intends to continue to return the majority of FCF (greater than 60% in 2022, 50-75% in 2023) to shareholders through base dividend increases, special dividends, and share buybacks. A component of free cash flow 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.
- Average realized natural gas price in Q2 2022 was $6.31/mcf as the Company continued to benefit from rising natural gas prices.
- Tourmaline currently has 620 mmcfpd accessing US markets through long-term firm transport agreements. This volume will grow to 905 mmcfpd by exit 2023. Tourmaline is amongst the most diversified of all North American large gas producers from a market access standpoint. The Company is continuing to explore opportunities to expand this export capability.
- The Company’s 140 mmcfpd Gulf Coast LNG deal with Cheniere commences January 1, 2023, and provides exposure to JKM pricing over the 15-year term of the deal. The 2023 JKM strip price was $31.88 US/mmbtu as of July 19, 2022.
- In addition to the expiry of Q1 2022 lower-priced hedges, approximately 50% of the remaining hedges, assumed by Tourmaline when acquiring Jupiter Resources Ltd., Modern Resources Inc., and Black Swan Energy Ltd., will roll off and these production volumes will benefit from the much higher current strip pricing for winter 2022/2023. Furthermore, 77% of these remaining lower-priced hedges will expire by the end of 2023.
- Tourmaline has an average of 885 mmcfpd hedged for 2022 at a weighted average fixed price of CAD $3.80/mcf, an average of 140 mmcfpd hedged at a basis to NYMEX of USD $(0.01)/mcf, and an average of 575 mmcfpd of unhedged volumes exposed to export markets in 2022, including Dawn, Iroquois, Empress/McNeil, Chicago, Ventura, Sumas, US Gulf Coast, Malin, and PG&E.
- Realized NGL prices averaged $51.83/bbl in Q2 2022, up 99% from Q2 2021. Tourmaline is the largest NGL producer in Canada.
- The new EP growth plan extends through 2028 and incorporates the current 12-13 drilling rig fleet in 2H 2022 and through the balance of the plan. The Company felt it prudent to retain the drilling and completion services already secured on a go-forward basis. The previous plan could be executed with approximately 11 drilling rigs.
- The new EP growth plan also includes phase 1 of the Conroy North Montney development project, commencing production through new Tourmaline facilities in Q1 2026 and phase 2 in 2028. The North Montney development project is described in detail below under “Conroy North Montney Development”.
- The new EP growth plan (2022-2028) generates $31.4 billion of CF and $18.0 billion of FCF at strip pricing (July 18, 2022) on total EP spending of $12.7 billion. Average annual production growth during the plan is approximately 6%, total production growth over the period of the plan is 40%.
- The increased activity in 2023 and 2024 will yield modestly higher production growth than the previously disclosed May 2022 plan (6% average growth per year versus 4% previously).
- The updated EP plan will consume approximately 2,500 gross drilling locations through 2028, 11% of the current inventory of 22,715 locations.
- The Company believes the modestly-increased capital program on very high-return EP projects is a good utilization of FCF. The incremental EP expenditure increase in the 2H 2022 to exit 2024 period is $1.05 billion or 14% of estimated total FCF in the corresponding 2.5 year period. Current well payouts are in the three-to-six-month range.
- The total incremental gas production of 250 mmcfpd in 2023/2024 via the expanded program coincides with incremental Basin egress, consistent with Tourmaline’s long-term balanced basin supply narrative. Through expansions on the GTN system and the Company’s Gulf Coast Cheniere LNG agreement, Tourmaline has 300 mmcfpd of incremental Basin egress commencing in 2023. These gas volumes will access the two destinations with the sustained premium gas prices – international LNG and California.
- The Company believes long-term supply/demand fundamentals are strong and should yield elevated commodity prices for an extended period of time. The Company also expects commodity prices to be more volatile, both locally and globally, than historical trends.
- Tourmaline is able to deliver a strong, sustainable annual return to shareholders (greater than 60% of FCF in 2022), a meaningful sustained annual production growth profile (6% per year 2022-2028), and continued material value accretion through profitable annual reserve additions (91% growth in 2P reserve value(9) from December 31, 2020 to December 31, 2021).
- Second quarter 2022 EP capital spending was $228.9 million, within previous guidance. Total capital expenditures in the quarter were $478.5 million including acquisition and land sales, which are funded separately through available free cash flow.
- The full-year 2022 EP capital budget has been increased to $1.5 billion reflecting the increased 2H 2022 EP program and a further contingency for inflation.
- Tourmaline’s 2023 EP capital program is estimated at $1.6 billion reflecting the 12-13 rig program for the full year and increased inflation contingencies over the May 2022 plan. The EP program is expected to deliver an annual average production of 545,000 boepd, and cash flow at strip pricing (July 18, 2022) of $5.1 billion yielding FCF of $3.5 billion in 2023.
- Significantly increased inflation contingencies will yield capital efficiencies of approximately $8,000/boepd in 2022 and 2023, compared to original efficiency targets of $6,500–$7,000/boepd set in Q4 2021. Average capital efficiencies through the entire plan are approximately $8,500/boepd inclusive of the significant facility and infrastructure capital in the 2024-2028 period for the North Montney development.
- The 2H 2022 and 2023 capital programs include up to 10 incremental exploration new zone/new pool wells, following up on multiple successes to date.
- The capital programs include infrastructure investments that will continue to improve operating margins across all three EP complexes.
- Net debt at June 30, 2022 was $430.0 million, well below the long-term debt target of $1.0–$1.2 billion. This places Tourmaline in an excellent position to concurrently fund the Conroy North Montney development and to continue its free cash flow allocation strategy.
- The new EP growth plan incorporates the initial phase of the Conroy North Montney development, with a January 1, 2026 targeted on-stream date. The project has been segmented into two 50,000 boepd phases; the second phase is scheduled to start up in 2028. The timing roughly approximates the sequencing of LNG Canada commissioning, which the Company views as positive for long-term natural gas pricing in the WCSB. Phase 2 could be accelerated contingent upon commodity prices and Basin egress considerations.
- The Greater North Montney phase 1 development will add production of 228 mmcfpd of gas and 12,000 bpd of condensate and NGLs by 2026.
- Tourmaline has drilled a total of 14 delineation pads within the North Montney project area over the past 18 months to confirm well performance and capital costs. Capital costs are on target and well performance has exceeded original expectation for the vast majority of the new pads.
- The Company estimates a development drilling inventory of over 2,000 wells in the North Montney project area, supporting an additional, similar second phase of growth and an ability to maintain plateau production across the entire complex for 30 years.
- As part of the project, Tourmaline has negotiated a new long-term transportation and fractionation arrangement with Pembina Pipeline Corporation for the incremental condensate and NGL volumes in the Company’s North Montney project area. The agreement ensures that all new Company liquid volumes will flow upon project startup, along with significant flexibility and strong operating margins for Tourmaline in the North Montney development area. The Company plans to continue to evaluate liquids midstream investment and capital opportunities and weigh them against partnership solutions in each operating area.
- As part of the long-term associated Conroy facilities strategy, Tourmaline also closed the previously-announced acquisition of the 50% non-operated interest in the two Aitken area gas plants during the second quarter of 2022.
- Tourmaline is pleased to announce that it has entered into a binding agreement to acquire Rising Star for $194.3 million, with closing expected to occur in August 2022. The purchase price includes common shares of Topaz Energy Corp. (“Topaz”) currently owned by Tourmaline and the remainder in cash.
- The Rising Star assets are located within Tourmaline’s Peace River High Charlie Lake complex. Current production is approximately 5,700 boepd, 2P reserves are estimated at 50 mmboe(9), and Rising Star has no outstanding debt. First half 2022 cash flow from the assets was approximately $43.0 million. Rising Star also has a large number of Tier 1 Upper and Lower Charlie Lake horizontal locations in inventory, complementing Tourmaline’s extensive existing Peace River High complex inventory.
- Included in the acquisition are facilities that complement Tourmaline’s existing infrastructure and the pooling of land bases will facilitate drilling of longer horizontals in the Lower Charlie Lake. The 2,500+ metres Charlie Lake horizontal wells have been yielding the strongest well results to date since Tourmaline initiated the Charlie Lake play over a decade ago.
- Tourmaline has entered into a definitive agreement to sell a gross overriding royalty (“GORR”) to Topaz on the core Rising Star lands (subject to the closing of the Rising Star transaction), along with other land parcels acquired through land sales or swaps in which Topaz does not currently own a GORR. Tourmaline will receive cash proceeds of $52.0 million from Topaz in the third quarter. Consistent with Topaz’s existing GORR’s with Tourmaline, Topaz will receive 3% on natural gas and 2.5% on crude oil and condensate.
- Tourmaline may pursue dispositions of non-core components of the Rising Star asset base during the second half of the year.
- Tourmaline drilled 33.5 net wells and completed 25.5 net wells in Q2 2022; 26 new net wells were brought on production during the second quarter.
- A total of 142.7 net wells are anticipated to come on production during the second half of 2022.
- Tourmaline currently has 13 drilling rigs and 5 frac spreads active across the three EP complexes.
- The ongoing new pool/new zone exploration program has yielded three significant successes to date. The Company has 41 successful, producing horizontals into a new liquids-rich gas zone in the Alberta Deep Basin with 495.5 bcfe 2P reserves booked in the December 31, 2021 GLJ reserves report. A further seven horizontals will be drilled into this horizon in the 2H 2022 EP program. Tourmaline has seven producing horizontals from the new zones in the Company’s South Montney BC complex with 317.9 bcfe of 2P reserves booked in the reserve report at December 31, 2021. The third new play has two successful horizontals, 32 km apart, drilled and tested thus far. Further follow-up drilling is planned in the 2H 2022/2023 EP program; the Company expects to book reserves from this expansive new play in the 2022 reserve report.
- New zone/new play exploration wells will be drilled in the Peace River High and Alberta Deep Basin complexes during the second half of 2022.
- 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 is also pleased to announce that the Toronto Stock Exchange (the “TSX”) has approved the renewal of Tourmaline’s normal course issuer bid (the “NCIB”).
- The NCIB allows Tourmaline to purchase up to 16,800,668 common shares (representing 5% of its issued and outstanding common shares as of July 19, 2022) over a period of twelve months commencing on August 2, 2022. The NCIB will expire no later than August 1, 2023. Under the NCIB, common shares may be repurchased in open market transactions on the TSX and other alternative trading platforms in Canada and in accordance with the rules of the TSX governing NCIBs. The total number of common shares Tourmaline is permitted to purchase is subject to a daily purchase limit of 439,169 common shares, representing 25% of the average daily trading volume of 1,756,677 common shares on the TSX calculated for the six-month period ended June 30, 2022; however, Tourmaline may make one block purchase per calendar week which exceeds the daily repurchase restrictions. Any common shares that are purchased under the NCIB will be cancelled upon their purchase by Tourmaline.
- Under its most recent normal course issuer bid, Tourmaline obtained approval to purchase up to 14,943,420 of its common shares, of which Tourmaline purchased 200,000 common shares.
- Tourmaline believes that at times, the prevailing share price does not reflect the underlying value of the common shares and the repurchase of its common shares for cancellation represents an attractive opportunity to enhance Tourmaline’s per share metrics and thereby increase the underlying value of its common shares to its shareholders. Tourmaline will use the NCIB as another tool to enhance total long-term shareholder returns and will be used in conjunction with management’s disciplined free funds flow capital allocation strategy.
___________ |
|
(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 boe”, “cash flow per diluted share”, “free cash flow per diluted share”, “adjusted working capital”, “net debt”, operating expenses ($/boe), and transportation costs ($/boe). 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 “Q2 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). 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 Q2 MD&A |
(4) |
“Net debt” is a capital management measure. See “Non-GAAP and Other Financial Measures” in this news release and in the Q2 MD&A. |
(5) |
“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. See “Non-GAAP and Other Financial Measures” in this news release. |
(6) |
Calculated as the dividend per common share for the 12-month period divided by the closing share price of $68.56 on July 18, 2022. |
(7) |
Based on oil and gas commodity strip pricing at July 18, 2022. |
(8) |
Calculated as the total dividends per common share for the trailing 12-month period divided by the closing share price of $68.56 on July 18, 2022. |
(9) |
Growth in 2P reserve value is before income taxes and discounted at 10% as disclosed in the Company’s consolidated reserve reports as at December 31, 2020 and December 31, 2021. Values also include 2021 2P reserve additions of 1,089.7 mmboe, including acquisitions and including 2021 annual production of 161.0 million boe. |
(10) |
Reserves have been evaluated as at December 31, 2021 by Sproule Associates Ltd., an independent reserve evaluator. Reserves are working interest gross reserves before deduction of royalties payable to others and without including any royalty interests. |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||
2022 |
2021 |
Change |
2022 |
2021 |
Change |
||
OPERATIONS |
|||||||
Production |
|||||||
Natural gas (mcf/d) |
2,343,704 |
1,915,630 |
22 % |
2,352,275 |
1,916,633 |
23 % |
|
Crude oil, condensate and NGL (bbl/d) |
112,320 |
91,067 |
23 % |
112,941 |
91,516 |
23 % |
|
Oil equivalent (boe/d) |
502,937 |
410,339 |
23 % |
504,987 |
410,955 |
23 % |
|
Product prices(1) |
|||||||
Natural gas ($/mcf) |
$ 6.31 |
$ 3.25 |
94 % |
$ 5.59 |
$ 3.55 |
57 % |
|
Crude oil, condensate and NGL ($/bbl) |
$ 74.63 |
$ 42.84 |
74 % |
$ 70.58 |
$ 41.95 |
68 % |
|
Operating expenses ($/boe) |
$ 4.24 |
$ 3.70 |
15 % |
$ 4.22 |
$ 3.67 |
15 % |
|
Transportation costs ($/boe) |
$ 5.03 |
$ 3.99 |
26 % |
$ 4.96 |
$ 4.17 |
19 % |
|
Operating netback(3) ($/boe) |
$ 29.70 |
$ 15.47 |
92 % |
$ 26.85 |
$ 16.58 |
62 % |
|
Cash general and |
$ 0.57 |
$ 0.56 |
2 % |
$ 0.58 |
$ 0.59 |
(2) % |
|
FINANCIAL |
|||||||
Total revenue from commodity sales and realized gains |
2,108,834 |
921,278 |
129 % |
3,822,518 |
1,926,542 |
98 % |
|
Royalties |
325,211 |
56,547 |
475 % |
528,945 |
110,323 |
379 % |
|
Cash flow(3) |
1,353,926 |
570,232 |
137 % |
2,429,902 |
1,199,557 |
103 % |
|
Cash flow per share (diluted)(3) |
$ 3.95 |
$ 1.89 |
109 % |
$ 7.13 |
$ 4.00 |
78 % |
|
Net earnings (loss) |
822,944 |
420,849 |
96 % |
1,084,228 |
668,686 |
62 % |
|
Net earnings (loss) per share (diluted) |
$ 2.40 |
$ 1.40 |
71 % |
$ 3.18 |
$ 2.23 |
43 % |
|
Capital expenditures (net of dispositions) |
478,545 |
664,696 |
(28) % |
957,918 |
1,086,802 |
(12) % |
|
Weighted average shares outstanding (diluted) |
340,985,975 |
299,967,134 |
14 % |
||||
Net debt(3) |
(429,761) |
(1,728,794) |
(75) % |
(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 Q2 MD&A. |
(3) |
Excluding interest and financing charges. |
Tourmaline will host a conference call tomorrow, July 28, 2022 starting at 9:00 a.m. MT (11:00 a.m. ET). To participate, please dial 1-888-664-6383 (toll-free in North America), or international dial-in 1-416-764-8650, a few minutes prior to the conference call.
Conference ID is 32469174.
If you are unable to dial into the live conference call on July 28th, a replay will be available (usually by that afternoon) by dialing 1-888-390-0541 (international 1-416-764-8677), referencing Encore Replay Code 469174. The recording will expire on August 11, 2022.
All amounts in this news release are stated in Canadian dollars unless otherwise specified.