TOURMALINE DELIVERS NET EARNINGS OF $2 BILLION IN 2021, ADDS 1,090 MMBOE OF 2P RESERVES AND DECLARES DIVIDEND FOR Q1 2022
TSX - Toronto Stock Exchange
Canada NewsWire
CALGARY, AB , March 2, 2022 /CNW/ - Tourmaline Oil Corp. (TSX:TOU) ("Tourmaline" or the "Company") is pleased to release financial and operating results for the full year and fourth quarter of 2021 as well as 2021 reserves.
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HIGHLIGHTS
Full-year average 2021 production of 441,115 boepd was up 42% over 2020 average production of 310,598 boepd. Current production is ranging between 500,000-510,000 boepd, with a Q1 2022 exit of 510,000-515,000 boepd anticipated. Full-year 2021 after tax net earnings were $2.03 billion ( $6.40 per diluted share). Full-year 2021 cash flow (1) was a record $2.93 billion ( $9.25 per diluted share (2) ) up 147% over 2020. Tourmaline generated a record $1.49 billion of free cash flow (3) ("FCF") in 2021. Exit 2021 net debt (4) was $973 million (0.25 times 2021 net debt to Q4 annualized cash flow) and below the Company's long-term net debt target of $1.0 -1.2 billion. Year-end 2021 proved, developed producing ("PDP") reserves of 947.3 million boe were up 50%, total proved ("TP") reserves of 2.19 billion boe were up 39% and proved plus probable ("2P") reserves of 4.24 billion boe were up 33% over year-end 2020, including 2021 annual production of 161.0 million boe. Tourmaline replaced 677% of its 2021 annual production of 161.0 million boe with 2P additions of 1.090 billion boe including 2021 production. Tourmaline's 2P reserve value (5) equates to $97.54 per diluted share (6) using the January 1, 2022 engineering price deck and a 10% discount rate. TP and PDP reserve value is $62.70 and $33.77 per diluted share (7) , respectively, using the same pricing and discount rates. After 13 years of operations, Tourmaline now has 19.5 TCF of 2P natural gas reserves, the largest in Canada and one of the largest, lowest development cost, lowest emission natural gas reserve bases in North America . In 2021, the Company further diversified the gas marketing portfolio by establishing a US Gulf Coast LNG pathway and entered into a long-term arrangement with Cheniere Energy Inc. In 2023, Tourmaline will become the first Canadian EP company participating in the LNG business with full exposure to JKM (Japan Korea Marker) pricing. The Company's exploration program has successfully tested six new horizons spread across the three operated complexes thus far. Tourmaline achieved its net 25% methane reduction target in 2021, three years earlier than targeted.
PRODUCTION UPDATE
Fourth quarter 2021 production averaged 485,078 boepd, up 44% from Q4 2020; full-year 2021 production of 441,115 boepd was up 42% over 2020 average production of 310,598 boepd. 2021 average liquids production of 97,206 bpd (oil, condensate, NGL) was up 50.7% over 2020. Current production is ranging between 500,000-510,000 boepd. The Company expects to exit Q1 at 510,000-515,000 boepd. Full-year 2022 average production guidance of 500,000 boepd remains unchanged. All three Company-operated EP complexes are currently producing at or above full-year 2022 guidance levels. The Alberta Deep Basin is currently producing 250,000 boepd, the BC Montney gas condensate complex is producing 230,000 boepd and the Peace River High complex is producing 25,000 boepd.
FINANCIAL HIGHLIGHTS
Full-year 2021 after tax net earnings were $2.03 billion ( $6.40 per diluted share). Fourth quarter 2021 cash flow was $968.2 million ( $2.88 per diluted share), and full-year 2021 cash flow was a record $2.93 billion ( $9.25 per diluted share). Annual cash flow is up 147% on total revenue (8) of $4.67 billion for 2021, up 115% over 2020. Tourmaline generated a record $1.49 billion of free cash flow in 2021. The Company increased the base dividend three times in 2021 to $0.72 /share (29% annual increase) and paid a special dividend of $0.75 /share in October 2021 . Tourmaline has committed to returning the majority of annual FCF to shareholders and is executing on that plan. Subsequent to year-end 2021, Tourmaline increased the annual base dividend to $0.80 /share and paid a second special dividend of $1.25 /share in February 2022 . Tourmaline's Investment Grade credit rating improved from BBB to BBB (high) during 2021 in conjunction with its issuance of a fixed term note and the acquisition of Black Swan. The public investment grade rating upgrade validated the overall financial health of Tourmaline as a stable, low-risk senior North American oil and gas producer.
2021/2022 BUDGET AND OUTLOOK
Q4 2021 EP capital expenditures were $410.9 million ; full-year 2021 EP capital expenditures were $1.39 billion . Tourmaline, as previously disclosed, accelerated the construction of the Gundy Phase 2 deep cut and the Aitken 46-C expansions into Q4 2021. Both projects were completed on budget and are currently on-stream at full capacity. The Company also accelerated the drilling of one BC pad at Gundy , and the fracing of two additional BC pads from Q1 2022 into Q4 2021, primarily for operational continuity and logistics reasons. These incremental EP operations added approximately $80.0 million to the Q4 2021 EP capital program. In 2022 at current strip (9) pricing, the Company expects to generate cash flow of $4.05 billion ( $11.97 per diluted share) and free cash flow of $2.85 billion ( $8.43 per diluted share) on unchanged EP capital expenditures of $1.125 billion . Tourmaline builds 2.5% inflation per annum on both capital and operating costs into the Company's five-year EP capital plan. The $80.0 million of BC drilling/completion capital accelerated into Q4 2021 will also remain in the 2022 budget to provide for anticipated 2022 inflation. The Company's continuing material reductions of drill times in all three EP complexes also provides a further offset to inflationary pressures. Tourmaline generated cash flow of $968.2 million and free cash flow of $545.9 million in Q4 2021 on EP capital expenditures of $410.9 million . Exit 2021 net debt was $973 million (0.25 times 2021 net debt to Q4 annualized cash flow) and below the Company's long-term net debt target of $1.0 -1.2 billion. The majority of Tourmaline's net debt is substantially offset by its investment in Topaz, using a closing price of Topaz common shares at December 31, 2021 of $17.85 per share.
2021 RESERVES
Year-end 2021 PDP reserves of 947.3 million boe were up 50% over year-end 2020 including 2021 annual production of 161.0 million boe. TP reserves of 2.19 billion boe were up 39.0% including 2021 annual production. 2P reserves of 4.24 billion boe were up 33% including 2021 annual production. Tourmaline's 2021 PDP finding, development and acquisition ("FD&A") costs were $7.27 per boe (10) including changes in future development capital ("FDC") yielding a PDP reserve recycle ratio (11)(12) of 2.5 (3.0 utilizing Q4 2021 cash flow per boe (13) of $21.70 instead of full-year 2021 cash flow per boe of $18.19 ). TP FD&A costs in 2021 were $5.94 per boe including changes in FDC and 2P FD&A was $4.54 per boe including changes in FDC. The 2P FD&A recycle ratio was 4.0 in 2021. Tourmaline replaced 677% of its 2021 annual production of 161.0 million boe with 2P additions of 1.090 billion boe including 2021 production. Tourmaline's 2P reserve value (before taxes) equates to $97.54 per diluted share using the January 1, 2022 engineering price deck and a 10% discount rate. TP reserve value is $62.70 per diluted share and PDP reserve value is $33.77 per diluted share using the same pricing and discount rates. After 13 years of operations, Tourmaline now has 19.5 TCF of 2P natural gas reserves, the largest in Canada and one of the largest, lowest development cost, lowest emission natural gas reserve bases in North America . The Company also has 995.1 million boe of 2P crude oil, condensate and NGL (natural gas liquids) reserves ( December 31, 2021 ) - one of the largest conventional liquid reserve bases in Canada . Tourmaline has only booked 3,168 (gross) locations of a total drilling inventory of 22,715 gross locations (14% of the overall inventory) to achieve year-end 2021 2P reserves of 4.24 billion boe. The current FDCs associated with 2P reserves represent approximately three years of prospective cash flow at strip pricing. Although the Company has the execution capability to convert the entire 4.24 billion boe of 2P reserves to PDP in that time frame, it does not believe that would be constructive for the current encouraging supply/demand dynamics in the WCSB, or the appropriate capital allocation decision.
MARKETING UPDATE
Tourmaline continued to diversify its natural gas and liquids marketing portfolio in order to realize the best pricing possible for all of its hydrocarbon streams. In 2021, the Company further diversified the gas marketing portfolio by establishing a US Gulf Coast LNG long-term netback supply agreement with Cheniere Energy. In 2023, Tourmaline will become the first Canadian EP company participating in the LNG business with full exposure to JKM pricing, providing a material increase to anticipated 2023 cash flow based on the February 15, 2022 JKM strip pricing. In November 2022 , the Company will increase gas volumes exported to western US markets from 345 to 445 mmcfpd, with approximately 67% of the gas accessing the premium priced PG&E California market. In November 2023 , western US market exposure will increase by an incremental 50 mmcfpd. Average realized natural gas price in Q4 2021 was $4.66 /mcf as the Company benefited from rising commodity prices. Tourmaline has an average of 845 mmcfpd hedged for 2022 at a weighted average fixed price of CAD $3.44 /mcf, an average of 151 mmcfpd hedged at a basis to Nymex of USD $(0.05) /mcf, and an average of 609 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. The 2022 volumes include approximately 145 mmcfpd of lower-priced deals inherited in the Black Swan and Modern corporate transactions, the majority of which will expire during 2022. NGL price realizations in Q4 2021 were up 24% over Q3 2021. Tourmaline is Canada's largest NGL producer with anticipated average production levels of over 70,000 bpd in 2022.
EP UPDATE
Tourmaline drilled a total of 280 net wells during 2021 for a total of 1.289 million metres. The Company has systematically increased lateral length by over 30% since 2018 while reducing actual drill/complete costs per lateral foot by an additional 30% in that time period. Tourmaline operated 13 drilling rigs and four to five frac spreads across the three operated core EP complexes during January and February of 2022 as originally planned. The Company expects to drill and complete a total of approximately 265 (gross) wells during 2022. The Company continues to operate five drilling rigs in NEBC with new multiple high-performance pads at Sundown, Gundy , Aitken, and Laprise. Facility expansions at Gundy and Aitken were accelerated into 2H 2021 and completed on budget. The Aitken 46-C expansion/deep cut was executed in 120 days for $96.5 million ; the previous owner had estimated 270 days for $116 million . There are no material facility projects in the 2022 budget; as such, the Company anticipates record 2022 capital efficiencies (14) in the $6,000 /boepd range. The Company continues to evolve the Conroy/N. Montney development project. This minimum 100,000 boepd gas and liquids project is currently planned in the 2025-26 timeframe, coinciding with the projected startup of LNG Canada and anticipated related strong intra-Basin natural gas pricing. The production, cash flow, and capital for this project are not reflected in the current corporate five-year EP plan. Once sanctioned, the Company believes it can execute this project in approximately 18 months. The three-well 1-15 Upper Charlie Lake pad has averaged at a combined rate of 2,500 bopd and 2.8 mmcfpd over the first two weeks of production. The Company has two additional pads to bring on-stream in the complex, prior to spring break-up. The 4-23 two well Wilrich pad at Smoky tested at combined rate of 65 mmcfpd over three days of testing in February 2022 . The pad has since been turned over to production.
EXPLORATION PROGRAM
The Company embarked upon a modest exploration program over two years ago as a subset of the annual EP program. The Company has successfully tested six new horizons spread across the three operated complexes to date. The December 31, 2021 reserve report includes 845.1 bcfe of 2P reserves from these discoveries thus far. Further delineation drilling is planned in all three complexes over the next 12 months; the Company will disclose further details in upcoming quarters as appropriate. Successful discoveries to date are accessing existing Tourmaline infrastructure. This 'Back to the Future' initiative provides shareholders with an additional, unique, long-term growth and value accretion opportunity.
ACQUISITION UPDATE
Tourmaline completed a highly successful consolidation strategy in the 2020 and 1H 2021 time period. In July 2021 , the Company indicated that the larger acquisition program was being paused. The Company made the decision to focus on integration of the assets acquired in the completed deals and realization of the identified capital and operating synergies. The Company has indicated that $200 -300 million of annual FCF could be allocated to further smaller, complementary asset acquisitions within existing complexes. During Q4 2021 and thus far in Q1 2022, the Company has completed a number of these small acquisitions that in aggregate are meaningful. To that end, Tourmaline has acquired 2,400 boepd of production, an estimated 43 mmboe of reserves (based on internal estimates), 295 gross sections of land (including land sales), and 238 gross drilling locations for total cash proceeds of $63.8 million over the two quarters.
SUSTAINABILITY AND ENVIRONMENTAL PERFORMANCE IMPROVEMENT
Tourmaline has had an engineering team in place for three years developing and implementing new proprietary emission reduction technologies, executing expanded water management initiatives, managing third party environmental related research, evolving a methane testing centre, and managing an emerging carbon offset business. Tourmaline intends to invest $20 -40 million per year on environmental performance improvement initiatives. The Company now has displaced diesel with natural gas on all the drilling rigs in the operated fleet, and currently has one rig running directly on high line power. In 2021, the Company entered into a joint venture with Trican to utilize the first Tier 4 natural gas frac unit in Canada , displacing the majority of the diesel consumed during frac operations with Company-sourced natural gas. This unit is currently being utilized on a full-time basis in the Gundy BC complex. During 2021, Tourmaline continued its Basin leading initiative to reduce freshwater usage in EP well stimulation operations. The Company now has seven water management/water recycling complexes across all three operated complexes. Tourmaline achieved its net 25% methane reduction target in 2021, three years earlier than targeted. In 2021, the Company's Emission Testing Center ("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.
DIVIDEND
The Company is pleased to announce that its Board of Directors has declared a quarterly cash dividend on its common shares of $0.20 per common share. The dividend will be payable on March 31, 2022 to shareholders of record at the close of business on March 15, 2022 . This quarterly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes.
| _ | | | ( 1 ) | This news release contains certain specified financial measures consisting of non-GAAP financial measures, non-GAAP 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 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", "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 Management's Discussion and Analysis for the year ended December 31, 2021 (the "Annual 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 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 Annual MD&A. | | ( 3 ) | "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. | | ( 4 ) | " Net debt" is a capital management measure. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. | | ( 5 ) | 2P, TP and PDP reserve value per share is calculated as the before tax net present value of the reserves at December 31, 2021 discounted at 10% divided by total diluted shares outstanding at December 31, 2021. | | ( 6 ) | Supplementary financial measure. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. | | ( 7 ) | Supplementary financial measure. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. | | ( 8 ) | Total revenue from commodity sales and premium (loss) on risk management activities and realized gain (loss) on financial instruments. | | ( 9 ) | Based on oil and gas commodity strip pricing at February 15, 2022. | | ( 10) | Non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. | | ( 11) | Non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. The recycle ratio is calculated by dividing the cash flow per boe by the appropriate F&D or FD&A costs related to the reserve additions for that year. | | ( 12 ) | Non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. | | ( 13 ) | Non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in this news release and in the Annual MD&A. | | ( 14 ) | Capital efficiencies are calculated as capital expenditures divided by estimated production added over the period. |
CORPORATE SUMMARY – DECEMBER 31, 2021
| | Three Months Ended December 31, | | Twelve Months Ended December 31, | | | | | | | | | | | 2021 | 2020 | Change | | 2021 | 2020 | Change | | | | | | OPERATIONS | | | | | | | | | | | | | Production | | | | | | | | | | | | | Natural gas (mcf/d) | 2,269,290 | 1,592,010 | 43% | | 2,063,455 | 1,476,613 | 40% | | | | | | Crude oil, condensate and NGL (bbl/d) | 106,863 | 70,990 | 51% | | 97,206 | 64,496 | 51% | | | | | | Oil equivalent (boe/d) | 485,078 | 336,325 | 44% | | 441,115 | 310,598 | 42% | | | | | | Product prices (1) | | | | | | | | | | | | | Natural gas ($/mcf) | $ | 4.66 | $ | 3.19 | 46% | | $ | 3.94 | $ | 2.68 | 47% | | Crude oil, condensate and NGL ($/bbl) | $ | 56.66 | $ | 33.85 | 67% | | $ | 47.89 | $ | 30.87 | 55% | | Operating expenses _($/boe) _(2) | $ | 3.95 | $ | 3.25 | 22% | | $ | 3.77 | $ | 3.14 | 20% | | Transportation costs _($/boe) _(3) | $ | 4.45 | $ | 4.42 | 1% | | $ | 4.25 | $ | 4.48 | (5)% | | Operating netback _($/boe) _(4) | $ | 22.10 | $ | 13.65 | 62% | | $ | 18.57 | $ | 10.93 | 70% | | Cash general and administrative expenses _($/boe) _(5) | $ | 0.49 | $ | 0.50 | (2)% | | $ | 0.54 | $ | 0.56 | (4)% | | FINANCIAL ($000, except share and per share) | | | | | | | | | | | | | Total revenue from commodity sales and realized gains | 1,529,345 | 688,374 | 122% | | 4,669,263 | 2,174,903 | 115% | | | | | | Royalties | 168,168 | 28,623 | 488% | | 387,914 | 65,523 | 492% | | | | | | Cash flow | 968,236 | 396,869 | 144% | | 2,929,126 | 1,185,687 | 147% | | | | | | Cash flow per share (diluted ) | $ | 2.88 | $ | 1.44 | 100% | | $ | 9.25 | $ | 4.36 | 112% | | Net earnings | 996,248 | 629,191 | 58% | | 2,025,991 | 618,311 | 228% | | | | | | Net earnings per share (diluted) | $ | 2.96 | $ | 2.28 | 30% | | $ | 6.40 | $ | 2.27 | 182% | | Capital expenditures _(net of dispositions) _(6) | 447,461 | 271,284 | 65% | | 1,590,371 | 1,083,625 | 47% | | | | | | Weighted average shares outstanding (diluted) | | | | | 316,788,967 | 272,079,590 | 16% | | | | | | Net debt | | | | | (972,979) | (1,784,920) | (45)% | | | | | | PROVED + PROBABLE RESERVES (7) | | | | | | | | | | | | | Natural gas (bcf) | | | | | 19,487.1 | 15,459.2 | 26% | | | | | | Crude oil (mbbls) | | | | | 98,345 | 102,843 | (4)% | | | | | | Natural gas liquids (mbbls) | | | | | 896,793 | 634,890 | 41% | | | | | | Mboe | | | | | 4,242,981 | 3,314,264 | 28% | | | | |