press release

Tourmaline's Second Quarter 2021 Delivers Record Free Cash Flow

2021-07-28

TSX - Toronto Stock Exchange

Canada NewsWire

CALGARY, AB, July 28, 2021 /CNW/ - Tourmaline Oil Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to release financial and operating results for the second quarter of 2021.

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HIGHLIGHTS

Second quarter 2021 cash flow (1) of $1.89 per diluted share, record free cash flow (2) of $343.9 million , and average production of 410,339 boepd, exceeding the high end of expectations despite challenging operating conditions in June's heat wave. The updated five-year plan, at current strip pricing (3) , delivers $1.8 billion of FCF in 2022 and $7.0 billion over the full five-year duration of the plan. The 2022 free cash flow equates to over $5.50 per basic share, a FCF yield of 16% (4) and reduces the 2022 total payout ratio (5) to 48%. Received a credit rating upgrade from BBB to BBB (high), in July 2021 , by DBRS Morningstar. The Company now expects to achieve year-end 2021 net debt (6) of approximately $1 billion (less than 0.4 times debt to cash flow, and less than one times annual FCF). As at July 15, 2021 , Tourmaline's Topaz equity ownership was valued at $939.7 million (7) , which essentially offsets the estimated year-end net debt. With incremental volumes on the GTN Malin/PG&E system and the Company's recently announced Gulf Coast LNG pathway in 2023, Tourmaline will have 905 mmcfpd exposed to export markets on firm, long-term transport agreements at exit 2023. Tourmaline's largest export market, PG&E California, is currently trading at $5.50 /mmbtu (US).

PRODUCTION UPDATE

Second quarter 2021 average production was 410,339 boepd (414,387 boepd prior to storage injections in California and Dawn), a 37% increase over Q2 2020 (299,369 boepd). The Company anticipates average third quarter production to range between 450,000 - 460,000 boepd. The Company expects to reach the 500,000 boepd production level in Q2 2022 primarily through the completion of Gundy Phase 2, the Nig Creek expansion, and the ongoing Laprise development program. 2021 average production of approximately 430,000 – 445,000 boepd is anticipated, including all acquisitions and associated incremental capital spending on those assets.

FINANCIAL RESULTS

Second quarter 2021 cash flow was $570.2 million ( $1.89 per diluted share) compared to $225.2 million ( $0.83 per diluted share) in Q2 2020. Second quarter 2021 after tax net earnings were $420.8 million ( $1.40 per diluted share) compared to $20.1 million ( $0.07 per diluted share) in second quarter of 2020. The Company delivered free cash flow of $343.9 million on EP capital spending of $215.9 million in Q2 2021. Full-year 2021 cash flow of $2.78 billion is now expected with estimated free cash flow of $1.47 billion . The Company received a credit rating upgrade in July 2021 , following the close of the Black Swan acquisition, to BBB (high) from BBB, by DBRS Morningstar, for both the Issuer Rating and the Senior Unsecured Notes. According to DBRS Morningstar, the rating upgrades reflect the improvement in both the Company's business risk and financial risk profiles. The credit rating upgrade is expected to result in lower effective interest rates on Company debt which are already extremely low and in the top tier at 1.72% for the second quarter of 2021.

CAPITAL PROGRAM AND FINANCIAL OUTLOOK

Second quarter 2021 EP capital spending was $215.9 million . Full-year 2021 EP capital spending of $1.27 billion is currently expected. Net debt at June 30, 2021 , was $1.7 billion , which excludes the two NEBC transactions with Topaz, yielding $390 million in cash, both of which are expected to close in the third quarter of 2021. Exit Q3 2021 expected net debt is approximately $1.4 billion , including the impact of all acquisitions completed to date in 2021. The Company now expects to achieve year-end 2021 net debt of approximately $1 billion (less than 0.4 times debt to cash flow, and less than one times annual FCF). As at July 15, 2021 , Tourmaline's Topaz equity ownership was valued at $939.7 million , which essentially offsets the estimated 2021 year-end net debt. The updated five-year plan, at current strip pricing, delivers $1.8 billion of FCF in 2022 and $7.0 billion over the full five-year duration of the plan.

MARKETING UPDATE

Average realized natural gas price in Q2 2021 was $3.25 /mcf as the Company benefited from rising commodity prices, select hedging, and the Company's broad natural gas market diversification portfolio throughout North America . Following the Black Swan Energy acquisition, Tourmaline has an average of 822 mmcfpd hedged for 2021 at a weighted average fixed price of CAD $2.69 /mcf, an average of 125 mmcfpd hedged at a basis to AECO of USD $(0.35) /mcf and an average of 562 mmcf per day of incremental volume exposed to export markets, including Dawn, Iroquois , Empress/McNeill, Chicago , Ventura , Sumas, Malin, and PG&E. With incremental volumes on the GTN Malin/PG&E system and the Company's recently announced Gulf Coast LNG pathway in 2023, Tourmaline will have 905 mmcfpd exposed to export markets on firm, long-term transport agreements at exit 2023. The accelerated Gundy Phase 2 expansion project is expected to be onstream in January 2022 so as to take advantage of potential winter gas price premiums. The PG&E California market continues to be a very strong market with an average Q2 benchmark price of $4.00 /mmbtu (US) and strip pricing at July 23, 2021 of $5.48 /mmbtu (US) for the remainder of 2021. NGL price realizations in Q2 2021 were up 130% over Q2 2020. Tourmaline is Canada's largest NGL producer, averaging 55,543 bpd during the second quarter.

EP UPDATE

Tourmaline drilled 113.75 net wells in 1H 2021 and expects to drill approximately 250 net wells for full-year 2021, completing approximately 220 (net) of those wells by year end. Tourmaline is currently operating 12 drilling rigs and will add an additional rig on the former Black Swan lands in September, as originally planned. The Company expects to bring approximately 140 (net) wells onstream through the balance of 2021. Improved time and cost performance for drilling and completion operations has largely offset modest inflationary cost pressures. Drilling times have been materially reduced in all three core complexes through the application of multiple evolving technologies. Recent horizontals in the Laprise BC Montney area are now being drilled to TD in five days. Overall, the 2H 2021 EP capital program is being executed ahead of schedule.

ENVIRONMENTAL PERFORMANCE IMPROVEMENT

Tourmaline intends to invest $20 - $40 million per year in environmental performance improvement initiatives, primarily in the areas of diesel displacement for EP drilling and completion operations, methane emission reduction and ultimate elimination, gas plant emission reduction and waste heat recovery installation, and multiple water management projects. The majority of these environment-related capital investments do generate a modest positive return, albeit not as strong as the Company's EP investments. The Company estimates that environmental initiatives to date have reduced annual emissions by approximately 250,000 tonnes per year thus far. Tourmaline has now installed over 200 zero emission electric chemical injection pumps with an estimated GHG reduction of 40,000 tonnes CO 2 e/year. The first Tier 4 frac unit has been delivered and will be pumping on Tourmaline's BC Montney pads in 2H 2021. Evolving zero methane emission technology is being implemented on all new well sites in all Company operated areas. Engineering design has been completed for the NGIF Emissions testing centre. The East Edson facility is expected to be fully operational in late Q3 2021.

| _ | | | (1) | "Cash flow" is defined as cash provided by operations before changes in non-cash operating working capital. See "Non-GAAP Financial Measures" in this news release and in the Company's Q2 2021 Management's Discussion and Analysis. | | (2) | "Free cash flow" or "FCF" is defined as cash flow less total net capital expenditures. Total net capital expenditures is defined as total capital spending before acquisitions and non-core dispositions. Free cash flow is prior to dividend payments. See "Non-GAAP Financial Measures" in this news release and the Company's Q2 2021 Management's Discussion and Analysis. | | (3) | Based on oil and gas commodity strip pricing at July 15, 2021. | | (4) | Based on a share price of $34 per common share. | | (5) | The total payout ratio for 2022 is calculated as the sum of dividends paid and total net capital spending divided by annual cash flow. | | (6) | "Net debt" is defined as bank debt and senior unsecured notes plus working capital deficit (adjusted for the fair value of financial instruments, short-term lease liabilities, short-term decommissioning obligations and unrealized foreign exchange in working capital deficit). See "Non-GAAP Financial Measures" in this news release and in the Company's Q2 2021 Management's Discussion and Analysis. | | (7) | Based on a Topaz closing price on the TSX of $16.16 per common share. |

CORPORATE SUMMARY – SECOND QUARTER 2021

| | Three Months Ended June 30, | | Six Months Ended June 30, | | | | | | | | | | | 2021 | 2020 | Change | | 2021 | 2020 | Change | | | | | | OPERATIONS | | | | | | | | | | | | | Production | | | | | | | | | | | | | Natural gas (mcf/d) | 1,915,630 | 1,425,199 | 34% | | 1,916,633 | 1,449,940 | 32% | | | | | | Crude oil, condensate and NGL (bbl/d) | 91,067 | 61,836 | 47% | | 91,516 | 62,203 | 47% | | | | | | Oil equivalent (boe/d) | 410,339 | 299,369 | 37% | | 410,955 | 303,860 | 35% | | | | | | Product prices (1) | | | | | | | | | | | | | Natural gas ($/mcf) | $ | 3.25 | $ | 2.41 | 35% | | $ | 3.55 | $ | 2.43 | 46% | | Crude oil, condensate and NGL ($/bbl) | $ | 42.84 | $ | 23.24 | 84% | | $ | 41.95 | $ | 28.93 | 45% | | Operating expenses ($/boe) | $ | 3.70 | $ | 3.06 | 21% | | $ | 3.67 | $ | 3.01 | 22% | | Transportation costs ($/boe) | $ | 3.99 | $ | 4.60 | (13)% | | $ | 4.17 | $ | 4.48 | (7)% | | Operating netback (3) ($/boe) | $ | 15.47 | $ | 8.20 | 89% | | $ | 16.58 | $ | 9.51 | 74% | | Cash general and administrative expenses _($/boe) _(2) | $ | 0.56 | $ | 0.63 | (11)% | | $ | 0.59 | $ | 0.60 | (2)% | | FINANCIAL ($000, except share and per share) | | | | | | | | | | | | | Total revenue from commodity sales and realized gains | 921,278 | 443,553 | 108% | | 1,926,542 | 968,468 | 99% | | | | | | Royalties | 56,547 | 11,375 | 397% | | 110,323 | 28,304 | 290% | | | | | | Cash flow (3) | 570,232 | 225,177 | 153% | | 1,199,557 | 508,895 | 136% | | | | | | Cash flow per share (diluted ) (3) | $ | 1.89 | $ | 0.83 | 128% | | $ | 4.00 | $ | 1.88 | 113% | | Net earnings (loss) | 420,849 | 20,106 | 1,993% | | 668,686 | (15,706) | 4,358% | | | | | | Net earnings (loss) per share (diluted) | $ | 1.40 | $ | 0.07 | 1,900% | | $ | 2.23 | $ | (0.06) | 3,817% | | Capital expenditures (net of dispositions) | 664,696 | 140,032 | 375% | | 1,086,802 | 457,646 | 137% | | | | | | Weighted average shares outstanding (diluted) | | | | | 299,967,134 | 270,858,022 | 11% | | | | | | Net debt (3) | | | | | (1,728,794) | (1,689,823) | 2% | | | | |

| (1) | Product prices include realized gains and losses on risk management and financial instrument contracts. | | (2) | Excluding interest and financing charges. | | (3) | See "Non-GAAP Financial Measures" in this news release and in the Company's Q2 2021 Management's Discussion and Analysis. |

Conference Call Tomorrow at 9:00 a.m. MT ( 11:00 a.m. ET )

Tourmaline will host a conference call tomorrow, July 29, 2021 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 416-764-8650, a few minutes prior to the conference call.

Conference ID is 49598553.

Reader Advisories

CURRENCY

All amounts in this news release are stated in Canadian dollars unless otherwise specified.

FORWARD-LOOKING INFORMATION

This news release contains forward-looking information and statements (collectively, "forward-looking information") within the meaning of applicable securities laws. The use of any of the words "forecast", "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "on track", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this news release contains forward-looking information concerning Tourmaline's plans and other aspects of its anticipated future operations, management focus, objectives, strategies, financial, operating and production results and business opportunities, including the following: anticipated petroleum and natural gas production and production growth for various periods including estimated production levels for 2021 and beyond; expected FCF in 2022 and in the aggregate over the duration of the full five-year plan; expected total payout ratio in 2022; anticipated third quarter production levels and expected production levels in 2021 and 2022; expected full-year 2021 EP capital spending levels; the number of expected wells to be brought onstream through the balance of 2021; the amount of capital to be invested in environmental performance improvement initiatives including diesel displacement for EP drilling and completion operations, methane emission reduction and ultimate elimination, gas plant emission reduction and waste heat recovery installation, and multiple water management projects; estimates of the annual emission reductions to date; the timing for the East Edson facility to become fully operational; targeted 2021 exit net debt to cash flow ratio; statements relating to the five-year plan; the future declaration and payment of dividends and the timing and amount thereof including any future increase; cash flow and free cash flow levels; production levels supported by certain of the Company's reserves and drilling inventory; capital spending over various periods; cost reduction initiatives; improvements in capital efficiency; projected operating and drilling costs; the timing for facility expansions and facility start-up dates; sustainability and environmental improvement initiatives; anticipated future commodity prices including the expectation for future increases above current levels; the ability to generate, and the amount of, anticipated cash flow and free cash flow including in 2021 and over the five-year plan; as well as Tourmaline's future drilling prospects and plans, business strategy, future development and growth opportunities, prospects and asset base. The forward-looking information is based on certain key expectations and assumptions made by Tourmaline, including expectations and assumptions concerning the following: prevailing and future commodity prices and currency exchange rates; prevailing and future commodity prices and currency exchange rates; applicable royalty rates and tax laws; interest rates; future well production rates and reserve volumes; operating costs, the timing of receipt of regulatory approvals; the performance of existing wells; the success obtained in drilling new wells; anticipated timing and results of capital expenditures; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the successful completion of acquisitions and dispositions and the benefits to be derived therefrom; the state of the economy and the exploration and production business; the availability and cost of financing, labour and services; and ability to market crude oil, natural gas and NGL successfully. Without limitation of the foregoing, future dividend payments, if any, and the level thereof is uncertain, as the Company's dividend policy and the funds available for the payment of dividends from time to time is dependent upon, among other things, free cash flow, financial requirements for the Company's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors beyond the Company's control. Further, the ability of Tourmaline to pay dividends will be subject to applicable laws (including the satisfaction of the solvency test contained in applicable corporate legislation) and contractual restrictions contained in the instruments governing its indebtedness, including its credit facility.

Statements relating to "reserves" are also deemed to be forward looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Although Tourmaline believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Tourmaline can give no assurances that it will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: the risks associated with the oil and natural gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, revenues, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; interest rate fluctuations; marketing and transportation; loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to complete or realize the anticipated benefits of acquisitions or dispositions; ability to access sufficient capital from internal and external sources; failure to obtain required regulatory and other approvals; and changes in legislation, including but not limited to tax laws, royalties and environmental regulations.

In addition, pandemics, epidemics or outbreaks of an infectious disease in Canada or worldwide, including COVID-19 or other illnesses could have an adverse impact on the Company's results, business, financial condition or liquidity. If the pandemic is further prolonged, including through subsequent waves, or if additional variants of COVID-19 emerge which are more transmissible or cause more severe disease, or if other diseases emerge with similar effects, the adverse impact on the economy could worsen. It remains uncertain how the macroeconomic environment, and societal and business norms will be impacted following this COVID-19 pandemic. Unexpected developments in financial markets, regulatory environments, or consumer behaviour may also have adverse impacts on the Company's results, business, financial condition or liquidity, for a substantial period of time. The Company's business, financial condition, results of operations, cash flows, reputation, access to capital, cost of borrowing, access to liquidity, and/or business plans may, in particular, and without limitation, be adversely impacted as a result of the pandemic and/or decline in commodity prices as a result of: the shut-down of facilities or the delay or suspension of work on major capital projects due to workforce disruption or labour shortages caused by workers becoming infected with COVID-19, or government or health authority mandated restrictions on travel by workers or closure of facilities or worksites; suppliers and third-party vendors experiencing similar workforce disruption or being ordered to cease operations; reduced cash flows resulting in less funds from operations being available to fund capital expenditure budgets; reduced commodity prices resulting in a reduction in the volumes and value of reserves; crude oil storage constraints resulting in the curtailment or shutting in of production; counterparties being unable to fulfill their contractual obligations on a timely basis or at all; the inability to deliver products to customers or otherwise get products to market caused by border restrictions, road or port closures or pipeline shut-ins, including as a result of pipeline companies suffering workforce disruptions or otherwise being unable to continue to operate; and the ability to obtain additional capital including, but not limited to, debt and equity financing being adversely impacted as a result of unpredictable financial markets, commodity prices and/or a change in market fundamentals. The COVID-19 pandemic has also created additional operational risks for the Company, including the need to provide enhanced safety measures for its employees and customers; comply with rapidly changing regulatory guidance; address the risk of, attempted fraudulent activity and cybersecurity threat behaviour; and protect the integrity and functionality of the Company's systems, networks, and data as a larger number of employees work remotely. The Company is also exposed to human capital risks due to issues related to health and safety matters, and other environmental stressors as a result of measures implemented in response to the COVID-19 pandemic, as well as the potential for a significant proportion of the Company's employees, including key executives, to be unable to work effectively, because of illness, quarantines, sheltering-in-place arrangements, government actions or other restrictions in connection with the pandemic. The extent to which the COVID-19 pandemic continues to impact the Company's results, business, financial condition or liquidity will depend on future developments in Canada , the U.S. and globally, including the development and widespread availability of efficient and accurate testing options, and effective treatment options or vaccines. Despite the approval of certain vaccines by the regulatory bodies in Canada and the U.S., the ongoing evolution of the development and distribution of an effective vaccine also continues to raise uncertainty.