Tourmaline Delivers Record Free Cash Flow in Third Quarter 2021
TSX - Toronto Stock Exchange
Canada NewsWire
CALGARY, AB , Nov. 3, 2021 /CNW/ - Tourmaline Oil Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to release financial and operating results for the third quarter of 2021.
[](https://mma.prnewswire.com/media/1675815/Tourmaline_Oil_CorpTourmaline_Delivers_Record_Free_Cash_Flow_i.html)
HIGHLIGHTS
Record quarterly cash flow (1) of $761.3 million and free cash flow (2) of $369.5 million in the third quarter. Current production is ranging between 485,000 – 490,000 boepd; the Company expects to achieve 500,000 boepd by early December, a month earlier than previously anticipated. The Company now expects exit 2021 net debt (3) of approximately $815 million (at current strip pricing (4) ), after giving effect to the special dividend of $0.75 /share ( $247.2 million ) paid on October 7, 2021 . Long term, the Company intends to keep net debt in the $1.0 - $1.2 billion range. The Gundy and Aitken facility expansions will be completed and on production in December 2021 , approximately one month earlier than expected. The Company's original methane emission reduction target of 25% below 2018 levels by 2023 has already been achieved three years ahead of schedule.
PRODUCTION UPDATE
Current production is ranging between 485,000 – 490,000 boepd; the Company expects to achieve the exit production target of 500,000 boepd by early December - ahead of schedule. Q3 2021 average production was 456,489 boepd. Force majeure events impacting Pembina's Redwater fractionation facilities and Pembina's Northern NGL pipeline system reduced Q3 average volumes by a total of 2,825 boepd. Pembina's Redwater fractionation facilities and Northern NGL pipeline system have both resumed operations. Because the Pembina Northern NGL pipeline system continued to be offline for the first 11 days of October, expected Q4 average volumes were reduced by 625 boepd; however, Q4 guidance remains in the 485,000 to 495,000 boepd range. The Company expects 2022 average production of 500,000-510,000 boepd (2.31 bcf/day of natural gas, 115,000 bpd of oil, condensate, NGLs).
FINANCIAL RESULTS
Third quarter 2021 cash flow was $761.3 million ( $2.32 per fully diluted share) compared to $279.9 million in Q3 2020 ( $1.03 per fully diluted share). Nine-month 2021 cash flow is $1.96 billion ; full-year 2021 cash flow of $3.1 billion is now expected. The Company delivered free cash flow of $369.5 million in Q3 2021 on EP capital spending of $379.7 million . Third quarter 2021 earnings were $361.1 million ( $1.10 per fully diluted share), compared to $4.8 million ( $0.02 per fully diluted share) in Q3 2020. The average Q3 2021 operating netback of $18.35 /boe featured continued strong cash cost (operating, transportation, general and administrative, and interest) control ( $8.72 /boe), coupled with higher prices across the entire product price complex.
CAPITAL PROGRAM AND FINANCIAL OUTLOOK
Third quarter 2021 EP capital spending was $379.7 million , compared to guidance of $420.0 million . Full-year 2021 EP capital spending of $1.375 billion and 2022 EP capital spending of $1.125 billion remain unchanged from the previously disclosed forecast. The Company expects exit 2021 net debt of approximately $815.0 million on current strip pricing. Long term, the Company intends to keep net debt in the $1.0 - $1.2 billion range. As previously disclosed, Tourmaline paid a special dividend of $0.75 /share on October 7, 2021 , and also increased the annual base dividend to $0.72 /share. The Company plans further special dividends over the next several quarters, contingent upon commodity prices and free cash flow allocation decisions. Given current strong pricing and the rate of FCF accumulation, Tourmaline expects to pay the next special dividend during Q1 2022. Tourmaline is expecting full-year 2022 cash flow of $4.0 billion yielding free cash flow of $2.8 billion on unchanged EP capital spending of $1.125 billion .
MARKETING UPDATE
Average realized natural gas price in Q3 2021 was $3.88 /mcf as the Company benefited from rising commodity prices, select hedging, and the Company's broad natural gas market diversification portfolio throughout North America . Tourmaline has 591 mmcfpd of fixed price hedges for 2022 at a weighted average price of CAD $3.17 /mcf (approximately 25% of 2022 gas volumes), an average of 149 mmcfpd in basis hedges to AECO of USD $(0.07) /mcf, and an average 621 mmcfpd exposed to export markets including Dawn, Iroquois , US Gulf Coast, Empress/McNeill, Chicago , Ventura, Sumas, Malin, and PG&E. The 2022 hedged volumes include approximately 145 mmcfpd of lower-priced hedges acquired in the Modern and Black Swan transactions; 58% of which expire during 2022. Tourmaline has recently acquired additional transportation service for Winter 21/22 and now has a total of 130 mmcfpd exposed to the US Midwest market. In November 2022 , Tourmaline will have 150 mmcfpd exposed to the Gulf Coast market, which will become JKM index exposure in January 2023 . Furthermore, the Company will add an incremental 100 mmcf/d of exposure to the GTN Malin/PG&E markets in November 2022 and 50 mmcfpd in November 2023 . NGL price realizations in Q3 2021 were up 115% over Q3 2020. Tourmaline is Canada's largest NGL producer with anticipated average production levels of approximately 72,000 bpd in 2022.
EP UPDATE
Tourmaline is pleased to report that the accelerated deep cut facility projects at both Gundy and Aiken are expected to be completed ahead of the revised, accelerated schedule and on budget. New gas and liquids production is anticipated from both facilities during the first half of December. Tourmaline is currently operating 13 drilling rigs as planned, 87 net wells were drilled in the third quarter, 77 net wells were stimulated and brought on production. The Company expects to stimulate and bring on production approximately 79 new net wells during the fourth quarter.
ENVIRONMENTAL PERFORMANCE IMPROVEMENT
Tourmaline is pleased to report that it has already achieved the methane emission reduction target of 25% from 2018 levels by 2023 as reflected in the Company's current five-year Environmental Performance Improvement Plan. 2020 actuals of 405,487 tonnes (CO2 equivalent) are 26% lower than 2018 actuals of 547,396 tonnes (CO2 equivalent), despite production growth of 17% during that period. The Company will continue further reducing methane, CO2 and other atmospheric emissions throughout the EP portfolio and will revise the five-year Environmental Performance Improvement Plan as appropriate as these targets are achieved. The Company's Emission Testing Centre ("ETC") at the Tourmaline/Perpetual Wolf Creek gas plant, the first of its kind in the World, is now fully operational. The ETC, a collaboration with NGIF (Natural Gas Innovation Fund) and Industry, is critical in evolving new technology and methodologies to continue materially reducing methane and other emissions in the entire EP business. Producing the lowest emission natural gas will allow Canada to grow both domestic production and international exports.
| _ | | ( 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 Q3 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 Q3 2021 Management's Discussion and Analysis. | | ( 3 ) "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 Q3 2021 Management's Discussion and Analysis. | | ( 4 ) Based on oil and gas commodity strip pricing at October 15, 2021. |
CORPORATE SUMMARY – THIRD QUARTER 2021
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | | | | | | | 2021 | 2020 | Change | | 2021 | 2020 | Change | | | | | | OPERATIONS | | | | | | | | | | | | | Production | | | | | | | | | | | | | Natural gas (mcf/d) | 2,146,477 | 1,413,983 | 52% | | 1,994,091 | 1,437,867 | 39% | | | | | | Crude oil, condensate and NGL (bbl/d) | 98,743 | 62,538 | 58% | | 93,951 | 62,315 | 51% | | | | | | Oil equivalent (boe/d) | 456,489 | 298,202 | 53% | | 426,300 | 301,960 | 41% | | | | | | Product prices (1) | | | | | | | | | | | | | Natural gas ($/mcf) | $ | 3.88 | $ | 2.60 | 49% | | $ | 3.67 | $ | 2.48 | 48% | | Crude oil, condensate and NGL ($/bbl) | $ | 49.21 | $ | 31.31 | 57% | | $ | 44.52 | $ | 29.73 | 50% | | Operating expenses ($/boe) | $ | 3.76 | $ | 3.26 | 15% | | $ | 3.70 | $ | 3.10 | 19% | | Transportation costs ($/boe) | $ | 4.17 | $ | 4.56 | (9)% | | $ | 4.17 | $ | 4.50 | (7)% | | Operating netback (3) ($/boe) | $ | 18.35 | $ | 10.76 | 71% | | $ | 17.22 | $ | 9.92 | 74% | | Cash general and administrative expenses _($/boe) _(2) | $ | 0.51 | $ | 0.55 | (7)% | | $ | 0.56 | $ | 0.59 | (5)% | | FINANCIAL ($000, except share and per share) | | | | | | | | | | | | | Total revenue from commodity sales and realized gains | 1,213,376 | 518,061 | 134% | | 3,139,918 | 1,486,529 | 111% | | | | | | Royalties | 109,423 | 8,596 | 1,173% | | 219,746 | 36,900 | 496% | | | | | | Cash flow (3) | 761,333 | 279,923 | 172% | | 1,960,890 | 788,818 | 149% | | | | | | Cash flow per share (diluted ) (3) | $ | 2.32 | $ | 1.03 | 125% | | $ | 6.33 | $ | 2.91 | 118% | | Net earnings (loss) | 361,057 | 4,826 | 7,381% | | 1,029,743 | (10,880) | 9,565% | | | | | | Net earnings (loss) per share (diluted) | $ | 1.10 | $ | 0.02 | 5,400% | | $ | 3.32 | $ | (0.04) | 8,400% | | Capital expenditures (net of dispositions) | 56,108 | 354,695 | (84)% | | 1,142,910 | 812,341 | 41% | | | | | | Weighted average shares outstanding (diluted) | | | | | 309,744,281 | 270,832,477 | 14% | | | | | | Net debt (3) | | | | | (1,465,090) | (1,788,068) | (18)% | | | | |
| (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 Q3 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, November 4, 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 15212375.
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 Q4 2021 and 2022; expected cash flow and FCF in 2021 and 2022; expected full-year 2021 and 2022 EP capital spending levels; the number of expected wells to be brought on production through the balance of 2021; 2021 exit net debt levels and anticipated long-term net debt level ranges; the anticipated timing for the Gundy and Aitken facility expansions and the benefits to be derived therefrom; methane emission reduction targets; anticipated production exposure to certain markets and the timing for such exposure; NGL production levels in 2022; expectations for further special dividends and the timing for such dividends; further reductions in methane, CO2 and other atmospheric emissions and the expectations for revisions to the five-year Environmental Performance Improvement Plan; the future declaration and payment of dividends (regular or special) 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 over various periods; 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; 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.