Tourmaline Oil Corp. (“Tourmaline” or the “Company“) is pleased to release financial and operating results for the second quarter of 2024, announce an increase to its quarterly base dividend and declare a special dividend.
HIGHLIGHTS
Second quarter average production was 561,787 boepd, a 13% increase over second quarter 2023 average production of 495,918 boepd and within the second quarter 2024 average production guidance range of 560,000-570,000 boepd, announced on May 1, 2024.
Second quarter cash flow(1)(2) (“CF“) of $755.1 million ($2.12 per diluted share(3)) on total cash capital expenditures(4) of $294.1 million (EP expenditures(5) of $306.6 million in Q2 2024), generating free cash flow (6) (“FCF“) of $433.5 million for the quarter ($1.22 per diluted share).
In 2024, the Company expects to generate CF of $3.4 billion(7) ($9.62 per diluted share) and FCF of $1.3 billion ($3.63 per diluted share) on EP expenditures of $2.0 billion.
Given the continued strong FCF generation in Q2 2024 and the full year financial outlook, the Company has elected to increase the quarterly base dividend effective Q3 2024 by 3% to $0.33/share ($1.32 per share on an annualized basis) from the current $0.32/share, as well as declare and pay a special dividend of $0.50/share on August 21, 2024 to shareholders of record on August 9, 2024. This special cash dividend is designated as an “eligible dividend” for Canadian income tax purposes.
The Company reduced net debt(8) by $136.6 million during Q2 2024, while also returning $288.5 million in dividends to shareholders.
PRODUCTION UPDATE
Second quarter 2024 average production was 561,787 boepd, a 13% increase over second quarter 2023 average production of 495,918 boepd and within the previously announced second quarter 2024 average production guidance range of 560,000-570,000 boepd.
During this quarter of low natural gas prices, the Company completed multiple planned facility maintenance turnarounds and maximized injection into gas storage reservoirs in California and at Dawn, Ontario. These storage injections reduced Q2 average production volumes by 4,778 boepd and are expected to be withdrawn from storage during the fourth quarter of 2024 and first quarter of 2025.
Second quarter average production was impacted by an unplanned outage on the Pembina Pipeline Corporation-operated liquids pipeline system (1,800 boepd reduction to the quarterly average) and at the Company-operated A-21 gas processing facility in Laprise, B.C. (1,700 boepd reduction to the quarterly average). Production has returned to normal levels in both cases.
The full year 2024 average production guidance range has been revised to 575,000-585,000 from the previously announced range of 580,000-590,000 boepd. This revision is to account for select Q3 frac deferrals into Q4, to ultimately shift production into an environment of stronger anticipated winter gas prices. This production (<1%) deferral is expected to have minimal impact on 2024 cash flow and a positive impact on 2025 cash flow and free cash flow, based on current strip prices. Third quarter 2024 average production of 550,000-560,000 boepd is currently anticipated.
FINANCIAL RESULTS
Second quarter 2024 CF was $755.1 million ($2.12 per diluted share) on total cash capital expenditures of $294.1 million (EP expenditures of $306.6 million in Q2 2024), generating FCF of $433.5 million for the quarter ($1.22 per diluted share).
Tourmaline realized Q2 2024 net earnings of $256.6 million ($0.72 per diluted share), underscoring the profitability of the business even in an extremely weak natural gas pricing environment.
In 2024, using strip pricing on July 15, 2024, the Company expects to generate CF of $3.4 billion ($9.62 per diluted share) and FCF of $1.3 billion ($3.63 per diluted share) on EP expenditures of $2.0 billion and anticipates generating over $1.0 billion in FCF in every year of the five-year EP Plan.
Exit Q2 2024 net debt was $1.6 billion. As previously announced, the Company remains committed to a long-term net debt target of $1.2–$1.4 billion and intends to continue to make progress toward that target throughout 2024. The Company reduced net debt by $136.6 million during Q2 2024. In addition, as of June 30, 2024, Tourmaline’s 45.1 million shares of Topaz Energy Corp. had a market value of $1.1 billion(9).
MARKETING UPDATE
Tourmaline’s average realized natural gas price in Q2 2024 was CAD $3.03/mcf, significantly higher than the AECO 5A index price of CAD $1.20/mcf over the same period, as the Company benefited from its multi-year diversification portfolio.
With the addition of new short-term transportation service (June 2024 to March 2025) and the addition of Great Lakes transportation capacity starting November 2024, Tourmaline expects to exit 2024 with a total of 1.26 bcfpd of natural gas going to export markets.
For the remainder of 2024, Tourmaline has an average of 1,032 mmcfpd hedged at a weighted average fixed price of CAD $4.66/mcf, including an average of 161 mmcfpd in premium markets including Sumas, Malin, PG&E and JKM at a fixed price of USD $8.57/mcf. Tourmaline also has an average of 188 mmcfpd hedged at a basis to NYMEX of USD $0.32/mcf and an average of 996 mmcfpd of unhedged volumes exposed to export markets in 2024, of which 56% is exposed to premium markets.
Tourmaline has continued to mitigate downside price risk in local markets and has been successful at reducing both AECO and Station 2 exposure for the second half of 2024 to approximately 9% of the Company’s total natural gas portfolio.
EP UPDATE
Tourmaline drilled a total of 47.06 net wells during Q2 2024, completed 38 net wells in the quarter, and had an inventory of 35.5 DUCs entering Q3 2024.
Tourmaline is currently operating fourteen drilling rigs and expects to increase to fifteen rigs in the fourth quarter and through to 2025 spring break-up, drilling more multi-well pads than is currently included in the EP plan for 2H 2024-1H 2025. The Company believes it is a good time to capitalize on lower drilling costs and continuously improving drill times, while being positioned to deliver production above currently estimated 2025 levels as it enters a period of stronger anticipated commodity prices. Due to realized efficiencies and savings, the 2024 EP capital budget remains unchanged at $2.0 billion.
As mentioned, given the continued weak natural gas prices, the Company has shifted some originally planned well-stimulation activity from the third quarter to the fourth quarter of 2024 but does not expect 2024 exit volumes to be affected. The Company plans to match production growth to the natural gas price curve and deliver flush production volumes into a stronger price environment. Tourmaline previously removed planned 2024 natural gas growth from the EP plan in March 2024, in response to weak AECO pricing (approximately 100 mmcfpd deferral until 2025 or later). Over the past three years, the Company has consistently matched growth in natural gas production to incremental egress out of the Western Canadian Sedimentary Basin and will continue with this market diversification strategy.
NORTH MONTNEY UPDATE
Tourmaline continues to execute the Conroy/North Montney Phase 1 development, with two important facility components being completed during 2024. The liquids/condensate hub, which commenced construction in 2023 and will service both Phase 1 and 2 developments, provides 20,000 bbls/d of condensate mercaptan treating and 70,000 bbls of condensate storage with regional pipeline interconnection. The total capital cost for the liquids/condensate hub is approximately $70.0 million. In addition, the Birch a-44-I compressor station is expected to be completed during the third quarter of 2024 and is expected to add 6,000 boepd (net) to North Montney production levels in 2025.
Other facility components in the overall Conroy/North Montney development include the Aitken sales compressor addition (completed in 2023), the Gundy a-21-I compressor expansion which is expected to be completed in September 2024, and both the Aitken regional gathering line and the Aitken plant expansion for which construction is currently anticipated to commence in 2025.
The Company expects to add 10,000-15,000 boepd (net) in 2025 through completion of the ongoing 2024 Conroy/North Montney facility additions. The total Conroy/North Montney Phase 1 development is expected to ultimately add approximately 50,000 boepd (net) over the next three years (inclusive of the 10,000–15,000 boepd described above), followed by the Phase 2 development in 2029/2030.
Tourmaline has received an additional 63 new permits in Q2 2024 for a total of 315 new drilling permits in NEBC since January 1, 2023.
ENVIRONMENTAL PERFORMANCE IMPROVEMENTS
Tourmaline’s diesel displacement initiative in drilling and completion operations has displaced 151.8 million litres of diesel by replacing with natural gas and has saved approximately $149.4 million since June 2017. Drilling and completions operations powered using natural gas result in lower emissions of carbon dioxide, nitrogen oxides, sulphur dioxide and particulate matter compared to traditional diesel-powered drilling and completions operations.
Tourmaline’s joint venture with Clean Energy Fuels for CNG in long haul trucks continues with one station fully operational in Edmonton and four other stations under construction and expected to be completed by Q1 2025. The initiative represents a further significant diesel displacement opportunity.
Methane technologies continue to be advanced at the NGIF Emissions Testing Centre (“ETC”). Tourmaline operates field testing for the ETC with the hub for testing located at the Tourmaline West Wolf gas plant in the Alberta Deep Basin. The ETC recently received a $15 million grant ($3 million per year over 5 years) from the Alberta Government to enable acceleration of these technology initiatives.
DIVIDEND
In addition to the announced special dividend of $0.50/share payable on August 21, 2024, to shareholders of record at the close of business on August 9, 2024, the Company’s Board of Directors has approved an increase to the quarterly base dividend effective Q3 2024 to $0.33/share ($1.32/share on an annualized basis), representing an increase of 3% over the previous quarterly base dividend. The base dividend has been increased three times this year which reflects the ongoing financial strength and profitability of the Company even through the bottom of the gas price cycle. The quarterly dividend is expected to be declared in early September and payable on September 27, 2024, to shareholders of record at the close of business on September 13, 2024.
The special dividend is, and the quarterly base dividend will be, designated as an eligible dividend for Canadian income tax purposes.
NORMAL COURSE ISSUER BID
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 17,621,578 common shares (representing 5% of its issued and outstanding common shares as of July 25, 2024) over a period of twelve months commencing on August 8, 2024. The NCIB will expire on August 7, 2025. 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 555,792 common shares, representing 25% of the average daily trading volume of 2,223,169 common shares on the TSX calculated for the six-month period ended June 30, 2024; 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 16,989,041 of its common shares, of which Tourmaline purchased no 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 it will be used in conjunction with management’s disciplined free cash flow capital allocation strategy.
