TORC Oil & Gas Ltd. s pleased to announce its financial and operating results for the three and nine months ended September 30, 2020.
During the third quarter of 2020, TORC maintained a disciplined approach to the economic uncertainty created by the ongoing COVID-19 global pandemic and related volatility of crude oil prices. The Company's top priority remains the health and safety of the Company's employees, contractors, partners, service providers and the communities in which we operate.
TORC's proactive responses to volatility experienced in 2020 continue to demonstrate the Company's focus on the long-term objectives of delivering disciplined growth while displaying the strength and flexibility of the Company's business strategy and asset base.
TORC remains well positioned both operationally and financially to continue to execute the Company's long-term business plan and take advantage of opportunities as they arise.
The Company's key achievements in the third quarter of 2020 included the following:
- Achieved quarterly production of 24,995 boepd, relative to 24,905 boepd in the second quarter of 2020 and 28,337 boepd in the third quarter of 2019;
- Generated cash flow of $35.7 million relative to $5.7 million in the second quarter of 2020 and $73.8 million in the third quarter of 2019;
- Generated cash flow per share of $0.16 compared to $0.03 in the second quarter of 2020 and $0.34 in the third quarter of 2019;
- During the third quarter of 2020, the Company incurred $6.2 million of capital expenditures on cash flow of $35.7 million, for a payout ratio of 17%;
- Exited the quarter with net debt of $359.7 million, down from $382.1 as at June 30, 2020, with $335.7 million drawn on the Company's credit facility; and
- Subsequent to the end of the quarter, completed the Company's inaugural Sustainability Report, highlighting TORC's efforts and commitment to responsibly develop the Company's natural resources.
Highlights from the Sustainability Report include:
- Reductions in greenhouse gas, methane and fugitive emissions
- Reductions in the amount of fresh water used
- Continued prevention and reduction of oil and saltwater spills
- Continued safety focus and reduction of workplace incidents
- Ongoing community engagement and support
- Continued efforts to establish best-in-class governance practices including linking executive and employee compensation to environmental, social and governance matters
TORC's third quarter production averaged 24,995 boepd with the continued strong performance from the Company's successful first quarter drilling program and the long history of managing the production decline profile. TORC spent a total of $6.2 million of exploration and development capital in the third quarter primarily on optimization and asset maintenance programs bringing total spending for the first nine months of 2020 to $72.5 million.
TORC has drilled 19 (15.5 net) wells on the southeast Saskatchewan conventional assets in 2020, all in the first quarter. TORC has identified more than 400 net conventional light oil drilling locations in southeast Saskatchewan, providing multiple years of high quality drilling inventory.
TORC maintains an inventory of 5 (4.0 net) drilled but uncompleted Torquay/Three Forks resource play wells associated with the Company's first quarter drilling program. Additionally, TORC has identified over 150 net development locations in the Torquay/Three Forks play providing multiple years of drilling inventory.
On the unconventional Midale light oil resource play in southeast Saskatchewan, TORC successfully drilled 6 (5.7 net) wells in the first quarter. TORC has identified 175 net future unconventional Midale drilling locations on the Company's land base to add value in future years.
TORC drilled 3 (3.0 net) Cardium development wells in the first quarter of 2020. The Company has identified more than 290 net undrilled Cardium locations for future development. With a decline profile below 20% and a deep inventory of high quality development locations, the Cardium continues to support TORC's long-term strategy.
CAPITAL BUDGET AND PRODUCTION GUIDANCE
TORC maintains that the revised $80 million 2020 capital budget (down from $190 million pre pandemic) will result in 2020 exit production of 25,000 boepd (83% light oil; 5% NGLs). Based on this production profile and the Company's long term focus on production decline management, TORC expects that the Company's production decline will decrease to approximately 20% by year-end 2020.
Due to the proactive reduction in the 2020 budget, TORC was able to reduce net debt from $382.1 million as at June 30, 2020 to $359.7 million as at September 30, 2020. Based on current commodity prices and budgeted costs, the Company expects to achieve free cash flow above the current capital program during the remainder of 2020. The free cash flow will continue to position the Company to further reduce debt and take advantage of opportunities to enhance the growth, sustainability and repeatability of the Company's business model.
TORC's asset base provides flexibility in volatile commodity price environments due to the following key characteristics: greater than 90% operated capital program to control capital spending, low decline rate, year-round access, low capital costs per well, no drilling commitments, limited take-or-pay contracts, and no land expiry concerns.
TORC anticipates announcing the Company's 2021 capital budget and production guidance in December.
TORC's dividend strategy is reviewed regularly with the Board of Directors and is an important component of TORC's overall long-term business plan. With the crude oil market experiencing a significant and rapid decline in world prices resulting from severe dynamics coinciding with significant impacts to both supply and demand uncertainty, TORC elected to temporarily suspend the monthly dividend during the second quarter.
TORC will continue to assess the free cash flow profile and dividend policy of the Company following a continued increase in economic activity and stability of oil market dynamics.
TORC has developed significant trust and credibility as a corporate citizen, which provides a solid foundation for the long-term success of the business. Sustainability of the business includes focusing on overall social responsibility to support strong values and relationships in the workplace, and communities where TORC operates.
The stability of the high quality, low decline, light oil assets in southeast Saskatchewan and the low risk Cardium development inventory in central Alberta, combined with exposure to unconventional light oil resource plays in southeast Saskatchewan, positions TORC to provide value creation through a disciplined long term focused growth strategy.
TORC has the following key operational and financial attributes: