Tourmaline Oil Corp. is pleased to release financial and operating results for the full year and fourth quarter of 2020 as well as 2020 reserves.
HIGHLIGHTS
- Achieved record production in Q4 2020, exiting 2020 producing in excess of 400,000 boepd.
- Achieved a record 2P reserve addition of 826.0 mmboe in 2020 with finding, development and acquisition ("FD&A") costs of $3.80/boe, including changes in future development capital ("FDC").
- Fourth quarter 2020 cash flow(1) was $396.9 million ($1.44 per diluted share) and full-year 2020 cash flow was $1,185.7 billion ($4.36 per diluted share). Fourth quarter 2020 free cash flow(2) was $144.8 million.
- In 2021, at current strip pricing(3), the Company expects to generate cash flow of $2.2 billion and free cash flow of $1.1 billion on EP capital spending of $1.075 billion.
- Increased the dividend in 2020 despite a difficult year for Industry - the fourth increase since inception of the dividend in 2018. Given stronger than anticipated cash flow in future years, the Company is increasing its dividend by 14% from $0.14 per share per quarter to $0.16 per share per quarter, commencing in the first quarter of 2021.
- Completed four accretive corporate acquisitions in 2020 that are estimated to have increased the five-year plan free cash flow generation by over 20% or approximately $200 million per annum starting in 2022.
- Delivered full-year 2020 earnings of $618.3 million, underscoring the inherent profitability of the Company's business model.
Tourmaline received an 'A' rating in the MSCI Global ESG Performance Ranking for its sustainability and environmental initiatives.
PRODUCTION UPDATE
- Current production is averaging between 405,000-410,000 boepd, at the higher end of the full-year guidance range of 390,000-410,000 boepd. Despite higher commodity prices, the Company is maintaining previously disclosed production guidance for 2021. The Company expects Q1 2021 average production of between 400,000 and 405,000 boepd.
- Q4 2020 average production was 336,325 boepd, and full-year 2020 average production was 310,598 boepd, both within guidance.
- Natural gas production is forecast to average approximately 1.85-1.9 bcf/day in 2021 and combined oil, condensate, and NGL production is expected to average approximately 85,000-90,000 bpd in 2021. Tourmaline is Canada's largest natural gas and NGL producer, and the second largest condensate producer.
- All three operated EP complexes have achieved production records during Q1 2021: the Alberta Deep Basin complex is currently producing 252,000 boepd, NEBC is producing 135,000 boepd, and the Peace River High complex is producing 23,000 boepd.
FINANCIAL HIGHLIGHTS
- Full-year 2020 after-tax earnings were $618.3 million ($2.27 per diluted share) as Tourmaline remained profitable despite a challenging year for Industry.
- Fourth quarter 2020 cash flow was $396.9 million ($1.44 per diluted share) and full-year 2020 cash flow was $1,185.7 billion ($4.36 per diluted share).
- Tourmaline generated $273.9 million in free cash flow in 2020.
Despite a global pandemic and an oil price crash in 2020, Tourmaline increased its dividend from 12 cents per share per quarter to 14 cents which was fully funded from free cash flow generated in 2020.
- Tourmaline continued to effectively manage all-in cash costs in 2020 (operating, transportation, general and administrative, and financing) which totaled $8.60/boe, compared with $8.18/boe in 2019 with a slight increase as a result of the corporate acquisitions which carried higher cash costs. Operating costs on the acquired assets are expected to trend down in 2021-2022.
- Achieved a public investment grade credit rating allowing the Company to issue $250 million of debt at a fixed rate of 2.077% for seven years.
- Topaz Energy Corp. ("Topaz") successfully completed its initial public offering in 2020 with the market value of Tourmaline's 51.7% equity ownership of Topaz at December 31, 2020 valued at $790.8 million based on a December 31, 2020 closing price for Topaz common shares of $13.60 per share.
2020/2021 BUDGET AND OUTLOOK
- 2020 Q4 EP capital spending was $243.6 million, full-year 2020 EP spending was $878.8 million.
- Tourmaline accelerated two large frac operations at Spirit River, AB and Doe, NEBC from January 2021 to December 2020 primarily for logistical reasons, avoiding the anticipated post year-end industry frac activity ramp-up. The Company also increased planned Q4 drilling activities on the Jupiter and Modern assets post acquisition as well as at Sundown and Birley-Laprise, B.C. Completing these field activities earlier than originally planned also provided Tourmaline with additional winter 2021 gas volumes, allowing the Company to further benefit from the price spikes that occurred. As a result of these accelerated expenditures into 2020, the 2021 EP capital budget has been reduced by $25 million, from $1.10 billion to $1.075 billion.
- Tourmaline generated cash flow of $396.9 million and free cash flow of $144.8 million in Q4 2020 on EP capital spending of $243.6 million.
- In 2021, at current strip pricing, the Company expects to generate cash flow of $2.2 billion and free cash flow of $1.1 billion on EP capital spending of $1.075 billion. The free cash flow in 2021 will be designated for debt reduction, potential dividend increases, selective acquisitions, capital investment in emission reduction technologies, and potential share buybacks.
- The $1.075 billion 2021 capital budget consists of approximately $900 million of maintenance capital, required to keep production flat at 400,000 boepd, and $175 million directed towards realizing the unchanged 3-5% annual growth outlined in the five-year development plan. The Gundy, B.C. Phase 2 deep cut expansion remains the only significant new project in the five-year plan. $100 million of the $175 million in available incremental capital for 2021 is directed to the Phase 2 deep cut facility construction. The new facility will commence production in Q2 2022 (200 mmcfpd, 15,000 bpd condensate and liquids) and is strategically tied to an increase in gas transportation capacity to California commencing in 2022 and 2023.
- In the updated five-year plan, Tourmaline expects to generate $4.1 billion of free cash flow at strip pricing over the five years.
Strong natural gas prices, coupled with the Company's long evolving market diversification strategy, will result in materially stronger Q1 2021 cash flows than originally anticipated.
- Current full-year 2021 net debt(4) to cash flow is now expected to be 0.4 times. Tourmaline expects to reduce debt to its target total debt amount of $1.3 billion in 2H 2021, after which free cash flow allocation will shift to potential dividend increases, accretive acquisitions, capital investment in emission reduction technologies and potential share buybacks.
2020 RESERVES
- Tourmaline increased 2P reserves to 3.31 billion boe in 2020 at historically low FD&A costs.
- Year-end 2020 proved, developed producing ("PDP") reserves of 736.4 million boe were up 61.2 per cent over year-end 2019 when including 2020 annual production of 113.7 million boe. Total proved ("TP") reserves of 1.7 billion boe were up 39.4 per cent when including 2020 annual production. 2P reserves of 3.31 billion boe were up 31.7 per cent including 2020 annual production.
- Tourmaline's 2020 PDP FD&A costs were $5.46 per boe including changes in FDC, a record low, yielding a PDP reserve recycle ratio(5) of 1.91. Total proved FD&A costs in 2020 were $4.86 per boe including changes in FDC, and 2P FD&A was $3.80 per boe including changes in FDC. The 2P FD&A recycle ratio was 2.7 in 2020.
- Tourmaline replaced 727% of its 2020 annual production of 113.7 million boe in 2020 with 2P additions of 826.0 million boe before 2020 production.
- Tourmaline's 2P reserve value(6) equates to $57.95 per diluted share using the January 1, 2021 engineering price deck and a 10% discount rate. TP reserve value is $35.03 per diluted share and PDP reserve value is $20.17 per diluted share using the same pricing and discount rates.
- After 12 years of operation, Tourmaline now has 15.5 trillion cubic feet of 2P natural gas reserves, one of the largest, lowest-development cost, lowest-emission natural gas reserve bases in North America as well as 738 million barrels of 2P crude oil, condensate, and NGL (natural gas liquids) reserves (January 1, 2021).
- Tourmaline has only booked 2,579 (gross) locations of a total drilling inventory of 20,014 gross locations (13% per cent of the overall inventory) to achieve year-end 2020 2P reserves of 3.31 billion boe.
- For the eighth consecutive year, the Company enjoyed positive 2P technical revisions in its reserve report.
MARKETING UPDATE
- Tourmaline has an average of 567 mmcfpd hedged for 2021 at a weighted-average fixed price of CAD $2.64/mcf; an average of 129 mmcfpd hedged at a basis to NYMEX of $(0.01) USD/mcf; and an average of 502 mmcfpd incremental volume exposed to export markets, including Dawn, Iroquois, Empress, Chicago, Ventura, Sumas, Malin and PG&E.
- Natural gas fundamentals for 2021 and 2022 are steadily improving. Approximately 61% of Tourmaline's natural gas volumes are exposed to spot prices in markets on the Western half of the continent (PG&E, Malin, Sumas, Station 2, AECO) where 2021 fundamentals continue to be most supportive.
- At PG&E, 95% of the total deliveries remain unhedged for 2021 at a market where forward prices continue to be strong.
- Tourmaline has sales diversification to the US and other hubs of 584 mmcfpd for exit 2021, 705 mmcfpd for exit 2022 and 755 mmcfpd for exit 2023. The Company's diversified transportation portfolio, with associated direct sale opportunities, allowed for considerable realized price and cash flow benefits during the February 2021 cold snap.
- The Company will continue to hedge volumes related to 2021 and 2022 over the next several months.
- Tourmaline had 4 bcf of natural gas in storage facilities at Dawn, Ontario and PG&E, San Francisco which was fully withdrawn as the Company took advantage of the higher natural gas prices.
EP UPDATE
- Tourmaline operated 12 drilling rigs and three to four frac spreads across the three operated core EP complexes in January and February - activity is now tapering into spring breakup.
- The Company expects to drill and complete a total of approximately 225 (gross) wells during 2021.
- During 2020, the Company systematically drilled longer horizontals in all three complexes. Average horizontal well laterals were 16% longer, however, average drilling costs for these longer wells in 2020 were down on average 6% across all three complexes. Total completion costs for the longer horizontal wells were down 14% over 2019 levels, on a completed lateral meter basis.
- Tourmaline accelerated the completion and stimulation of the Spirit River 6-10-78-8 W6 pad from January 2021 to December 2020. The seven well Montney and Lower Charlie Lake pad has significantly exceeded performance curve expectations and is producing at a combined rate of 3,365 bpd of light crude oil and 31.4 mmcfpd of natural gas after 68 days of production. Five of the seven wells on the pad rank as the top five oil wells in Alberta for January 2021, based on calendar-day production rates and were brought on-stream during a period of increasing oil and natural gas prices.
- Tourmaline elected to complete the Phase 1 expansion of the Sundown, B.C. Montney project during the second half of 2020. During the past five years, the Company has been steadily expanding the land position at Sundown, steadily dropping drill/complete capital costs and dropping operating expenses to less than $2.00/boe. The Company expanded the existing gas processing facility at Sundown and drilled one five-well pad during Q4 2020, bringing on an incremental 40 mmcfpd at a capital efficiency of $4,500/boepd, including facility costs. The Sundown facility is now producing at 120 mmcfpd; the next expansion phase will grow production to 250 mmcfpd at similar capital efficiencies. This second expansion is not currently in the five-year development plan. Current Sundown 2P reserves are 1.0 TCF of natural gas, with 90 locations included in the Company's reserve report and an estimated 857 locations remaining in inventory.
The Company continues to realize the anticipated 30-40% capital cost reduction for drilling and completion activities on the acquired Jupiter and Modern assets in the Alberta Deep Basin complex.
SUSTAINABILITY AND ENVIRONMENTAL PERFORMANCE IMPROVEMENT
Tourmaline won independent awards in 2020 for ongoing successful efforts to reduce emissions through diesel displacement and for water management activities that ultimately eliminate freshwater usage in frac operations. The Company achieved an Industry 'A' rating in the most recent MSCI Global ESG Performance ranking.
Tourmaline has had an engineering team in place for over 18 months developing and implementing new proprietary emission reduction technologies, executing expanded water management initiatives, managing third-party environmental related research, and more recently managing an emerging carbon offset business.
Tourmaline is operating a methane testing and research facility, the only one in Canada, at one of the Company's Ansell-Edson gas processing facilities. This site will evolve technology that more accurately measures fugitive, flare and storage emissions as well as drives towards zero methane emission well sites.
Tourmaline has invested $8.0 million to date building proprietary units for the Company's broad diesel displacement initiatives. The long-term goal is to transition all drilling and frac operations to much lower emission emitting natural gas, or where possible, highline power/electricity. The Company's rig in the Peace River High area is fully electric, operating solely off highline power. The cost savings realized from reduced diesel in drilling operations this January alone were $1.8 million. To date, the Company has displaced 34.6 million litres of diesel with a net savings of $28.0 million including the cost of the replacement natural gas. On an energy equivalent basis, natural gas emits 30% less CO2, 90% less carbon monoxide, 95% less nitrogen dioxide, 90% less particulate matter, and 99% less sulfur dioxide than diesel. The go-forward, longer-term costs savings, are expected to be well over $75 million from this initiative which also provides a major contribution towards the corporate goal of reducing CO2 emission intensity by over 25% in the next five years.
SOCIAL
Tourmaline was the most active operator in the WCSB in 2020 during the pandemic, employing as many people as possible in the service sector and in the rural communities of Alberta and British Columbia while continuing to safely, effectively and efficiently manage operations.
During the global pandemic in 2020, Tourmaline made multiple foodbank, United Way, and youth development charitable donations totaling over $1 million assisting people in need in Calgary, Edson, Hinton, Grande Prairie, Spirit River, and Fort St. John.
Tourmaline was one of the few senior Canadian producers that did not reduce its dividend, recognizing the broad shareholder base and many individuals who rely on the dividend for necessary income, accentuated during the COVID-19 crisis.
DIVIDEND
The Company is pleased to announce that its Board of Directors has declared a quarterly cash dividend on its common shares of C$0.16 per common share. The dividend will be payable March 31, 2021 to shareholders of record at the close of business on March 18, 2021. This quarterly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes.
2020 RESERVE SUMMARY
The following tables summarize the Company's gross reserves defined as the working interest share of reserves prior to the deduction of interest owned by others (burdens). Royalty interest reserves are not included in Company gross reserves. Company net reserves are defined as the working net carried and royalty interest reserves after deduction of all applicable burdens.
Tourmaline's Reserves and Net Present Values of Future Net Revenue disclosed in this news release include the full impact of the sale of certain assets to Topaz Energy Corp. ("Topaz") notwithstanding Tourmaline's 51.7% ownership interest in Topaz. The Net Present Values of Future Net Revenue on a Total Proved Plus Probable basis (discounted at a rate of 10%) would increase by approximately 6.5% had the Topaz transaction not occurred. On a Proved Producing and Total Proved basis, the Net Present Values of Future Net Revenue (discounted at a rate of 10%) would increase by approximately 8.5% and 7.6%, respectively.
