Tourmaline Oil Corp. is pleased to release financial and operating results for the second quarter of 2021.
- 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).
- 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.
- 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.
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.
- 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 CO2e/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.