(Tourmaline, 12.Jan.2023) — Tourmaline Oil Corp. (TSX: TOU) announced a special dividend and provide an operational and 2023 guidance update.
Tourmaline is pleased to announce the declaration of a special dividend of $2.00/share, given the continued strong financial performance and outlook for the Company. The special dividend is part of Tourmaline’s comprehensive shareholder return plan and will be paid on February 1, 2023 to shareholders of record on January 24, 2023. This special dividend is designated as an “eligible dividend” for Canadian income tax purposes.
The Company anticipates paying further special dividends each quarter in 2023 and tactical utilization of its normal course issuer bid during the course of the year. Net debt(1) for year-end 2023 is forecast below the long-term net debt target of $1.0-$1.2 billion.
- Tourmaline achieved a 2022 exit volume production of 528,000 boepd (peak production was achieved December 12-18, 2022, with average production of 532,000 boepd during that period).
- Fourth quarter 2022 average production was approximately 512,000 boepd and was challenged by considerable unplanned operated and third-party downtime. The most significant outages were inlet compressor failures at the Tourmaline Aitken and Resthaven plants in November, unplanned disruptions on the Enbridge 26″ mainline for five weeks in October and early November, NGL losses in BC in December due to railcar interruptions caused by extreme cold conditions, and higher than planned frac downtime in NEBC.
- The Company has elected to increase the downtime provision from 4% to 6% for 2023. The primary driver for the increased provision in 2023 is the absence of a finalized permitting framework in NEBC. The Company has sufficient permits in place to conduct its EP program for several years, but the distribution of these permits has led to increased frac related downtime. When the permitting framework is finalized, much of this higher provision will no longer be required. The Company now expects 2023 average production of 520,000-540,000 boepd, the broader range reflecting the higher downtime provision.
Q4 2022 AND 2023 CASH FLOW OUTLOOK
- Given below normal temperatures in western North America in November and December and Tourmaline’s significant exposure to those natural gas markets, the Company expects significantly higher cash flow in the fourth quarter of 2022 than originally forecasted. December average natural gas prices were US $28.51/mmbtu at Hunt, US $28.82/mmbtu at Malin, and US $30.53/mmbtu at PG&E. Tourmaline sells approximately 390 mmcfpd into these markets.
- Tourmaline is now expecting cash flow(2) (“CF”) of $4.5 billion in 2023, based on updated strip pricing at January 3, 2023, yielding free cash flow(3) (“FCF”) of $2.6 billion on capital expenditures(4) of $1.86 billion.
- Tourmaline commenced deliveries of 140,000 mmcfpd for its Gulf Coast LNG contract on January 1, 2023, realizing full exposure to JKM pricing.
- As previously disclosed, the Company intends to return 50-90% of FCF to shareholders in 2023.
- Given significantly enhanced cash flow in Q4 2022 and anticipated strong Q1 2023 cash flow, the Company has elected to pay a special dividend of $2.00/share. The special dividend will be paid on February 1, 2023 to shareholders of record on January 24, 2023.
- The Company estimates capital expenditures, excluding A&D, of approximately $1.7 billion in 2022 as inflation was on average 7% higher in the second half of 2022 than the 18% inflation contingency previously assumed in the mid-2022 outlook.
- Tourmaline now plans EP capital spending of $1.675 billion in 2023 reflecting an inflation contingency of 25% for 2023 compared to 2021 levels.
- The 2023 total capital expenditures budget also includes approximately $100 million for exploration directed spending including drilling approximately 15 wells, seismic expenditures and follow up land sale activity. The Company will carry the exploration program as a separate, incremental capital item on a go forward basis outside of the base EP plan given the slightly higher risk nature of those expenditures. The Company views this successful exploration program as a good use of excess FCF beyond what is being returned to shareholders. Excess FCF may also be allocated to margin-improving midstream investments, acquisitions, and environmental performance improvement initiatives.
- The Company is maintaining the long-term net debt target in the $1.0-1.2 billion range (approximately 0.2 times anticipated 2023 cash flow).
- The Company is currently operating the full drilling rig fleet (13-14 rigs) across all three operated complexes, with one rig in 2023 focused primarily on new pool/new zone exploration activities.
- The Gundy complex achieved a record average production of 402 mmcfpd of natural gas in December with 27,000 bpd of condensate and NGLs.
- The most recent seven well Lower Charlie Lake pad in the Peace River High complex, brought on-stream in December, is producing at 5,150 boepd (2,844 bpd oil and 14 mmcfd natural gas).
- The Company is pleased with the expanding exploration effort across all three operated complexes, with an additional nine new pool/new zone discoveries in 2022. The Company drilled 11 new pool/new zone and discovery delineation follow up wells in 2022 and is planning 15 exploration wells in 2023. The Company estimates the exploration activities have added 481 gross locations to the existing drilling inventory thus far. Production from this organic growth program will access the Company’s existing extensive infrastructure network.
- As disclosed previously, the Company believes it has generated two material new play discoveries over the past three years. Reserves of 845.1 bcfe have been booked in the 2021 year-end independent reserve report. Tourmaline will test several additional new pool/new play opportunities over the next two years which could lead to further material reserve, production, and inventory additions.
- Tourmaline currently has 301 valid drilling permits in NEBC and expects to drill approximately 140 net wells in BC in 2023. While the Company is well positioned to maintain or modestly grow BC production over the next two-three years, the remaining permits don’t allow for the most efficient EP program execution. Many of the permits are on existing large pads which leads to unusually high frac related impairments during completion operations (for example, frac downtime at Gundy increased from 5.5% to 10% in 2022). Some of the remaining permits are for Tier 2 locations which, given the size of Tourmaline’s Tier 1 inventory, would not otherwise be drilled at this time. These Tier 2 locations are, however, economic at gas prices of $1.50/mcf. The greater frac-related impairment and the subset of Tier 2 locations being drilled has been factored into current 2023 production guidance. The Company remains confident that an agreement between the BRFN and BC First Nations with the Province of British Columbia will be reached in 2023.
2021 SUSTAINABILITY REPORT
- Tourmaline released its 2021 Sustainability Report on December 22, 2022, and it can be found on the Company’s website. This report contains 2021 performance data and includes our new methane emission intensity reduction target of 55% by 2027, using 2020 as a benchmark. We reiterate our target to reduce scope 1 core emission intensity by 25% by 2027, from 2018 levels.
- Tourmaline lowered scope 1 and 2 emission intensity by 12% in 2021, relative to 2020 levels.
|(1)||“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 2022 Management’s Discussion and Analysis.|
|(2)||Cash flow” is a non-GAAP financial measure defined as cash flow from operating activities adjusted for the change in non-cash working capital (deficit) and income tax expense. See “Non-GAAP Financial Measures” in this news release and in the Company’s Q3 2022 Management’s Discussion and Analysis.|
|(3)||“Free cash flow” is a non-GAAP financial measure defined as cash flow less capital expenditures, excluding acquisitions and dispositions. Free cash flow is prior to dividend payments. See “Non-GAAP Financial Measures” in this news release and in the Company’s Q3 2022 Management’s Discussion and Analysis.|
|(4)||“Capital Expenditures” is a non-GAAP financial measure defined as cash flow from investing activities adjusted for the change in non-cash working capital (deficit), and corporate acquisitions. See “Non-GAAP Financial Measures” in this news release and in the Company’s Q3 2022 Management’s Discussion and Analysis.|