Q2 2021 Tourmaline Oil Corp Earnings Call

If at any time during this, call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, July 29th, 2021. I would like to turn the conference over to Scott kircher. Please go ahead.

Thank you, operator, and welcome everyone to our discussion of Tourmaline oil. Corpse results for the 3, and 6 months, ended, June 30, 20, 21, and 20..20. My name is Scott kircher. And I'm the general counsel of Tourmaline before we get started, I refer you to the advisories on, forward-looking statements contained in the news. Releases was the advisories contains and the tourmaline annual information form, and are am DNA available on speed are and on our website, I also draw your attention to the material factors and assumptions in those advisories,

I'm here with Mike Rose. Tourmaline is President and chief executive officer, Brian Robinson, vice president finance and Chief Financial Officer and Jamie heard tourmaline senior Capital Market analyst we will start by speaking to some of the highlights of the last quarter and our year so far after my remarks we will be open for questions. Go ahead, Mike. Thanks

We had record free cash flow with 3 hundred forty..3 point 9 million on production of 410.339. Do you eat per day, which exceeded the high end of production expectations, despite challenging operating conditions with Dunes. Heatwaves the updated Five-Year Plan at current strip pricing, delivers 1.8 billion of free, cash flow and 2022 and 7 billion over the full 5.

Duration of the plant, we received a credit rating upgrade from Triple B to Triple bi in July of 21 by DVRs morning starts.

We now expect to achieve our year-end 21, net debt, Target of approximately 1 billion or 0.4 times - cash flow and less than 1 x annual free cash flow prior to year. End with incremental volumes on the gtn Moline PG&E systems. And the companies recently announced Gulf Coast LNG Pathways 2023 tourmaline will have 9 hundred and 5 million a day exposed to export markets on firm.

Long-term transport agreements by exit..20 23, our largest export Market PG&E. California is currently trading at 5:50, Karem mbtu in u.s. dollars, looking at production in a little more detail as mentioned second quarter..21, average production was a little over 410,000 be a waste per day and a little over 4 hundred and fourteen thousand bees per day, prior to storage injections into our storage reservoirs.

In California and gone. So that's a 37 percent increase over the prior year to to 20/20.

We anticipate third quarter average production will range between 450,000 and 460,000 be wheeze per day. We expect to reach the 500,000 Boe per day, production, milestone in Q2 of 2022, primarily through the completion of the Gundy phase, 2 projects and increase Expansion Project, and the ongoing screes development program, 2021, average production for the year remains estimated at

432.445,000 bees per day. Looking at are very strong financial results. Second quarter, 21 cash flow was 570 million compared to 225 million or e 3 cents. Per diluted chair into to 2020 second quarter 21 after tax net earnings or very strong at 428 per million 428 sorry foreign 20 million $4 for

And that compares to 20 million or 7 cents per diluted chair in the second quarter of 2020. We delivered free cash flow of 344 million on EP Capital spending of 216 million in the second quarter full year..21, cash flow was, 2.78 billion is now expected with estimated free cash flow for 21 of 1 point 4.7 billion. We received the credit rating upgrade in July

This year, following the close of the Black Swan Acquisitions. Moving up to Triple be high from Triple B, for both the issuer rating and the senior unsecured notes. The credit rating upgrade is expected to result in lower effective interest rates on company, debt, which already are extremely low. And in the top tier of 1.7.2% for the second quarter revisiting the capital program and the financial Outlook second quarter 21, EMP, Capital spending was

Target at 216 million school year..21, EP Capital spending remains at 1 point, 2.7 billion, net debt had June 30th of this year was 1 point 7 billion which excludes the to Northeast BC transactions, which with topaz, which yield 390 million in cash, both of which will close in the third quarter of 21 exit cue 321, expected net. That is approximately 1.4 billion.

Not including the impact of all acquisitions completed to date in 2021. We now expect to achieve the year-end 21, net desks Target of approximately 1 billion as at July 15, 20.21, tourmaline topaz Equity ownership was valued at 934 Millions, which is essentially off. So, that's the estimated 21 year-end netstat as mentioned, the updated Five-Year Plan and current strip price.

Delivers 1.8 billion of free cash.

22 and 7 billion over the full five-year duration of the plan looking in a little bit more detail at the growing free cash flow Outlook and our plans are consistent 2021 narratives has been that our top 2 priorities are modest sustainable dividend increases and continued debt reduction to our long-term debt Target of 0.5 times debts cash bolts so far in 21 you we've used

free cash flow for to Dividend increases and we now expect to hit that long-term debt Target during Q4 of this year, as we look out to 2022 and the full five-year plans. The vast majority, as a free cash flow will be returned to shareholders will provide more detail on the myth of the return opportunities, over the upcoming 2 to 3 months, including continued sustainable based dividend increases, special dividends and share BuyBacks where appropriate? We

Special dividends matching up well to periods of elevate, commodity prices and the excess free cash flow generated during those periods recall that our annual IEP program. Generates 3 to 5 percent annual growth and the only significant facility project of size in the current Five-Year Plan is the Gundy face to expansion and it will actually be done by the end of this year. The balance of the program in the out years is thus very Capital, efficient and will continue to generate

Significant free cash flow, the next large facility project is the Conroy North Monte development, which we've matched up to the LNG, Canada startup. When we expect very strong, Western Canadian gas pricing, that time frame is 25.26. Hence this project not in the current Five-Year Plan, it could be as large as 800 million per day. It will be a very strong utilization of free cash flow. When the 2627 timeframe, we also have an initiative to capture more margin in our

With business and are currently evaluating strong return projects to that end. And this new business segment. These projects will compete for a portion of the free cash flow in the 2425 time frame.

A brief marketing update. The average realized natural-gas pricing Q2.21 was 325 per mcf as we benefited from rising commodity prices select hedging and are broad natural gas market diversification portfolio throughout North America. The Accelerated Gundy Phase 2 Expansion Project is expected to be on stream in January 22. So as to take advantage of potential winter, gas, price premiums when we made that accelerations.

Asian a couple of months ago as we were ahead of schedule on the facility pre-built, the PG&E California Market continues to be very strong and average queue to Benchmark price of $4, per mmbtu us and strip pricing at July 23rd, 21 of 548 per million BTUs us for the remainder of 21, NGL, price realizations, and Q2.21 where up a hundred and

80% over to YouTube 2020, we are Canada's largest NGL producer. Averaging, 55 thousand 5 hundred barrels per day. During the second quarter and the NGL pricing Outlook continues to improve.

Briefly some comments on the EP program we drilled a hundred and fourteen net wells in the first half and we expect to drill approximately..250, net Wells for full year 21 completing approximately 220 of these. By the end of this year. We are currently operating 12 drilling rigs and will add an additional rate on the former Black Swan landed in September as originally planned. We expect to bring approximately a hundred and forty net Wells on stream.

Through the balance of this year.

Improved drilling time and cost per performance for DNC. Operation has largely offset. Modest inflationary cost pressures that we are all observing its drilling times. Have been materially reduced in all 3 core complexes through the application of multiple evolving technologies that we continue to trial recent orders almost in the laprise BC Monte area are now being drilled to TD in 5 days. Overall the second half

And 21 EP Capital program is being executed. Slightly ahead of schedule.

Moving to our environmental performance Improvement initiatives. We intend to invest 20 to 40 million per year in these initiatives. Primarily in the areas of diesel, displacement for EP Drilling and completion, operation methane, emission reduction and ultimate elimination projects, gas, plant, emission reduction and Associated. Wait T, recovery installation, and are multiple Water Management projects. Majority of these environment-related capital.

Vestments. Do indeed, generate a modest positive returns.

We estimate that environmental initiatives initiatives to date have reduced our annual emissions by approximately 250,000 tons per year. So far a meaningful accomplishment we have now installed over 200 zero-emission electric chemical injection pumps providing an estimated ghg reduction of 40,000 tonnes of CO2 equivalent per year.

The first hybrid Ghast Tear for Frac unit has been delivered and will be pumping on our BC Monte pads in the second half of 2021 evolving zero methane. Emission technology is being implemented on all new well, sites in all company operated areas. And finally, the engineering design has been completed for the ngif emissions testing center that East. Edson facility is expected to be fully operational.

Racional later on in Q3 of this year and this Center will be evolving. The Next Generation and emission reduction in the field. These are all Technologies to be put in place during the next 2 to 5 years. We're not waiting for 2050.

And that's the end of the formal comment. So we've gotten several of us here to answer any questions. Shareholders might have

Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please? Press the star followed by the 1 on your touch-tone phone, you will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order that they are received. Should you wish to decline from the polling process? Please press star followed by the 2. If you have a speakerphone please lift the handset before pressing any keys.

Your first question comes from faily, from Oldham Brown.

I-it's a fire here, Mike. I'm just wondering about this dogs Gulf Coast LNG pathway. I just, I prefer to be the volume of moving on the TT pipeline. Albert Express exp project. Is that how the volumes are going to the Gulf Coast? Well that is yes. But there's really 4 line segments to get it. They're all TransCanada operated. If you go all the way back to the engine,

Okay.

Right. And either potential room for extending those volumes that you've in the future or that kind of what you kind of the agreement you've reached, its kind of sort of the maximum and I think we've taken up all the available space in that pipeline system.

Okay, yeah, that's what I wanted. Yeah, that's what it looks like. Okay, right. And in terms of returning, cash to return cash to shareholders with the free cash flow in terms of share BuyBacks. I'm just wondering. I do you buy more detail later? But do you have any initial thoughts and how you're going to handle a share buyback? You have some criteria in mind or not going to have a real good to preference for versus a special ability.

Well, it'll be in the mix of, you know, return to shareholder opportunities. We just renewed our NCI because you probably saw when we announced the closing of the blacks 1 transaction.

Right? But you have a like Cermak, like there's some quite serious. Okay, we'll do a share buyback in these conditions, or are you just going to try and come up with some sort of mix between the 2? Well, we're finalizing what? The mix between all the various return opportunities are. I mean, obviously, in our actions have demonstrated it, we like based sustainable base dividend increases and in time,

In periods of significantly more free cash flow than model. We like to special dividend as well.

All right. Thank you.

Your next question comes from Sean MacPherson, from Industrial Alliance.

Oh yeah, we can't hear you very well.

Okay, earlier this month, you guys announced a focus on cutting costs with each dollar. Well, I mean our goal initially

Over the next 12 to 18 months. So we're working away on it and we've actually made good Headway already.

Also.

Your next question comes from Yosef Slaughter from Slaughter Energy Research.

Good morning, 2 questions for me. First 1 on the technology side, we're seeing more comments in the state's about intelligent fracking systems. Are you using that in Canada and are you finding that the well productivity using these new fracking? And there's the d g b unit capable of doing that the new unit that's coming on. As you mentioned, the next short while

That technology specifically is not something we're trialling right now, but we're always evolving and improving our. Frac technology and performance and simultaneously trying to deliver better. Well, performance for for Less dollars. So it's, it's never complete. It always improving, okay? So real-time fracturing isn't really something that's really showing up at that much. You have in terms of

I mean.

Yeah, that specific technology we're not using but I mean we are certainly using real-time practice technology as we stimulate these Wells.

Okay, super second question, for me, on the Mac side is there much more available in your 2 core areas that you're looking at? And or do you have really the footprint you want? And the part of the additional part then is, are you looking to build a third, quarter area, and would that be again in natural gas and ngos? Or would you be looking at a core area in? Let's say conventional the oil business.

We've largely, you know, acquired the targets that we wanted in the Alberta deep Basin and the BC Monte, which there are 2 large gas complexes, you know, it doesn't preclude us from doing small and I mean, small bolt on asset transactions within either of those areas but we have nothing close on that front. Anyway, we have a third core area and that's our Peterborough height, RT, late money and it's about 60%.

Scented oil, 40% gas.

And it generates this year about a hundred million of free cash flow on a 70 million dollar Capital Investments, that we really like that area. Even though it significantly smaller than our 2 large gas complexes, and as far as establishing, you know, a fourth core area, we have so much inventory, so many projects, and so much production in the 3, complexes we have already that, you know, we have Decades of drilling an EP development.

To put in place. And so I think we're very happy with what we have under tourmaline supervision right now. Cooper congratulations again on a great quarter. Thank you. Yeah thanks.

your next question comes from Dan Lloyd from Forge first some color or maybe the tourmaline perspective on the on the BC government blueberry River, First Nation judgment, and then kind of a follow-up, I guess if you could maybe speak to ideally the strength of your relationship with the blueberry River,

Station.

We've been, you know, working in that North Monterey area in and around the be rfn for over 5 years and I think we've established a good working relationship and we continue at our full operational paste in that sub area within our overall BC Martinique complex. And then all I would say

on the government was that I believe they chose not to appeal the BC Supreme Court decision that I think that ruling came out yesterday, right. So

Okay.

As a reminder, should you have a question please? Press star followed by 1.

There are no further questions at this time. Please proceed. Thanks.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you, please disconnect your lines.