Q4 2021 Tourmaline Oil Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to the terminal in Q4 2021 results conference call.

At this time all lines are on listen only mode.

Following the presentation, we will conduct a question and answer session.

At any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday March <unk> 2022.

I would now like to turn the call conference over to Scott Parker. Please go ahead.

Thank you operator, and welcome everyone to our discussion of <unk> results for the years ended December 31, 2021 and 2020.

My name is Scott Kirker, and I'm, the general counsel for terminally.

Before we get started I refer you to the advisories and forward looking statements contained in the news release as well as the advisory is contained in the Terminalling and annual information form and our MD&A available on SEDAR and on our website.

I also draw your attention to the material factors and assumptions in those advisors I'm.

I'm here with Mike Rose <unk>, President and Chief Executive Officer, Brian Robinson, Vice President Finance, and Chief Financial Officer, and Jamie hurt our manager of capital markets. We will start by speaking to some of the highlights of the last quarter and our year. So far after Mike's remarks, we will be opening for questions wed like thank you Scott and thanks, everybody for dialing in.

And we're pleased to go through our strong.

Strong 2021 results.

So lots of highlights our full year average 21 production of 441000 Boe's a day was up 42% year over year, our current productions ranging between 500 and 510000 Boe's a day and we expect a Q1 'twenty two exit of between 510 and 500 <unk>.

15000 Boe's per day.

Full year 'twenty one after tax net earnings were a record $2 3 billion or $6 40 per diluted share our full year 'twenty. One cash flow was a record $2 93 billion or $9 25 per diluted share and 147% year over year.

And importantly, we generated a record $1 $49 billion of free cash flow in 2021.

Exit 'twenty, one net debt was $973 million or below the low end of our.

Range.

Long term range of one to $1 2 billion year end 'twenty, one PDP reserves of $947 million were up 50% year over year.

Including 2021 production.

Total proved reserves of $2. One 9 billion were up 39% and <unk> reserves of $4. Two 4 billion Boe were up 33% over year end 2020.

We replaced 677% of 'twenty, one annual production of 161 million BOE with two key additions a little over 1 billion Boes.

The <unk> reserve value equates to $97 54 per diluted share.

Total proved reserves.

Equates to 60 to 70 and PDP <unk> III 77 using.

The same pricing and discount rates.

Terminally now has $19 five tcf of <unk> natural gas reserves.

Turning to production specifically as <unk>.

Mentioned in current production ranging between 500 510000 Boe's per day, our full year 'twenty. Two average production guidance of 500000 Boe's per day remains unchanged. All three of our operated E&P complexes are producing at or above full year 'twenty two guidance levels.

Which of course is very encouraging.

Looking at some of the financial highlights.

Mentioned full year 'twenty one after tax net earnings were a little over $2 billion.

First quarter 'twenty, one cash flow was $968 million and full year 'twenty, one cash flow what that record $2 93 billion.

On the shareholder return front, we increased the base dividend three times in 2021 to a total of 72 per share. So that was 29% increase over the course of the year and we paid our first special dividend of <unk> 75 per share.

In October of 2021.

And we have committed to returning the majority of annual free cash flow to shareholders and we are executing on that plan.

Subsequent to year end 'twenty, one we increased the annual base dividend up to <unk> 80 per share and paid our second special dividend of $1 25 per share. This time in February .

Moving to the budget and the outlook Q4, 'twenty, one EEP capital expenditures were $411 million.

And as previously discussed we accelerated the construction of the Gundy phase II deep cut and the <unk> 46.

Expansion into the second half of 2021, both projects were completed on budget and are currently on stream and at full capacity.

In 2022 at current strip pricing, we expect to generate cash flow of $4 5 billion or $11 97 per diluted share and free cash flow of $2 85 billion or $8 43 per diluted share.

Unchanged EEP capital expenditures of one <unk> 5 billion in 2022, we continue to maintain our strong capital discipline.

We always build two 5% inflation per annum on both capital and operating cost into the company's five year E&P capital plan.

As mentioned our exit 'twenty, one net debt was $973 million or two five times 21, net debt to Q4, 'twenty, one annualized cash flow and below the company's long term debt target of one to $1 2 billion.

We had another strong reserve year in 2021 year end 'twenty, one PDP reserves of 947 million BOE as mentioned were up 50%.

Including annual production of 161 million Boe.

'twenty, one PDP <unk> costs were $7 27 per Boe, including changes in future development capital and that yielded a PDP reserve recycle ratio of two five.

Our total proved F DNA costs in 'twenty, one were $5 94 per Boe.

And our <unk> was $4 54 per Boe, including changes in FTC.

Importantly, we have only bought 31 68 gross locations of a total drilling inventory of 22715 gross locations. So we have only booked 14% of the overall inventory to achieve our year end 'twenty, one <unk> reserves of $4 to 4 billion Boe So theres.

Lots more to come.

The current FCC is associated with two P reserves represent only three years, a prospective cash flow at strip pricing.

On the marketing front in 'twenty, one we further diversified the gas marketing portfolio by establishing a U S. Gulf Coast LNG long term netback supply agreement with Cheniere energy.

In 2023, terminally and will become the first Canadian E&P company participating in the LNG business with full exposure to <unk> pricing, providing a material increase to anticipated 2023 cash flow.

In November 22 of this year the company will increased gas volumes exported to Western U S markets from 345 to 445 million.

Cubic feet per day, with approximately 67% of that gas accessing the premium priced <unk>, California market.

NGL price realizations in the fourth quarter of 'twenty, one were up 24% over third quarter 'twenty, one and a reminder, we are the largest NGL producer with anticipated average production levels of over 70000 barrels per day in 2022.

Turning to E&P, we are the busiest operator in the basin, we drilled a total of 280 net wells during 'twenty one for a total of one point to eight 9 million meters drilled.

We have systematically increase our lateral length of our horizontals by over 30% since 2018, while simultaneously, reducing actual drill complete cost per lateral foot by 30% in that time period.

We operated 13 drilling rigs and 4% to five frac spreads across the three EP complexes during January and February of this year as planned.

We continue to operate all five drilling rigs in northeast BC with multiple high performance pad that sundown Gundy Aitken and the priest all contributing a little ahead of expectations.

The facility expansion that <unk> were accelerated in the second half 'twenty, one and completed on budget.

The $8 46, <unk> expansion and deep cut installation was executed in 120 days for $96 5 million. The previous owner had estimated 270 days for a capex of $116 million.

We continue to evolve the Conroy North Montney development project. This minimum 100000 Boe per day gas and liquids project as currently planned in the 'twenty five 'twenty six timeframe, coinciding with the projected startup of LNG, Canada, and the anticipated related strong intra basin natural gas.

<unk>.

And.

Some strong recent pads three well upper Chardy late pad in our Peace River high complex.

Has averaged a combined production rate of 2500 barrels of oil per day, and a little under 3 million a day of gas over the first two weeks of production. It just came on stream and we had a very strong two well well rich pad at.

Smokey and the north end of the deep basin complex, which between the two wells combined tested at over 65.

Millions per day during the testing period.

Our goal.

A good time for some very strong wells.

We are updating our exploration program, we've been working on it for over two years.

We have successfully tested six new horizons spread across the three operated.

Complex, so it's working well.

In our year end 'twenty, One reserve report, we've already booked 845 Bcf of two P reserves from the discovery, so far and further successful delineation drilling is planned in all three complex is over the next 12 months and we will disclose further details in upcoming quarters as we can.

And this initiative, we believe provides shareholders with an additional unique long term growth and value accretion opportunity on top of the regular EP program.

A brief acquisition update we indicated mid 'twenty one.

That we were pausing, our larger corporate acquisitions, but we have also indicated that $2 million to $300 million of annual free cash flow could be allocated to further smaller complementary asset acquisitions within our existing complexes during.

During Q4, 'twenty, one and thus far in Q1 of this year, we completed a number of these small acquisitions that in aggregate. We believe are meaningful so to that end. We've acquired 2400 Boe per day of production and estimated 43 million Boe of <unk> reserves those are internal company estimates 200.

95 drill sections of land and that includes land sales that we've gone to an additional 238 gross drilling locations for a total cash outlay between the two quarters.

Just a little under $64 million, so very strong metrics.

Looking at environmental performance improvement.

We had a very busy and successful year in 'twenty, one with multiple initiatives, making measurable progress on emissions reduction we are an engineering team in place and it's been there for over three years, developing and implementing new proprietary emission reduction technologies executing our expanded water management initiatives managing <unk>.

Third party environmental related research.

<unk> or methane testing center in managing an emerging carbon offset business.

We are investing $20 million to $40 million per year.

Now on environmental performance improvement activities.

We have now displace diesel with Nat gas on all of the drilling rigs and the operated fleet.

We have where possible one rig running directly on high line power and this has provided a significant emissions reductions and cost savings. So a double win for shareholders. During 'twenty. One we entered into a JV with Tri Camden utilize the first tier for Nat gas Frac unit in Canada. So further work on our <unk>.

Diesel displacement initiatives.

The company achieved a net 25% methane reduction target in 'twenty, one three years earlier than anticipated and we're not done there and we've set new methane reduction targets and we will execute on those as well in 'twenty one the emission testing center or what we referred to in our literature as the ETF.

It's the first of its kind in the world is that the west Wolf gas plant in the deep basin. It became fully operational in Q4.

And it is critical and evolving new technology and methodologies to materially reduce methane and other emissions across the entire.

EP business.

We did announce that the board of directors have declared a quarterly cash dividend on the common shares of <unk> 'twenty.

Per common share as anticipated and finally related to our emission reduction natura.

Natural gas, we see as the great enabler of our future energy transformation. It will be the largest component of the future energy stock for a very long time in Canada should be supplying as much of our low emission natural gas to the rest of the world through a material and growing LNG business. The best thing, we can do for global emissions.

And for the Canadian economy.

So.

We're more than interested in <unk>.

Answering any questions that you might have.

Thank you ladies and gentlemen, we will now begin our question question and answer session.

Should you have a question. Please press star followed by the number one on your Touchtone phone.

You will see with Friedhelm prompt acknowledging your request and the questions will be pulls in the order. They are received should you wish to decline from the polling process. Please press star followed by the number too.

If you are using a speaker phone please lift.

Lift the handset before pressing any key.

One moment. Please for your first question.

Your first question will come from.

Jos Dos.

Sir Please go ahead.

So subtract.

That'll be me.

Good morning, everyone and congratulations on a great year.

Mike Scott and Brian .

Of course.

122, it looks like an exciting here I have two questions.

When you're looking at doing your stock buybacks.

Your purchase prices.

Last year were 200000 shares of $32 73 Euro Pvp level is that the kind of number you're looking for whatever the market backs off.

PDP or are you looking at some level going forward between PDP and one peak as the purchase price for your share buybacks.

Yes, I think you probably hit on it Joseph So we reset our our.

Targets with the New Reserve report and so in that range is reasonable, but we're continually continually evolving our shareholder return equation and how we treat all of the parameters in it and so.

We're going to do a mix of.

Of all of the identified Alan.

Allocation.

<unk> opportunities or silo, so share buybacks and base dividend increases in special dividends, while we have elevated commodity prices.

Okay.

And second question for me with LNG now and all the problems in Ukraine and security of supply shortages around the world are there any other initiatives.

<unk> is looking at to get into the LNG space into a greater degree.

Being involved in new projects, and maybe even owning pieces I've ever how do you see.

Going forward the Terminalling building up its potential LNG on top of the already attractive deal you did with Cheniere.

Here.

Yeah. So I mean, the Cheniere deal I mean, I guess will be the first Canadian company actually.

April to ship gas to Europe .

Were those cargos go.

We'll see but that starts up in January of 'twenty, three and yes of course, we're looking at as many other LNG opportunities as we can and I think the limitations other than coastal gasoline can LNG, Canada.

To grow our Canadian LNG business.

We need more pipelines and more projects, but we're looking at.

All of the various opportunities to move gas offshore and get it to Europe and of course.

Asia, where that's where we can accomplish the greatest emission reduction.

Possible and Thats. The best thing is I mentioned that Canada can do so yeah. It's it's encouraging from that standpoint, it's just a bit discouraging that the 10 Bcf a day that could have been on Canadian coasts.

If we'd done things right and kind of whole nine 2009 to 2012. It all ended up on the Texas Gulf Coast and so now it's our turn to to build it up in Canada.

Alright.

You look at just being a provider to the LNG projects or would you look at having some ownership as well.

I think at this point in time, we prefer to be a provider.

Okay.

That does it for me, thanks, very much and again congratulations.

You.

Your next question then will come from Stanley with Olson Brown. Please go ahead.

Okay, Hi here.

Just a quick question Mike in terms of this.

Cam exposure, obviously prices are a lot higher.

The future congestion or a trend down a bit I'm wondering how you're building that into your five year plan in terms of the pricing.

Sure so.

Every time you run the five year plan, we're running a strep in the five year plan was most recently brought on the February 15th strip at which time that California, three J cam prices roughly $18 and so we reflect the future strip pricing, which does backward aided to $18 and they're backwards from there over the five year plan and that benefit is.

Layered in nicely into the future cash flows and I would point out that today J Cam 2023 is north of $20. So as we continue to March forward through the year and through the disruptions we've seen in the market.

Contract appears to be getting more and more valuable.

Okay, great. Thank you.

Yes.

As a reminder, do you have a question. Please press star followed by the number one.

Your next question will come from campaign with Scotiabank. Please go ahead.

Hey, guys congratulations on the great <unk>.

'twenty one results just a quick question on the reserves report how is the Conroy Northern Montney project represented in there in terms of FTC and reserve bookings beyond 2025.

It rolled in pretty much as we did the acquisitions in the north Montney. So that includes polar star, which was done in 2021.

And then <unk> and.

Black Swan in 2021.

And so those make up the majority of the.

What we will term conroy, which is a broader kind of laprairie. They can development and we're planning the facilities now and what the liquid infrastructure related that to that looks like but they're in there and obviously, there's lots of upside we got it we haven't booked all the locations that came with those acquisitions, but.

A very long runway of further bookings and additional locations to be put in inventory in those areas.

That's helpful.

Thank you very much.

There are no further questions at this time.

Scott go ahead please.

Please go ahead.

Thank you operator, and thanks, everyone for listening in and we look forward to chatting with you all next quarter.

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