Q2 2022 Tourmaline Oil Corp Earnings Call

And financial updates.

First the highlights our second quarter 22 cash flow was a record 1.35 billion and that's 137% increase over the second quarter of 2021.

Net debt at June 30 was $430 million, which is well below our long term debt target of one to $1 2 billion.

Second quarter 'twenty, two free cash flow was a record $1 1 billion or $3 25 per diluted share and that enabled us to declare a special dividend of $2 per common share to be paid August 12, two.

<unk> to shareholders of record on August 5th.

Our trailing 12 month of distributed dividends now totaled $6 28 per share inclusive of this special dividend and Thats, an implied 9% trailing yield.

Second quarter 'twenty, two we keep E&P capital spending was $229 million.

Well within guidance and second quarter 22, net earnings were $823 million or $2 40 per diluted share.

We with our update released a new EP growth plan for the period 2022 to 2028, it generates $31 4 billion of cash flow, an $18 billion of free cash flow at strip pricing as of July $18 22 on total E&P spending.

Over the period of $12 7 billion average annual production growth. During this plan is approximately 6% and the total growth over the period is 40%.

Looking at production briefly second quarter 'twenty two production average was 503000 Boe per day or 506000 prior to our Q2 storage injections, and dawn and California and within previous disclosed guidance range is 23% increase.

Over the second quarter of 'twenty, one production of 410000 Boe's per day.

The modest EP activity increased post breakup will lead to a higher Q4 'twenty two production forecast.

Now a $520 to 525000 Boe per day, and that's up from 510000 Boe's per day in the previous May plan a.

Our full year 2002 average production forecast of 507000 BOE per day is now expected.

Full year 'twenty, two average liquids production of over 115000 <unk>.

<unk> per day is expected and that's up 19% from average 21 levels and Thats condensate oil and Ngls.

Looking at our financial results in a little more detail as mentioned.

Both quarterly cash flow and free cash flow were records.

At current strip pricing.

So July 18th strip full year 22 cash flow of $5 billion is now anticipated or <unk> 69 per.

Fully diluted share.

Given the strong commodity price outlook anticipated record cash flow in 'twenty two.

We intend to return a minimum of 60% of free cash flow to shareholders in calendar 'twenty two.

We intend to pay quarterly special dividends through the balance of 'twenty, two and now 2023. The magnitude of these special dividends will be a function of commodity prices and available quarterly free cash flow.

We do intend to return the majority of free cash flow, so greater than 60% in 'twenty, two and a range of 50% to 75% and 23 to shareholders through base dividend increases special dividends and share buybacks a component of free cash flow will also be used for modest incremental <unk> investments in that.

It includes new pool news on exploration opportunities.

<unk> asset acquisitions within existing core complexes and select margin improving infrastructure investments.

Moving to marketing.

Germany, and currently has 620 million per day accessing U S market through long term firm transport agreements and this volume will grow to 905.

1 million per day by exit 2023.

We are amongst the most diversified of all North American large gas producers from a market access standpoint, and we continue to explore opportunities to expand this export capability.

The company has 140 million per day Gulf Coast LNG deal with Cheniere commences Jan $1 23, and it provides exposure to JK and pricing over the 15 year term of the deal. The <unk> strip was $31 88 U S.

Per million Btu as of July 19 to 22.

Realized NGL prices were $51 83 per barrel in Q2, 'twenty, two and Thats up 99%.

<unk>.

Q2, 2021 time period, and we are the largest NGL producer in Canada.

Looking at our longer term EP strategy.

The new EP growth plan extended through 2008 as mentioned and it incorporates the current 12% to 13 drilling rig fleet that we have in our employees through second half of 'twenty, two and through the balance of the plan and we felt it was prudent to retain the drilling and completion services that we'd already secured on a go forward basis.

The previous plan could be executed with approximately 11 drilling rigs.

The new EP growth plan also includes phase one of the Conroy North Montney development project.

Commencing production through new Terminalling facilities in the first quarter of 2026.

With phase two startup of that project in 2028.

The new EP growth plan 22 through 28 generated $31 4 billion of capital and $18 billion of free cash flow at strip pricing on total E&P spending of $12 7 billion and as mentioned average annual production growth during the plan is approximately 6%.

The updated plan will consume approximately 2500 gross drilling locations through two and 28 and Thats only 11% of our current inventory of over 22000 locations.

We believe our modestly increased capital program program on very high return projects is a good utilization of our free free cash flow and given elevated commodity prices and the related very short payout periods. These incremental expenditures actually increased free cash flow in the year of expenditure.

The total incremental gas production of 250 million per day in the 'twenty three 'twenty four time frame via the expanded program, which is up approximately a net 100 million per day from the previous EEP plan coincides with incremental basin egress, which is consistent with our long term balance.

Based on supply narrative.

Through expansions on the GTS system, and the Companys Gulf Coast Cheniere LNG agreement, we have 100, sorry, 300 million per day of incremental basin egress commencing in 'twenty three so it more than offset any of the growth that we'll see in 'twenty three 'twenty four and of note. These gas volumes will access to <unk>.

Two destinations with a sustained premium gas price international LNG and California.

Terminalling is able to deliver a strong sustainable annual return to shareholders, so greater than 60% of free cash flow in 'twenty, two a meaningful sustained annual production growth profile. So 6% over the next six years and continued material value accretion through profitable <unk>.

We will reserve additions.

Looking at our capital spending and our financial outlook.

As mentioned second quarter 'twenty to EP, Capex was $223 million and within guidance. The full year 'twenty to EEP capital budget has been increased to $1 5 billion and that reflects the increased second half 'twenty to EP program as well as a further contingency for inflation.

Our 23 E&P capital program.

Is estimated at $1 6 billion that reflects the 12% to 13 rig program for the full year and a much increased inflation contingency for.

23 over what was in the May 20 to plan. The EP program is expected to deliver annual production of 545000 Boe's per day.

And cash flow at strip pricing of $5 1 billion and free cash flow of $3 5 billion. So not backward aided from the results that youll see in 2022.

The second half 'twenty, two and 'twenty three capex programs include up to 10 incremental exploration news, one our new pool wells and that's following up on multiple successes to date.

Net debt at June $30, 22 was $430 million well below the long term debt target of one to $1 2 billion and this places the company in an excellent position to concurrently fund the Conroy North Montney development and continue with our free cash flow our allocation strategy and returns to.

<unk>.

A little bit more on the Conroy North Montney development.

New EP growth plan incorporates.

The full project with January 126 targeted on stream date for phase one.

And the second phase will be on stream in 2008.

In each phase consists of 50000 Boe per day of production phase.

<unk> phase II could be accelerated contingent upon commodity prices and overall basin egress considerations.

We've drilled a total of 2014 delineation pads and within that North Montney project area over the past 18 months really to confirm well performance and capital cost capital costs are definitely on target.

And well below those of previous operators and well performance has exceeded original expectation for the vast majority of the new pads.

As part of this north Montney development project, we have negotiated a new long term transportation and fractionation arrangement with Pembina pipeline Corporation for the incremental or growth condensate and NGL volumes from the project area and this agreement ensures that all new company in liquid volumes will flow upon project startup.

Along with significant flexibility and strong operating margins for <unk> in the overall north Montney development area.

And as part of the long term associated facility strategy and build out.

We closed the previously announced acquisition of the 50% non operated interest in the two aitken area gas plants during the second quarter of 'twenty two.

We're also pleased to announce that we've entered into a binding agreement to acquire rising star for $194 3 million.

Closing is expected to occur in the first half of August of this year. The purchase price includes common shares of Topaz Energy Corp that we currently own.

With the balance paid in cash rising star assets are located within our Peace River Hi, Charlie Lake complex current production from the acquired assets is approximately 5700 Boe per day, and we estimate <unk> reserves at $50 million.

Rising star has no outstanding debt.

Included in the acquisition or facilities that complement our existing infrastructure and the pooling of land basis will facilitate drilling much longer horizontals in the lower charge related to that we've been delivering very strong results from recently I do recall that we kind of invented this play.

A decade ago and a further transaction we have entered into a definitive agreement to sell our GOR to topaz on the rising star land along with a similar GOR on lands acquired during the past.

A year or so primarily in the deep basin.

Terminally and will receive cash proceeds of $52 million from Topaz.

In third quarter of 2022.

We may also pursue dispositions of non core components of the ryzen store star asset base during the balance of 'twenty two.

Specifically on <unk> in the quarter, we drilled 33, five net wells and completed 25, five net wells in second quarter 2006, New net wells were brought on production.

Total of $142 seven net wells are anticipated to come on production during the second half of this year and we currently have 13 drilling rigs and five frac spreads active across our three EP complexes.

We're excited about how the two and a half year old exploration program is proceeding and really the best way to manage an exploration program is to not say anything until its work and then most certainly has the ongoing new pool of new zone exploration effort has yielded three significant successes to date.

We have 41 successful producing horizontal or into a new liquid rich gas zone in the Alberta deep basin with just under 500 Bcf equivalent of <unk> reserves already booked in the December 31, 21, <unk> Reserve report, we expect a further seven horizontals to be drilled into this.

Horizon in the deep basin during the second half, we have seven producing horizontal into new zones in the Marcellus Montney BC complex with 318 Bcf equivalent of <unk> reserves booked at year end 'twenty. One the third player is no reserves book, yet, but it does have two successful horizontals into.

The same zone 32 kilometers apart drilled.

Drilled and successfully tested so or follow up plan, there and we have news on a new play exploration wells planned on the pizza or high end in the deep basin and completely different zones. During the second half of this year.

Looking at our ongoing environmental performance improvement.

We're very pleased that we received preliminary platinum ratings from project Canary.

Well the assessment of a series of company operated northeast BC assets.

With an average score of 131 achieved and to our knowledge. We are the first Canadian gas company with a trust well score.

This ranks in the top 10% in all of North American E&ps on the diesel displacement initiative all of our contracted rig fleet is displacing diesel with Nat gas or actually running fully electric.

And <unk> was operating the available III tier four.

Natural gas powered frac spreads in Western Canada during July of 'twenty, two and evolving diesel displacement initiatives.

Significantly reduces emissions and costs for the company and.

And finally, we're also pleased to announce that.

<unk> has approved the renewal of our normal normal course issuer bid.

And that'll be in place for the next year. So that's all I was going to say and it's a lot.

So we can turn it over for Q&A, now and Brian and I and Jamie because hopefully answer your questions.

Thank you ladies and gentlemen, we will now begin the question answer session should you have a question. Please press star followed by one on your Touchtone fully.

Three three.

<unk> III from generic question your questions will be pulled and you already see should you wish to decline from the closing process. Please press star followed by the number too.

Okay.

One moment for your first question.

Your first question comes from Steve.

Gordon Brown. Please go ahead.

Alright, so far here.

I just have a couple of quick questions.

The first is regarding the capital efficiencies outlook.

You mentioned in your press release.

But they really care about 8500 per flowing barrel.

In the out years of your capital plan I'm just wondering if you are.

About your confidence level around that estimate.

Just given.

Concerned about equation going forward.

Sure well that 8500 in the out years of the plan include both.

A large inflation contingency.

And in those out years, that's when the facility dollars are being spent and so it does drive near 8500 up so.

Quite confident in that and I mean as far as executing on the facility piece, what we're putting in place is essentially what we've put in place at gundy already in.

In two phases so.

We're confident that we can do it and of course, we'll try and do it for even less than we're currently planning in shorter time period, and kind of the run rate capital efficiency in the years, where there are significant facility expenditures are kind of in that 70, 508000 range and so thats up from.

We were targeting 7% to 7500. So the difference there is inflation and we think we've put in a very large contingency for it in the first two or three years in the plan that helpful. Perfect Yep that's great.

Regarding your.

Yes.

Now to 2028.

In terms of the I would look at.

Price assumptions and they are obviously a little higher.

But you have to calculate that Brooks.

Futures curve with moved up I'm wondering in terms of how youre thinking about in terms of price kind of come.

Abbas.

Are you sticking with the plan or.

Under what conditions would you.

The regions a requirement in terms of the pricing outlook for <unk> per gallon.

Yes, well I think I mean, you would realize that nothing is ever fully cast in stone.

Youre right the out years have been coming up but the curves are still significantly backward dated and we would remind all of the world in general is short natural gas.

Our timing, though.

For the startup of the North Montney development, both phases coincides with the startup of LNG, Canada and <unk>.

Bought for a long time that that will be a very positive event for April and station tune pricing because youll take a basin that is rough.

Roughly in supply and demand balance of it is now and.

And we expect that to continue and then youre going to pull a significant gas volume out and move it at west So.

Whatever the.

The World price is at that point, I think that will be a very positive local.

Rice initiatives or our development for the basin, but obviously, we'll watch prices and we have the flexibility to.

Slow things down or speed things up whatever.

The right thing to do is I will remind everyone that a little bit of incremental growth, which equates to about 100 million a day net between 'twenty three and 'twenty four.

All moves out of the basin, none of it go Diego on our deliveries daigle.

Or station two in the 'twenty three 'twenty four time period actually drop on a net basis. So we think thats, a very responsible way to bring on.

Very high return new production and we will move it right out of the basin.

Okay, great. Thanks, a lot.

Last question can you maybe just comment on your strategy.

Topaz, a timing of a vehicle.

Obviously, we're getting a lot of cash.

Okay.

Probably just fine.

Bolt on agricultural goods to your cash I'm, just wondering how you're thinking about toll park on the whole.

And your plan.

Planning capital spending levels.

Sure we will continue to use.

Or.

Look at doing transactions with topaz to enhance the returns on acquisitions that we may or may not make.

Okay, great. Thank you.

Thanks.

Okay.

There are no further questions at this time I will now turn it back to Jamie here.

Thank you very much operator, and thanks, everyone for dialing in and have a great day.

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