Q3 2022 Tourmaline Oil Corp Earnings Call

It was $1 5 billion or $3 seven per diluted share that's up 38% over the corresponding period in 2021.

Third quarter free cash flow was $568 million or $1.

<unk> 66 per diluted share.

We will pay a special dividend of $2 25 per share on November 18th to shareholders of record on November nine and beginning in Q4 of this year, we will increase the quarterly base dividend by 11% to 20.

<unk> 25 per share providing for an annualized dividend of $1 per share.

Including the payments of both the Q4 special dividend and the base dividend, we will pay a total of $7 90 per share in dividends and 22, resulting in approximately a 10% yield.

Third quarter 'twenty to EP capital spending was $469 million and that's within the previously disclosed guidance third quarter 22, net earnings were $2 1 billion.

Our net debt at September 30 was $565 million and Thats well below our long term debt target range of one to $1 2 billion.

And at current strip pricing full year 22 cash flow will be $4 76 billion, that's what's anticipated in that $13 90 per diluted share.

Looking at production Q3, 22 production was 482000 Boe per day, and that's within the guidance range of.

480 to 485000 Boe per day.

We are executing the Q4 'twenty two production ramp with anticipated November average production between 520, and 530000 Boe per day and anticipated to them December average production between 530 and 540000 Boe per day.

Our 2023 average production guidance remains at 545000.

Bo per.

Per day, consisting of two five BS a day of natural gas in over 125000 barrels per day of oil condensate and Ngls.

A brief marketing update average.

Realized Nat gas price in Q3 was $5 37 per Mcf as we continue to benefit from rising natural gas prices when compared to the corresponding quarter in 2021.

Terminalling currently has 754 million per day accessing U S markets through long term firm transport agreements that increases to 854 million per day in Q2 of 'twenty three and then two 926 million per day at exit 'twenty three.

We are amongst the most diversified of all North American large gas producers from a market access standpoint.

Right now we have an average of 711 million per day hedged for 'twenty three at a weighted average fixed price of $5 77 per Mcf Canadian and an average of 110 million per day hedged at a basis to Nymex.

Of <unk> 12 per Mcf.

And on average 754 million per day of unhedged volumes exposed to export markets in 'twenty three and those markets include Don Youre Coop, Empress Chicago venture Sumus U S Gulf Coast J km Marlin and P. G E.

And we are pursuing multiple additional market diversification opportunities for both Nat gas and our natural gas liquids.

Looking at Capex in the financial outlook.

Forecast full year 'twenty, two E&P capital spending remains at $1 5 billion and full year 2003, E&P capital spending remains at $1 6 billion.

We expect 23 cash flow of $5 4 billion and free cash flow of $3 7 billion at strip pricing as of October 14th 22.

The current seven year EP growth plan is expected to deliver.

An estimated free cash flow at strip of $19 4 billion on total capex of $13 4 billion during the period.

Commencing in Q4, 'twenty, two we will increase the base dividend by 11% to 20 <unk>.

Per share the quarterly base dividend and as mentioned, we have elected to declare and pay it out.

A special dividend in Q4 of $2 25 per share.

We continue to focus on returning the majority of free cash flow to shareholders through base dividend increases special dividends and share buybacks. The magnitude of the special dividends will be a function of commodity prices and available quarterly free cash flow.

The company now anticipates, returning greater than 75% of free cash flow to shareholders in calendar 'twenty two.

Achieving our year end net debt to cash flow ratio of approximately 0.1 times, which positions us to return between 50 and 90% of free cash flow in calendar 'twenty three while also growing production by approximately 7%.

A component of free cash flow will also be used for modest incremental EP investments. Those include new pool, new zone exploration opportunities asset acquisitions within existing core complexes and select margin improving infrastructure investments.

Terminally and completed the previously announced rising Star Resources Limited acquisition.

During the third quarter of 'twenty two.

A brief update we are currently operating 13 rigs across the three EP complexes.

We drilled 86 net wells and completed 75 net wells during the third quarter and we are the most active driller in Canada on our meters drilled basis.

We expect to tie in and bring on production a total of 75 net wells in November and December and we will carry approximately 24 docks over into early 2023.

The distribution of rigs and eight rigs in the deep basin four we continue to operate in our BC Montney complex and then we have one rig working in the Peace River Hi.

Importantly, continuous improvement and new technology applications and our related drilling methodologies has resulted in a 37% improvement in meters drilled per day between April 2020, and July of this year.

Our BC Montney complex.

The Q4, 'twenty, two and 'twenty three EP programs include multiple new zones, and new pool exploration tests across all three operating complexes as we expand the highly successful and somewhat unique exploration effort. So lots more to fall from this program over the next quarters.

And looking at our environmental performance improvement.

We had a great year.

On that front and we continue to invest significant capital in these efforts, we actually are investing profits and free cash flow.

In our environmental performance improvement initiatives, and we are reducing emissions right now.

So some of the highlights over the past 12 months, we achieved our net 25% methane reduction target three years earlier than targeted.

Our emission testing center or as we call. It the <unk> the first of its kind in the world at the West Wolf gas plant.

<unk> is fully operational and we continue to grow the scope of methane emission reduction technology.

<unk> at the site, we received preliminary platinum ratings from the project can area are trustworthy assessment on a series of our operated northeast BC assets and our score ranks in the top 10% in North America.

All of our contracted drilling rig fleet is displacing diesel with Nat gas or running fully electric and we were operating three cat tier four DGB.

<unk> natural gas powered frac spreads in Western Canada.

Most of any operator.

In July of 'twenty two.

Terminalling has invested over $25 million during the past five years and water recycling and water management facilities as part of an ongoing effort to ultimately eliminate freshwater and our well stimulation activities.

Terminally and is also a major participant in the natural gas innovation fund or in Gis.

And Thats, a corroborative effort to produce lower emission natgas across the whole spectrum.

Of operations.

The company sponsoring emerging clean tech companies in the areas of diesel displacement.

<unk> emission monitoring and reduction waste heat recovery carbon capture and water recycling technologies and that's all we were going to say as far as formal remarks, so happy to move to the Q&A portion.

Michelle if you want to give them instructions on that.

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

Youll hear a three pronged acknowledging your request and your questions will be pulled in the order they are received.

If you wish to decline from the polling process. Please press the star followed by the two.

You are using a speaker phone please lift the handset before pressing any one.

One moment. Please for your first question.

First question comes from Donald <unk>.

DFT energy. Please go ahead.

Good morning, Mike how are you.

Good Dan how are you.

Mike I know you are not a direct participant in the Canada LNG project.

But could you just make some maybe some observations as to how the projects going and how you see that.

Acting BC gas prices out there in 'twenty, five and 'twenty six.

Sure.

I mean as far as the actual true project update I mean, best check with <unk>.

Trans Canada, and LNG, Canada boat, what we've observed is that.

The coastal link pipeline and the Kitimat liquefaction facilities are more than 50% completed and the.

The companies that operate those projects are both saying that theyre going to be.

Completed and on stream in 2025, and we think Thats very important for Canada, as we actually get a new pipeline built in and.

We'll see if that project gets upsized.

We believe that.

When you start moving even if it's just <unk> and not four BS a day worse, that's going to be structurally positive for both <unk>.

Station to gas prices in BC in April prices.

In Alberta, as Youll take a basin thats roughly in balance.

From a supply demand standpoint, the western Canadian sedimentary basin, and pull between 10% and 15% of the gas away to a new destination on the west coast. So we see that as very positive for pricing and Thats why we time, our north Montney development that we call con right in that 25% to 20 <unk>.

Kevin.

Time period, we think thats, the appropriate time to bring new gas supply.

The market.

Alright, it's petrol Canada and in our Petro Canada sorry.

A Chinese company.

And the Petrobras and some of the others or are they all covered on their gas do you think.

And Todd I think Epsilon, probably best year, yet check with them.

Our estimates indicate that of the two BS that are required.

One four of it exists now.

Okay, great. Thanks, Mike.

Beth.

Thank you.

The next question comes from.

Jim Brown. Please go ahead.

Hi, Mike its <unk> here.

I'm just wondering if you can comment a bit.

Colorado, I guess, the inflationary pressures that you can stay so as we head into 2023.

And the steps that you're taking to mitigate.

Potential cost inflation.

Sure.

We with our Q2 release in late July included an inflation contingency for the balance of 'twenty, two and 'twenty three and that was.

18% increase.

In Capex over 2021 levels. So we think we've got an appropriate contingency from that standpoint.

What do we do to mitigate inflationary.

Inflationary pressures I think being the.

The largest operator does.

Allow us to access premium equipment and crews, which typically perform better.

So that helps.

We plan far in advance like two to three years ahead. So.

We can avoid some of the the pinch points on tubular is with steel pricing by ordering in advance I mean, it's not like we're not facing any inflationary pressures, but I think we do.

Good job mitigating it from that standpoint, and then from a.

Drilling and completion methodology standpoint, we think we are.

Very strong in that area as an operator and continue to seek ways to to drop times on fracking and drilling.

Did outline one highlight on just how much we've dropped our montney drilling times over the past couple of years. So that's a nice kind of hedge against inflationary pressures.

And I guess related to that question can you just maybe comment on your confidence I know that you did reflect.

You put out inflation.

Cost inflation next during the budget, but I'm just wondering what's your confidence level around that budget.

If it ends up being.

Potentially higher than what you're forecasting where do you think the risk is around that.

Well, we're pretty confident in the number we put out there.

It's a significant increase.

And obviously, we continue to monitor.

All of the cost inputs.

If it is not enough.

Then we will make the appropriate adjustments, but as it stands now where we're very confident in what we've put out there.

Okay.

Thanks for your thoughts.

You bet. Thank you.

Thank you.

The next question comes from Jeremy Mccrea from Raymond James. Please go ahead.

Hi, guys.

Wanted to know if you can comment a bit more on the M&A market.

You guys have been pretty aggressive in the past.

And I'm just wondering if the outlook today is as <unk>.

Accretive what you think of valuations here now and if there is really as much opportunity as there once was in the past.

While there is still lots of opportunities out there they are more expensive than they were in second half 'twenty in first half 'twenty, one which is why we backed off a little bit but it doesn't mean.

We stopped looking.

<unk>.

No.

A number of opportunities that could materialize over the next couple of years, we have a pretty rigorous screening criteria the free cash flow.

Yield.

From M&A.

Needs to be.

<unk> then what we can deliver with our base plan that we lay out in that.

Seven year outlook and the acquisitions that we've completed to date meet that screen.

Screening criteria. So we continue to look and be creative and.

Another part of the business that we're excited about.

Okay, and then just quickly just one more.

Your tax.

I'll look here it keeps kind of creeping up for 2023 years 'twenty 'twenty four is there any.

Thing or mitigation things that youre looking at to reduce that going forward.

We're always looking at ways that we can optimize our tax position. So that's an ongoing process.

We've got we're certainly aware that the tax horizons moved and we've got a good provision for it in 2023 and 24.

We'll just continue to working on it so.

There is nothing specific that we are ready to speak to right now and we're certainly going to always be totally compliant with the rules.

We'll pay our cash taxes as we enjoy these higher product prices okay.

Okay. Thanks, guys. Thank you.

Thank you.

Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.

The next question comes from Michael Harvey of RBC Capital markets. Please go ahead.

Yeah sure. Good morning, So I just had a question on that.

<unk> to 90% range for next year.

Pretty wide range, both percentage wise and also just the gross dollar value. Maybe you can just comment on some of the drivers, which would put you kind of towards the high end of that range or the lower or is it all just kind of M&A.

Driven.

Yeah, Hi, Mike the range gives us.

Plenty of flexibility on both opportunities that we might move forward on and also flexibility given the potential volatility in commodity prices. So in general if commodity prices are pushed downward expect us near the higher end of that range of commodity prices pushed upward we would navigate towards the lower end of that range at the 90%.

Level today on strip, we're able to maintain the returned to shareholders. We're delivering to you today in each subsequent quarter and so what we're seeing today is we have the ability to continue to push the base dividend and incrementally grow it over time and also deliver these special dividends within this.

<unk> without any fluctuation.

There are firms and then as we look forward to the seven year plan <unk> plan, we're able to deliver based on special dividends on strip each year of that plan.

So I think you can kind of use these ranges as our forward guide beyond 'twenty three as well.

Okay. So if commodity prices go up you will pay out less and then presumably more cash will go to debt.

Debt repayment or or other things.

When you think about it.

Yes in general the quantum would be similar.

<unk> payout there would be a bit less when exactly you could store more cash on the balance sheet.

And you can also allocate more cash to some of these other investment opportunities you've been highlighting in the release.

Got you thanks, guys. Thanks.

Thanks, Mike.

Thank you.

The next question comes from Peter Cook local capital. Please go ahead.

Hey, Mike just a question on the LNG is a little confusing on your change in the accounting on what Youre doing there could you just review that just tiny but that's what that was all about.

It's going to be handled as an embedded derivative rather than.

Physical contract.

Going forward.

And it's just on the one LNG contract on our delivery to the Gulf Coast on 140 million a day.

And it has no impact on our cash flows our capital spending our cash taxes.

Other cash costs or production.

So.

The numbers in the statements on the P&L side are all on a realized we haven't started delivering to that contract at all yet.

Delivering that.

January one pretty much yes, that's the plan.

Well then that's a 15 year term and we continue to view it as a key component of our they're an extension of our market diversification strategy.

And Theres only a few producers that are doing what we're doing which is gathering the benefit from these Asian natural gas prices and that's what we've captured there.

I guess the question is does the U S have the U K.

Capability too.

So manufactured at this point.

They always are growing business worldwide. So I mean, the outlook for LNG, We think is very robust right right.

Okay. Thanks.

Good talking to you well great quarter.

Thank you.

Thank you.

Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.

Yeah.

There are no further questions at this time please continue.

Thanks, everyone for dialing in and we'll talk to you next quarter.

Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.

[music].

<unk>.

Yes.

Okay.

Okay.