Q3 2023 Tourmaline Oil Corp Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to Tourmaline Q3, 2023 year results conference call at.
At this time all lines are in a listen only mode.
During the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero by the operator.
Please be advised that this call is being recorded on Thursday may two 2023.
I would now like to turn the conference over to Jamie heard. Please go ahead.
Thank you operator, and welcome everyone to our discussion of <unk> results as at September 32023, and for the three and nine months ended September 32023, and 2022. My name is Jamie heard and I am firmly as manager of capital markets before we get started I refer you to the advisories on forward looking statements contained in the news.
Elyse as well as the advisory is contained in the Terminalling annual information form and our MD&A available on SEDAR and our website I also draw your attention to the material factors and assumptions in those advisories I'm here with Mike Rose <unk>, President and Chief Executive Officer, and Brian Robinson, Our Vice President Finance.
And Chief Financial Officer, we will start by speaking to some of the highlights of the last quarter and our year. So far after Mike's remarks will be opened for questions. Like please go ahead.
Thanks, Jamie and welcome everybody. Thanks for dialing in we are pleased to review our third quarter results outline our 24 plans and answer questions. You may have so firstly, a few highlights third quarter cash flow was 878 million or $2 55 per diluted share we generated.
Free cash flow in the third quarter of $332 million or 96 cents per diluted share and that enabled us to declare a special dividend of $1 per common share that was paid on November <unk>.
The company has distributed a total dividend of $6 52 per share inclusive of the November one special since December one of 'twenty, two and that's an implied 9% trailing yield.
Full year 23 free cash flow forecast is now 1.9 billion so up.
September 32023, net debt was eight.
$880 million, which is 0.3 times Q3, 'twenty three annualized cash flow.
<unk> of $3 5 billion.
Third quarter net earnings were 275 million or 80 cents per diluted share and as you know in October we entered into an agreement to acquire all the shares of Monovisc to Energy Corporation for 1.45 billion that consisted of $725 million internally and common shares and <unk>.
$725 million of cash left bonavist isn't that debt at closing.
And the closing of the transaction is still expected to occur occur in the second half of this month.
Starting with production our third quarter average production of 502000.
<unk> thousand Boe's per day was at the higher end of our guidance of $4 95 to five five.
1000 Boe per day third quarter was reduced by our planned plant turnarounds, which amounted to us at 16000 BOE a day impairment in the quarter as well as our plant storage injections in California and Dawn.
Our 2023 average production guidance remains at 520000 Boe's per day, and we expect exit 'twenty three production of over 600000 Boe's per day and that would include the acquired bond Vista volumes.
Inclusive of the Bonavist assets on a maintenance only capital budget, we anticipate 24 average annual production to range between 600 610000 Boe's per day.
And the formal guidance, we're using in the five year plan is 600000.
Bo per day, we do plan to grow production from the Bonavist assets in 2025, and that'll be into an anticipated higher gas price environment.
2024 average liquids production of over 140000 barrels per day is now forecast as the company evolves into one of the largest Canadian liquids producers.
Terminally is Canada's largest natural gas producer with forecast production of over two seven Bcf per day in calendar 2024 briefly.
Briefly on financial results as mentioned.
Third quarter cash flow was $879 million on total capex of $565 million EP spending was $533 million, so a little under forecast and we generated free cash flow of $332 million.
In the quarter.
As of September 32023, the company from a balance sheet perspective is actually in a surplus position. When you include the value of our $45 1 million shares of told that energy Corp, and the continued strong free cash flow that we generated during the third quarter as well as the forecast free cash flow.
<unk> for the fourth quarter of this year allowed the company to pay the previously announced special dividend of $1 per share and we also increased the base dividend from $1 four to $1 12 per share on an annualized basis.
That's effective as of the December 'twenty, three quarterly base dividend payment.
Looking at marketing our average realized natural gas price for the quarter was $4 56 per Mcf Canadian and that was significantly higher than the April five a benchmark price of $2 64 Canadian per Mcf.
In the fourth quarter of this year, we have an average of 755 million per day hedged at a weighted average fixed price of <unk>.
<unk> <unk> seven per Mcf Canadian.
For 24, the company has an average of 722 million per day hedged at a weighted average price of $5 35 per Mcf Canadian an average of 119 million per day hedged at a basis to Nymex minus five cents per Mcf the U S and we have an average of eight.
<unk> hundred 33 million per day of unhedged volumes exposed to export markets in 'twenty four and of that a volume component, 65% is exposed to the premium export markets.
Which for US are the U S Gulf Coast, our Western U S hubs J.
J P M and <unk>.
The company's exposure to Western U S markets will increase this month with the addition of 82 million per day of transportation capacity with this edition and others.
The company's natural gas exports will reach 1.18 Bcf per day by exit of this year.
We have further diversified our natural gas marketing portfolio by entering into a long term and rehab netback arrangement and that'll move approximately $60 million per day to the U S Gulf Coast.
And that will expect we're expecting that to commence in November of 2026.
And we joined the Nissan adventure as an industry supporter. That's an indigenous led projects that will create a multi product utility corridor, including Natgas and that will connect Alberta, Saskatchewan and Manitoba to Tidewater on Hudsons Bay and the project ultimately involves support for containers potash and other Perry.
Products and envisage envisions, an electrifying LNG facility actually on Hudson's Bay.
Looking at our capital budget and financial outlook.
As mentioned third quarter, Capex was $533 million on E&P full.
<unk> full year 'twenty three E&P capital spending is now anticipated to be approximately 182 5 billion and that is up from the prior 167 5 billion of.
And that increase includes the incorporation of anticipated bond at Vista related.
Capital expenditures post closing this quarter.
Incremental inflation.
Approximately 5% over forecast levels.
That happened as we locked in services during the second and third quarters of this year for the second half 'twenty three to first half 'twenty for EP season.
And also we're accelerating the fracking of two pads.
Into 'twenty three from our fourth quarter of <unk> 23 from first quarter of 'twenty four due to faster realized drilling times.
Our board of directors has improved and improved approved a full year 'twenty for <unk> capital budget of 2.15 billion that reflects a 14 to 15 rig program and that includes $225 million associated with the bond and Vista assets.
That 24, EP program is expected to deliver cash flow at strip pricing of $4 5 billion and free cash flow of $2 2 billion and those are both up from previous estimates.
And as in previous years, we are strongly committed to returning the majority of free cash flow to shareholders and we plan to continue our practice of quarterly special dividends.
During calendar 2024.
Our updated five year plan incorporates modest growth from the Bonavist assets commencing in 2025 as well as the deferral of the North Montney phase two Conroy development by one year and that deferral allows us to spread out facilities capex evaluate potential phase II.
Facility electrification options and it resulted in a significant increase in free cash flow.
Particularly in that 26% to 28% timeframe.
And of note between 2022 and 2028.
Terminalling anticipate organically growing the northeast BC Montney gas condensate complex.
Production volumes by over 125000 Boe's per day.
And that's without the north Montney phase II Conroy project.
A brief update we continue to operate all 13 drilling rigs and three to four frac spreads across our three EP complexes, and we anticipate adding 1% to two drilling rigs in calendar 'twenty four to accommodate drilling on the bonavist assets.
During the fourth quarter of this year, we will bring 76, new wells on stream and that will drive very strong Q4, our average production volumes and a strong 2023 production exit level.
During the third quarter, we delivered a new pacesetter well in the North Montney, a 4.91 days from spud to rig release for a $41 64 meter horizontal well.
On the exploration front as of the end of September.
The company has made 19, new pool news own discoveries and drilled one on economic marginal oil well.
Since we started that exploration program well over three years ago.
Graham has yielded one point to 1.26 Tcf a book <unk>.
<unk> reserves at year end 'twenty, two and has also added an estimated 957 tier one and tier two drilling locations to an already very large inventory.
Looking at the North Deep basin, we are planning a new facility project that will optimize production at.
At the existing Mas rolling tactical plants that we operate.
And it is expected to add 15000 Boe's per day during 'twenty five 'twenty six again into that anticipated stronger natural gas pricing environment.
We also completed the acquisition of assets from White Horse resources limited during the third quarter of 'twenty three for $19 1 million.
This acquisition expands our landholdings in inventory adjacent to our Cardium oil discovery that we made.
In the first quarter of this year and the rest Haven <unk> area and we provided some details on that well and on the board front. We're very pleased to announce that Christopher Lee has been appointed to our board of directors and he was at his first meeting yesterday. So I think that's enough on the review of the press release.
And we're more than happy to answer questions that you may have.
Thank you and ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your telephone keypad, you will hear it Nathan from acknowledging your request and your questions will be pulled into order dams.
Should you wish to decline from the polling process. Please press the star followed by the number of cable and if you're using a speaker phone. Please keep the handset before pressing any key one moment. Please for your first question.
And your first question comes from the line of Jamie Kubik from CIBC. Your line is open.
Yes, good morning, and thanks for taking my question just a just a question related to the Bonavist deal terminate its been relatively quiet in the past couple of years on the M&A front can you can you just talk a little bit more about what.
What the Bonavist acquisition brings to the company and maybe a little bit more on Terminalling is appetite for acquisitions in the current environment. Thanks.
Sure we've been tracking a bond of Vista, and the progress of that company for well over two years as they.
Improve their balance sheet eliminated debt and moved into free cash flow generating mode.
And that's one of our key criteria when we complete M&A is that the free cash flow yield from an acquisition has to be as good or better than what our organic five year EP plant can deliver and that was certainly the case with the ball Bonder Vista transaction. It's a significant addition to our exist.
Our deep basin complex, we see opportunities for cost reduction and production optimization and partly because they've been really on our maintenance capital budget for.
Several years, we see lots of opportunity for improvement.
And a large inventory and ability to.
Grow the production and we'll do it modestly as mentioned and we'll start that in 25, when we think gas prices will be.
Better than 24, although 24, it's just hard to call.
<unk> had with the startup of LNG, Canada, and the Gulf Coast LNG.
LNG.
Spansion I think we all expect a stronger pricing in 2025 as far as further M&A. We're always looking we always have been but we've got very strict criteria.
Before we want to consummate any kind of deal and.
And being that we've kept our geography, the same with the three core complexes, we're well versed in and kind of what's out there so hopefully that helps Jamie.
Yes, that's good and then maybe second question for me is just theres been a fair bit of commentary out there about the increase in service activity that could accompany the LNG, Canada project coming up.
Have you seen this come through in any of the recent pricing and certainly in contracted services to sort of get ahead of us.
That would be my second question.
More from a facility construction standpoint, or just drilling and completion.
Yeah, both I suppose Mike.
Well, we have contracted our drilling and completion services and <unk>.
Were 5% higher for that next tranche of activity than what we were originally forecasting so thats all worked into our.
Balance of 23 and 'twenty four.
Capital program.
Our montney phase one development.
We're already working on some of the components of that and we've assembled a.
You know a piece of the infrastructure already for that so I think we're reasonably well insulated from further facility increases.
Okay, Great. That's it for me thank you.
And once again, if you'd like to ask a question. Please press star one on your telephone keypad.
Your next question comes from the line of Mike Dunn from Stifel. Your line is open.
Thanks, Good morning, everyone a couple of questions for me.
Firstly on the Cardium oil discovery, just wondering if you could frame what the heck.
Can all mix might look like.
For those wells under development mode, maybe maybe what well costs might look like.
And.
I'll follow up a second question after.
Oh, Okay sure well, it's a strong well it looks like somewhere between 250, and 300000 barrels our estimate of recoverable oil and probably two bcf with that that was off a three well pad, but we only drilled one cardiome location, we actually made two other new pool discoveries office Ain't bad so.
Three horizontals on that pad into three different zones.
So you know as we move into development mode.
We will do a delineation pad in 'twenty, four and then developing and 25, we expect to.
Continually reduce the drilling and completion cost so economics are obviously very strong.
With the current pricing. So you know youre looking at IRR is north of 50% on something like that and reserves of of that nature in the that deliverability and well performance profile. So yeah very strong and.
The gas will be connected to our Montreal plant. So we really have the gas solution already in place.
Great. Thanks, Mike and then just.
On your <unk>.
Actions or how are you how youre looking at.
Electrification might.
Might occur for for your North Montney Phase II project, maybe just if you could just scream for for me Hugo.
What the hurdles are there I have heard that.
Electrifying.
Gas plants in north of Peace River.
A lot more challenging.
Yeah, we're looking at is probably to that.
Lots of options it's.
It is not clear yet what will happen to the grid.
The other way, even electrify is generated with natural gas and couple that with <unk>. So we're evolving all of those.
Potential solutions along.
And you know as we.
Complete that evolution, we thought appropriate.
Move phase two by one year, but really our plan are we focused on shareholder returns rather than.
You know very rapid growth. So we're very happy with what the five year plan looks like and the spreading out of of facility expenditures. So it's over the five years, it's a 33% increase in free cash flow, but we can you know the vast majority of which will be returned to shareholders.
Great. That's all that's all from me folks. Thank you.
Thank you and your next question comes from the lineup Dennis the field up from Middle skilled group. Your line is open.
Hey, good morning, Mike.
Good Q3 results.
Quick question on the Capex for 2024.
Give it a little more insight into.
The increase in.
The plug and perf Youre early days on that.
How you're maybe translating some of the anticipated improvements in well results.
Sure.
Production for 24 going forward.
Sure well I'll sort of not answered those necessarily in the order you asked them.
We don't incorporate improved production from Trialing of new technology until its trial than we've been able to evaluate the results. So we just use existing performance curves as we build up our 24 and our performance over the five years.
The 2024 capital budget, there is $225 million and therefore, the bond avista asset. So the EP spending 24 that we put out yesterday compared to the guidance that was out there. The E&P spending is actually down when you incorporate a bond of Vista.
We do fund the exploration program in what we call our environmental performance improvement initiatives. So that the diesel displacement and methane mitigation. That's funded out of free capital and gets added on to that too.
2.15 capital budget. So we thought we've done a pretty good job holding it and in fact as I mentioned EP spendings are actually down a little bit as far as plug and perf and some of the more liquid rich horizons in the montney, particularly in the north Montney, we've been doing that and we'll continue to evaluate what's.
You know that the best option going forward and our main focus is economic return obviously, we look at EUR and we look at well performance, but we're driven by economic return and that's kind of the sort of guiding philosophy in that.
The change to the five year plan as well, we want to make as much money and be as profitable as possible and so we're really excited about what that new plan looks like.
Great. Thanks, Mike.
Thanks Dennis.
And your next question comes from the line of Michael Lee from <unk>. Your line is open.
Alright, great. Thank you.
Mike I was just wondering about your exposure to eco.
More than 2005 to 2027 time frame.
LNG, Canada coming on.
Do you have more exposure than you currently have to the eco pricing or.
Something similar to I.
Yeah, no. Thanks, I might let Jamie jump in on that one.
Yes, we do generally grow our exposure and we have this in the presentation on slide 23, but were happy with a growing exposure to acre and 25 and 26 and that's because it can it also coordinate with the startup of LNG, Canada, which we think will be a bullish and tightening aspect the supply and demand dynamics in the WCS.
We are we have been over the last two years, adding Ah.
Export exposure into the West coast. So we've added as we've mentioned in the press release today additional exposure in the California and these markets have been extremely high premium gas price markets for us in 2023, and we anticipate also them to be at a high premium in 2024, but in 'twenty five and 26 as we bring on the phase one have gone right. We're happy to have those.
Exposed volumes sitting into the ACO bucket for now because we see a co as a tight and very competitive market for our gas with the startup of LNG, Canada.
Okay. Thanks, Yes, I did see that the fight and the increasing exposure I just wasn't sure if that would change dramatically.
Patrick.
Well in general the slide also incorporates a growth we have folding into the plan. We don't forecast added transportation agreement. So over time, we're always looking to augment our portfolio into premium markets and so I think it is reasonable for you to anticipate there to be small changes to the physical nature of this plan and of course.
Every year, we're looking to tactically add hedges that add value to the portfolio. So we're not a structural hedger, but we do like to look out the curve and find areas in each of our markets, including our local one where we can protect exposure, particularly often in the summers, but in general our view is that 25, and 26 are going to be buoyant gas price market.
And likely.
Offer prices higher than they are today. So I don't think were that aggressive on looking at locking in any of the pricing and $25 96 at the current time.
Okay. Okay. Thanks for that.
Thank you.
And there are no further questions at this time I would like to turn it back to Jamie for further remarks.
We thank you all for dialing in today and joining US on this conference call. We hope you have a good rest of your day.
Thank you for your centers and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.