Q2 2025 Tourmaline Oil Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to the turmaline Q2 2025 results conference call. At the time, note that all participant lines are in a listen-only mode.

Following the presentation, we will conduct a question and answer session. And if at any time during this call, you require me to assistance, please press star zero for the operator. Also note that this call is being recorded on Thursday July 31st, 2025, and I would like to turn the conference over to Scott Kirker. Please, go ahead, sir.

Thank you Sylvie, and welcome everyone to our discussion of term lean's financial and operating results as at June 302025. And for the 3 and 6 months, ended June 30, 2025, and 2024.

My name is Scott Kirker, and I'm the chief legal officer here at thermally.

Before we get started, I refer you to the advisories on forward-looking statements contained in the news, release as well, as the advisories contained in the termine, annual information form, and our mdna available on Cedar and on our website.

I also draw your attention to the material factors and assumptions in those advisories

I'm here with Mike Rose, Termines President and Chief Executive Officer, Brian Robinson, our Chief Financial Officer, and Jamie Heard from Lees, Vice President of Capital Markets.

We'll start with Mike speaking to some of the highlights of the last quarter and our year so far. And after his remarks, we'll be open for some questions like, please, go ahead. Thanks Scott and good morning everyone. And we're, uh, happy to review our Q2 results. And then, uh, uh, answer some questions, uh, highlights second quarter. Average production was uh, 620,000 757 Boise per day. And that was at the midpoint of the guidance range that we provided on May, 7th and up 10% from the second quarter of 2024.

Second quarter cash, flow was 823 million or 216 per diluted share. Uh, on total EP expenditures of 490 million and that generated free cash flow of

317 million for the quarter or 83 cents per diluted share.

Uh, We've entered into a new long-term LNG fee, gas supply agreement, with uniper talk. More on that in a moment. Uh, We've released an updated EP plan that outlines growth from our current production levels of approximately 650,000 bews per day to 850,000 Boe per day in the next decade, early in the next decade. And this build out is fully funded by cash flow and it will result in 2 and a half to 3 billion of annual free cash flow at flat pricing on a maintenance budget by the end of the EP plan.

Uh, given the continued strong free cash flow generation, uh, into 2. The company has elected to declare and pay a special dividend of 35 cents per share on August 20th. Uh, to shareholders of record on August 8th, uh, briefly on financial results. Uh, second quarter, 25 erne were very strong at 515 million or uh, dollar 35 per diluted share uh the full year. 25 EP capital budget remains unchanged, uh and the range remains unchanged at 2.6 to 2.85.

Full year, 25, average, production of 635,000, to 650,000 views per day is now expected. Given the EP activity. Deferrals. First from Q2 to Q3, uh, and now, from Q3 into Q4, uh, as we, uh, Target higher, uh, pricing to bring new production on, uh, the 25 exit, uh, average production of 680,000 to 690,000 boies per day, uh, and a preliminary 26, average production range of 690 to 710,000 bees per day, is currently anticipated in the 5-year plan. We use the very bottom of that range to be conservative.

Uh looking at the 2500 million less than forecast uh primarily due to those uh aforementioned activity deferrals.

And we'll continue to monitor local natural gas prices and defer capital from 2023 into Q4 of this year or into Q1 of 2026 as required, as we always optimize free cash flow.

Uh, briefly on marketing. Um, our average realized natural gas price in the second quarter uh, of this year was uh, 334 per mcf Canadian and that's 94% above the echo, 5A Benchmark, price of 1.72. Uh, per mcf Canadian, uh, we continue to benefit from our Diversified marketing portfolio and our strategic hedging program.

We have an average of 1.1 BCF per day, Hedge for the balance of this year. At a weighted average, fixed price of 448 per mcf Canadian.

Uh we're pleased to disclose our third Gulf Coast LNG agreement. We've entered into a long-term LNG fee. Gas supply agreement, with uniper uh termine will supply 80,000 mmbtu per day of natural gas in the US Gulf Coast for an 8-year term and that begins November 2028. Um,

We have secured long-term, firm transportation to the US Gulf Coast with TC energy. Uh, and that allows termines natural gas from both the Alberta deep Basin and or the BC montney complexes to uh directly access European natural gas markets. The Firm Transportation begins in November 2025 and that gives us the flexibility to sell locally in the Gulf or enter into short-term.

Uh, LNG feed gas, supply deals prior to the start uh of the uniper agreement.

Um, we uh, are excited to provide more details regarding all our multi-year, Northeast BC montney development project. Uh, certainly 1 of the largest EP projects in the Western Canadian sedimentary basin.

We have been systematically consolidating and delineating. Uh the Northeast BC montney gas condensate complex for over 5 Years and we're now entering the next phase. Uh, we're in the significant financial benefits of all those activities which began during Co will be fully realized. Uh, we expect to add 1.1 BCF per day, of new gas production and over 50,000, barrels per day of condensate and ngls uh, over the next 6 year period and this project will develop termines most profitable inventory. It's the lowest capital cost lowest operating costs. Most liquid-rich highest margin inventory, we have and it will improve all of the company's operating metrics uh as production from this new development. Uh project becomes a larger proportion of the corporate production base.

Um, the build out consists of 2, new, uh, deep cut, gas plants. Uh, 1 in the north montney, 1 in the South montney expansion of 4 exists processing, complexes 3, new hydrocarbon liquid hubs 5 water recycling facilities, electrification of 4 of the gas processing plants, uh, as well as several pipeline corridors connecting, uh, the company's larger resource base to its existing and the new gas processing complexes

You know, recall we've been building Gathering and processing infrastructure across Northeast BC and the Alberta deep Basin, uh, since the company started, uh, including over 10 new processing facilities. Uh, so we're good at this and our cost management is very strong.

In Northeast BC and we'll continue to grow those volumes.

The infrastructure build out actually commenced in 2024 with several components already built or underway, uh, and they're closed in the press release. Uh, the first significant production addition to come from all this is expected in Q4 of 2026 with the Aken C 38c plant expansion and we feel that's a good time to add new Basin volume's uh given that uh Phase 1 of lmg Canada should be at at full volume. Certainly by that point.

Uh, the next production Edition is Phase. 1 of the ground, Birch, 15 and 25 deep cut gas plant. Uh, and that's plan for the second half of 2027 and importantly, both of those projects, have all the necessary permits and long lead procurement is underway.

Uh termine expects production, growth of 30% uh to 850,000 boies per day by 2031, cash flow growth of over 40% and free cash flow Improvement of over 2 and a half times at flat pricing to 2 and a half to 3 billion of free cash flow per Anum. Once the overall project is completed and the EP program starts to Trend towards maintenance Capital levels.

Uh, We've updated our multi-year EP growth plan as well. Um

And that as you can see through to 2031 grows, Uh, current average production levels from 650 to 850,000 bees per day. Once the Northeast BC infrastructure, build out is completed. Early next day, decade, the production growth rate is expected to drop and the company intends to migrate towards a maintenance Capital level, which we currently estimate at about 2, and a half billion perom to maintain 850,000, uh, boies per day Associated free. Cash flow will grow to the 2 and a half to 3 billion perano Mark at the flat price deck and it does underscore the significant overall improvements uh that this BC montney development project uh will impart

Uh, and at that point, we'll have a company that can continue to produce at these levels. And more importantly, generate, annual free cash flow of this magnitude for literally decades. Given we control the largest future. Drilling inventory, in North America and we've always taken a long-term view as we built this company that includes building and owning your own infrastructure as that, uh, improves realized margins and partially insulates us against uh, ongoing price volatility. So really, this is just another plan. Step in the evolution of the company will be a material larger more profit.

Able company, uh right about the time that we expect the continent to be getting short on resource.

And importantly, we'll continue to prioritize free cash flow on an annual basis as the new EP plan is executed and will adjust the pace of capital spending accordingly. We can slow down at prices aren't cooperating uh, or we can accelerate, if, if prices are ahead uh, of, uh, where we're expecting, that doesn't seem to happen very often. But, uh, we do, um, maintain our strong, uh, natural gas outlook for the second half of this decade, uh, just briefly on, uh, enp. Uh, our 25. Well, well results in both the Northeast BC montney and the Alberta deep Basin, continue to outperform, uh, prior years, uh, with above forecasts deliverability from multiple assets spread across, uh, both gas complexes. And this has allowed us to reduce Capital spending and and maintain, uh, in part, production targets.

Uh, with lower, uh, local gas prices, thus far in Q3 of 25, we've already deferred some BC, Frac activities into Q4. And we have released 1 of the deep Basin, drilling rigs, uh, for the balance, uh, of at least this year, uh, and of no, multiple New Pools successes in several formations in the South deep Basin, uh, via the second half 20.

For first half, 25 EP program, uh, are evolving into a significant New Growth project for the company. Uh, we plan several delineation Wells over the next 12 months to further. Refine, this multi-objective development, uh, and its, uh, certainly not, uh, included in the current EP plan. And I think that's, uh, um,

It for the, uh, prepared remarks. And, uh, we're more than happy to answer any questions you may have.

And if you do have any questions at this time, please press star. Followed by 1 on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process? Please press star followed by 2. And if you're using a speaker-phone, we ask that, you please lift your hands up before pressing any keys. Please go ahead and press star 1. Now, if you do have any questions,

And your first question will be from Kali akamine at Bank of America, please go ahead.

Hey, good morning guys. Mike and team look. Um, thank you for the updated plan. I I think this has been bold Telegraph by you and your team versus ours Smith. We found this very much in line. I'm hoping that I can get you to address. Maybe a couple of things here. First, what I'm looking at slide number 8, some of the midterm projects associated with this build out. Maybe you could have some better definition so wondering if there are moving parts and what those moving Parts could mean for the plan and then our our broad read of this is that this is probably the most conservative version. Where do you think that you could improve on this plan? Is it something like lucid's yield, is it capital, or is it synergies from prior deals?

Well, we'll work backwards uh with that. Uh yes and and good morning uh where we can improve uh is um

Significantly on the realized liquids margins. Uh, We've included the the base minimum of a dollar per barrel, uh, Improvement. And we fully inspect expect to do significantly, uh, better than that. I, I don't know what you were looking for as far as further detail on, uh, all of the existing plant expansions or new builds, uh, we've been kind of carefully planning this out, uh, for multiple years. So we kind of know exactly, uh, what we're going to build. So we can certainly take that offline and, and provide more detail for you, but, uh, um, maybe you can let us know what you're thinking there.

Uh, I guess broadly, I'm looking at slide number 8, and specifically at Ground Birch and Convoy where um the build out is up to a certain number. It, it seems like that up to 2 number is still kind of in flux. So maybe talk about what you what would motivate? Oh sure. Okay, yeah. Go to that number for somewhere in between. Well, yeah, yeah.

Sure. Uh, well, there's going to be 2, uh, sort of plant projects in ground Birch. There's uh, The Phase 1 deep cut which will be 300 million a day, uh, and that will handle the liquid Rich gas. And then, uh, on the X Strathcona assets, we will expand that 60 million a day, uh, gas plant that they had to, uh, 150 million a day. And that will handle, uh, the dry gas component.

Of the inventory that we're going to develop there and then we have an opportunity.

In Phase 2 to take the groundwork to deep cut plant uh to higher levels.

Thank you, Mike. That's helpful. My my second question is, is it really about heading when when you think about the big Capital commitment over this period? Does that motivate you to hedge? Maybe a tad more aggressively or give them what your base case is for 8 over the next several years? Are you more motivated? Perhaps hedge less and lean into the macro.

Yeah. Well, we have those discussions. Daily is you can imagine um, you know, right now we're probably just going to stick with the existing plan and incur, any current year. We end up 30 to 35% hedged, um, by the time that year is happening, if you look out, 26 isn't at that level yet. And that's mostly because we haven't seen the the prices that we like. Uh, but if you look historically, that's typically, uh, what we've done, uh, and, um, we typically, uh, just because we've had weaker prices, uh, in the Western Canadian sedimentary Basin, um, that hedging tends to be summer focused and focused more on those hubs, uh, rather than our export hubs uh in the US. So you know, that you kind of nailed it is the echo Outlook going to be significantly better so that maybe you don't hedge as much in the

In the summer of 26 and 27. And I'd say the jury's out on making that decision at this point.

Got it. Thanks for the color. Mike.

Thank you.

Next question will be from December well at Jeff, please. Go ahead.

Hey, good morning guys. Um, I just wanted to get a sense of whether 2026 is the heaviest year of infrastructure. Capex. Spend is it materially more than than 25 and 27 just trying to get a better sense of the, um, infrastructure, capex trajectory

Yeah, it's Jamie speaking. It's generally level loaded across the plans. Frankly, we're kind of building 1 to sometimes 1 in a bit, uh, gas, gas plants in any given year. So this next several quarters is focused around the akan, c38 buildout, uh, in 26, there is long lead, span now Incorporated for ground Birch, and that build out is then completed in 27, and then we're getting into some of the phase 2 elements of both the North and South Monte importantly though. This infrastructure build out does pay a lot in the 2030 2031, time frame. And you can see that free cash flow expand, as that Capital drops.

Okay, got it. Um then follow up on the the deferrals obviously make sense given the the echo pricing you're seeing now. Um but the capex guidance was unchanged. So I'm just wondering if there is a downside bias to 2025 capex or perhaps, there are volumes that show up in say 2026 where the capital was deployed in 2025. So just trying to reconcile the production Guidance with the capex guidance for, for 25. Yeah.

I think that's a distinct possibility. We'll probably migrate towards the lower end of capital and we've, you know, as we announced uh in the press release, we are uh continuing to defer some Capital activity uh, out of Q3 the later in the year. Um, we're still targeting if pricing improves in, in Q4 and we might get into a discussion on

This call on uh, where Echo is going to go here over the next couple months. Uh we can very quickly pivot uh and uh execute a significant piece of the program in Q4 uh and you know, hit or exceed that exit Target of 680 to 690,000 buzz a day. So maybe a little more u-shaped production profile, uh, than we've seen in, in previous years for us. Uh, and that's, you know, strictly related to continuing weaker than expected summer, gas prices. And those are, you know, a large part of that is being caused by, um, export restrictions out of our Basin due to maintenance. So there is maintenance at the East Gate through July, uh, and that's continuing, uh, and there's significant maintenance on the west gate, uh, in an aggregate. It's backing up close to a BC a day into the Basin, uh, kind of at exactly the the wrong time, uh, and it's significantly more than the export backup than we would.

Were, uh, observing due to maintenance, uh, last summer. Uh, so it's a bit of an aberration uh, and we think by September, well, we know by September that all goes away and perhaps you can start seeing the more clearly the impact of pulling increasing volumes West on on cgl, uh, to LNG Canada. And you want to add Jamie. I would say, like, the flip side of that, is it coils the spring on how tight next to your can get. And you're starting to see that being reflected in some of the basis markets. We've seen Chicago

Seen even Calle 26, Echo Hub, tighten up a bit here just in the last 10 sessions. And so the lack of ability to export this summer helps drain the storage capacity. In the markets. We would otherwise be exporting to namely the PAC Northwest California market and the Chicago market. And those markets have had generally, a pretty hot summer, especially in the East, and that makes the 26 setup, you know, that much more interesting. I think the other thing we'll be watching carefully of course is the LG Canada ramp up which frankly so far has been very strong. You know, seeing uh, polls up to 400 million a day implied by the Cargoes and and the visible scrapes, we see well over 100 million a day. Now at the end of July and we understand that ramp to continue to go well to the back half of this year.

Okay, very very helpful. Much appreciated guys.

Yep, thank you.

Next question will be from Josh Silverstein at UBS. Please go ahead.

Here you just talk about how much flexibility or optionality you have in the development plan. Um can you adjust the project slate or or or timing depending on commodity prices? Um, if you can offer us a little bit more color there, that'd be great.

we have, uh, significant amount of flexibility, uh,

Uh, everything because prices haven't cooperated. So we're kind of looking forward to the other side of this. Maybe Praises are better than uh, it is being forecast for uh, 26 and 27. And and we can uh accelerate uh, several of the items in there.

Got it. And then uh, I also wanted to ask on the Cheryl to return profile, you know, given all the the capex that the free cash flow really is kind of back and waited. Here, are you limiting the potential growth in in Shelter Insurance through this period? And then I, I see the the buyback in that kind of chart in the back of kind of been pushed back out, you know, 5 Years From from now, as well versus potentially earlier you were thinking about maybe 26 or 27. Thanks.

Uh, yeah, I mean we've got a big project to execute here between 25 and and 31. So the focus really is on per share growth, uh and dividend yield. Uh if you know, we were just talking about if prices are are better than expected. Then uh that growth of uh free cash flow to over 2 billion per Anam, come sooner, uh, and that can open up other options for shareholder returns. It just put some numbers on that Josh. If you were to move Echo around like plus a dollar that's over $500 million of incremental free cash flow for termine. And so I think it really does. Uh, we are definitely well open to an improving gas price Market in 26 and that can influence how we return cash to shareholders.

Got it. Thanks guys.

Thank you.

Next question will be from Jamie kubic at CIBC please. Go ahead.

Yeah, good morning and thanks for taking my question. Um, a specific 1 actually, but with respect to slide

6 and the updated EP plan. There's a great amount of detail on the infrastructure inclusions that you have in this plan. Um, can you can you talk a little bit about

Perhaps the percentage of new capital in the EP plan that is infrastructure-weighted versus maybe new drilling capital compared to what was previously included. Thanks.

yeah, so we did include

facility capital for both groundworks and the North Mountain.

We've also, we also included the drilling and completion Capital associated with that extra 100,000 views a day. And so in general, for the next several years, we're going to be allocating 3 to sometimes 3 and a half 350 million dollars of infrastructure Capital per year. Uh, and then the DNC got back to be basically pushing at that 2 and a half to 2.6 billion dollar level. Uh once North Monty Phase, 2 is is completed. That infrastructure Capital will thin, it's going to thin to you know roughly hundred million dollars a year, sometimes less and then also as declines are coming down through the plan which is important, you know, we'd be roughly at 32 33% decline.

Break today, uh, because of the way, the BC montney production contributes to the business, and the advantage is nature of how those type curves, shape decline still. We see coming down through the end of the plan into the high to mid 20s. Um, that allows that DC capitol also to decelerate. And so that's how you get to the 2 and a half billion at the end.

Okay, thank you. Um, maybe I'll I'll ask another 1 here. Just uh, with respect to the liquids mix and the production profile, I guess, how is that trending this year versus your expectations? And, and how do you think that might change in the back half of 25 or into, uh, 2026? Thanks.

Yeah, I think ultimately the mix won't change. Uh, they'll be, you know, short-term aberrations uh, in any given year. Uh, but ultimately, it's pretty much that 75 gas, uh, 25% total liquid. And that's where it is at the end of the plan. Um, we're down a little on liquids this year. Uh, we had an extended turnaround, uh, in the Peace River. High complex, uh, which, uh, reduced liquids for a longer period than than we had forecast for, uh, Q2. And then just the sequence of the pad Drilling in, uh, the VC montney, um, several of the early pads, uh, were in gas of your areas. Uh, and some of the deferrals were, uh, when we were

Saving capital in Q2. We're a couple of the liquid Rich pads. Uh, we subsequently completed those and so you'll see, uh, total liquids production. Uh, Trend up here through the balance of the year.

Is, is that something that you're thinking about extending through, Q3 by much, just given where Station 2, and Ankle pricing have gotten to, and, and how should we think about that part going forward?

Uh, we're certainly looking. We actually have a little bit of gas shut in. Uh, today. Uh, you know, we'll see where prices go, uh, through the balance of August, but we certainly left that, uh, as an option for us, um, in in August. Anyway, we expect, uh, September pricing to be better and the shut in have been uh, strictly on the VC montney, generally, the north Monty.

Uh, it's gas that goes through third party with uh higher Opex. Uh and of course, part of the infrastructure Bill though, does that gas comes into our own facilities in the future with much lower Opex.

Thanks, I'll turn it back.

Thank you. Next question, will be from Aaron dowski at TD Cowen. Please go ahead.

Thanks. Good morning. Um, couple small questions from me, the first is on margin expansion. You've obviously discussed margin expansion as you grow out in Northeast BC. Some of that comes from higher Revenue some of it comes from lower costs of the dollar per bille cost savings that you talked about.

What would roughly be the split between Opex savings and transportation cost savings? If you have that available.

Yeah, it's about 50/50 here.

And you know, we'll see if we can do better on the Opex, but that's what we're modeling in right now.

So 50 cents on. Yeah.

Thanks and my second question, is on the transport to the gulf, I guess to what extent do you see termine being able to get more physical transport capacity down to the gulf in the coming years.

Well, it's something we work really hard at. Uh, and, uh, um, I would expect sometime in the next 2 or 3 years we'll find another pathway down there, uh, on existing pipes with lower tolls. Um, there might be some further Brownfield work. Uh, that seems to be on the table again, uh, south of the border, uh, which might help that exercise. But, uh, our marketers spend a lot of time, uh, trying to cobble together transportation routes from the Gulf all the way back, uh, into the basin.

Thank you. Next question, will be from Philip lamoureux at lamoureux Vineyard? Please go ahead.

Hi, Mike. Uh, in years past, uh, when we had board meetings down in Tucson,

With Ron Wiggum, and Andy, and Lee, and John L. I remember, we were running debt at about 2 and a half times cash flow. There were abouts and talked about whether we should put a cap or suggest. A cap of don't go over 3 times, cash flow and now you're running 0.5 paying a huge dividend, uh, a very attractive dividend if people have their eyes open and, uh, it's just amazing what you've accomplished. So I just wanted to do a thank you for what you've done.

Well, thanks Bill. Yeah.

Thanks, thank you.

Once again, ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touchtone phone.

And your next question will be from failey at oddland Brown. Please go ahead.

Hi Mike, its FY here. Um I'm just doing a side 5, you're 5-year plan um in 2031 you have like about 2.6 billion in your Capital program. Um I'm assuming if this was a 6-year plan that the production there would be some production growth in 2032, um, because I confirm that and if that's the case, I'm just wondering, do you have if you can give me some sense of what sustaining Capital call, it would be to keep

Product and flat and at 850. Um, just want to know what that number would be if it's not 2.6 billion.

6 and a half year plan.

Okay, great. Thanks. That's very helpful.

Thanks. Bye.

Thank you and at this time. Mr. Kirker, we have no further. Questions, registered, please proceed.

Thank you, Sylvie. Uh, and thanks, everyone, for attending the conference call. I will see you again next quarter.

Thank you, sir. Ladies and gentlemen this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time we do ask that you, please disconnect your line.