Tourmaline Oil Q1 2024 Earnings Call Transcript

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May 2, 2024

There are 3 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Tourmaline Q1 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, May 2, 2024. Would now like to turn the conference over to Mr.

Operator

Scott Kirker. Please go ahead.

Speaker 1

Thank you, operator, and welcome everyone to our discussion of Tourmaline's financial and operating results as of March 31, 2024 and for the 3 months ended March 31, 2024 and 23. My name is Scott Kirkhorn, and I'm the Chief Legal Officer of Tourmaline Oil Corp. Before we get started, I refer you to the advisories on forward statements contained in the news release as well as the advisories contained in the term lien annual information form and our MD and A available on SEDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories. I'm here with Mike Rose, Tourmaline's President and Chief Executive Officer Brian Robinson, our Chief Financial Officer and Jamie Hurd, Tourmaline's Vice President of Capital Markets.

Speaker 1

We'll start by speaking to some of the highlights of the last quarter and our year so far. After Mike's remarks, we will be open for questions. Go ahead, Mike.

Speaker 2

Thanks, Scott, and good morning slash good afternoon to everybody on the line. We're pleased to review our Q1 'twenty four results and as Scott said, answer questions that you may have. So a few of the highlights from the quarter. 1st quarter 2024 average production was 592,000 BOEs a day and that's up 13% over the Q1 of 2023 at 526,000 BOEs a day. And within our 590,000 to 595,000 BOE per day Q1 2024 guidance range announced on March 6 this year.

Speaker 2

1st quarter cash flow was 871,000,000 expenditures of $556,000,000 and that generated free cash flow of $310,000,000 in the first quarter. In 2024 at strip pricing, as of April 15, 24, we expect to generate cash flow now of 3.5 $2,000,000,000 and free cash flow of $1,400,000,000 for the full year on unchanged EP capital spending of 2,000,000,000 dollars As a result of improved strip pricing, our cash flow forecast compared to the 5 year EP plan released on March 6 of this year has improved by $200,000,000 to $500,000,000 in each year in the plan. Given the strong free cash flow generation in the Q1 and our full year financial outlook, we've elected to increase the quarterly base dividend effective Q2 'twenty four by 7% or $0.32 per share per quarter from the current $0.30 per share and as well declare and pay a special dividend of 0 point 50 per share on May 16 this year to shareholders of record on May 9. Of note, we also reduced our net debt by approximately $85,000,000 during the Q1. Just briefly on production, first quarter average liquids production was a record 145,000 barrels per day and that's up 27% over the corresponding period in 2023 at 114,000 barrels per day.

Speaker 2

Our full year 2024 average production guidance remains unchanged at 500,000 to 5 100 and 90,000 boe per day with the revised capital budget announced on March 6, 24. On financial results, we realized Q1 2024 net earnings of 245,000,000 dollars and that underscores the profitability of the business even in extremely weak natural gas pricing environment. Exit Q1, twenty twenty four net debt was $1,690,000,000 and as previously announced, we remain committed to a long term debt target of $1,200,000,000 to $1,400,000,000 and intend to progress towards that target through 2024 and into 2025. And as mentioned, we reduced our net debt by €85,000,000 already. And in addition, we have 45,100,000 shares of Topaz Energy Corp, which had a market value of approximately $1,000,000,000 as at March 31 this year.

Speaker 2

And over the next 5 years, we forecast that we will generate approximately 8,600,000,000 dollars in free cash flow at strip while growing average production in that period by approximately 22%. Some comments on marketing. We expect to exit 2024 with a total of 1.22 Bcf per day of natural gas going to export markets. For 2024, we have an average of 737 1,000,000 cubic feet per day hedged at a weighted average fixed price of $5.43 and Mcf Canadian. We also have an average of 196,000,000 dollars hedged at a basis to NYMEX of U.

Speaker 2

S. Minus $0.33 in Mcf and an average of $980,000,000 per day of unhedged volumes exposed to export markets in 2024. And of this 980,000,000 cubic feet per day, 59% is exposed to the premium markets such as the U. S. Gulf Coast, JKM, Dutch TTF, Malin, PG and E and Sumas.

Speaker 2

We have 37,000,000 cubic feet per day hedged at a weighted average fixed JKM price of US20.34 per Mcf in 2024 and at the same of 22 1,000,000 cubic feet per day hedged at a weighted average fixed JKM price of US17.53 dollars per Mcf. In the Q1, we did complete and we announced previously our second LNG agreement, increasing exposure to JAKM by entering into a netback agreement with Trafigura PTE Limited and that's based on 62,500,000 BTUs per day for a 7 year term starting January 2027 with the potential to extend to December 2039. And that agreement is not dependent upon incremental FERC approvals. In 2024 March, we commenced our 3rd LNG agreement and that's delivering 50,000,000 BTUs indexed to the Dutch TTF price less associated deductions. We also entered into 4 natural gas to power agreements providing exposure to the AECO power market in 2023, the first of these agreements realized a natural gas price equivalent of $7.57 per Mcf, which represents a $4.89 per Mcf premium to the AECO index for the year and that generated $16,700,000 in realized revenue above the AECO 5A index.

Speaker 2

So we're happy with that. Looking at our EP and operations, we operated between 13 15 drilling rigs during the Q1 of this year. We're currently operating 6 rigs. Strong well performance on the Glock trend continues in the Southern Deep Basin with all of our recent downdip wells significantly outperforming historical trends. And these results are detailed in the updated corporate overview that was also released with our financial results yesterday.

Speaker 2

The company continues to systematically grow the Deep Basin complex and that's through small acquisitions and crown sales. During the 1st 4 months of this year, we've added a little over 35 net sections through 17 separate small transactions or land sales and that added 49 Tier 1 drilling locations. One of the transactions had 600 BOEs a day of production associated with it. And total CapEx for all of that activity was just a little under $19,000,000 Our improving EP execution continues in the BC North Montney sub complex. We drilled the 8 well North Montney La Pre C-fifty 4H pad in a total of 44.5 days, that's 12 days ahead of schedule.

Speaker 2

And the 8 wells with an average horizontal length of just a little bit under 2,000 meters were drilled for a total pad cost of $13,400,000 and that's 19% under the AFE at the time and we AFE these things relatively cheaply given previous performance. So every well on that pad was done in under 6 days. And I think that's all I'll say for formal remarks and we can go to Q and A and all of us are here to answer questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. There are no questions at this time. Please proceed.

Speaker 1

Thanks everyone for dialing in. We'll talk to you after

Speaker 2

the next quarter. Appreciate your time. Thanks everybody.

Operator

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

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Tourmaline Oil Q1 2024
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