Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Tourmaline Q3 2021 results conference call. At this time, all lines are in listen-only mode. Following 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 for the operator. This call is being recorded on Thursday, November 4th, 2021. I would now like to turn the conference over to Mr. Scott Cooker, Please go ahead.

Thanks, Operator, and welcome everyone to our discussion of Termline's results for the three and nine-month end of September 30, 2021 and 2020. My name is Scott Kirker, and I'm the General Counsel for Termline. 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 Termline Annual Information Form and our MD&A available on CDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories. I am here with Mike Rose, Tourmaline's President and Chief Executive Officer, Brian Robinson, Vice President of Finance and Chief Financial Officer, and Jamie Hurd, Manager of our Capital Markets. We will start by speaking to some of the highlights of the last quarter and our year so far. After Mike's remarks, we'll be open for questions. Go ahead, Mike.

Thanks, Scott, and thanks, everybody, for dialing in. Very pleased to review our third quarter 21 results this morning. A few of the highlights, we had record quarterly cash flow of $761 million and free cash flow of $369 million in the third quarter. Current production is ranging between 485,000 and 490,000 BOEs per day, and we do expect to achieve our 500,000 BOE per day exit target in early December. We expect exit 21 net debt of approximately 815 million at current strip pricing after giving effect to the special dividend of 75 cents per share paid in October. The Gundy and Aitken facility expansions in BC will be completed and on production in December, so a little ahead of schedule, and our original methane emission reduction target of 25% below 2018 levels by 2023 has been achieved, and that's three years ahead of schedule. Briefly on production, Q3 21 average production was a little over 456,000 BOEs per day, so in the upper half of our guidance range despite force majeure events impacting our liquids volumes towards the end of September, and those issues have all been rectified. Termaline expects 22 average production of between 500,000 and 510,000 BOEs per day, which is 2.3 BCF per day of natural gas and 115,000 barrels per day of oil condensate and NGLs. Looking at our financial results, as mentioned, third quarter 21 cash flow was 761 million or 232 per fully diluted share, and that compares to $280 million in Q3 of 2020. Nine-month 21 cash flow is $1.96 billion, and we anticipate full-year 21 cash flow of over $3 billion. We delivered free cash flow of $369.5 million in the third quarter on EP capital spending of $380 million. And importantly, third quarter 21 earnings were $361 million or $1.10 per quarter. fully diluted share and that compares to a little under 5 million or 2 cents per diluted share in the corresponding quarter in 2020. An update on the capital program and our financial outlook. As mentioned, 21 EP capital spending was 380 million compared to guidance of 420 million. Our full year 21 EP capital spending of 1.375 billion. and 22 EP capital spending of $1.125 billion remain unchanged from the previously disclosed forecast. We expect exit 21 net debt of approximately $815 million on current strip pricing. Long-term, we intend to keep net debt in the $1 to $1.2 billion range, and we are at our long-term debt target a little early as well. As previously disclosed, we paid a special dividend of 75 cents per share on October 7th and also increased the annual base dividend to 72 cents per share annually. We plan further special dividends over the next several quarters contingent upon commodity prices and free cash flow allocation decisions. Given current strong pricing and the rate of free cash flow accumulation, We expect to pay the next special dividend during the first quarter of 2022. And we're now expecting full year 22 cash flow of $4 billion, yielding free cash flow of $2.8 billion on unchanged EP capital spending of that $1.125 billion. Turning to marketing, our average realized nat gas price in the third quarter was $3.88 per MCF. as we benefited from rising commodity prices, select hedging, and the company's broad natural gas market diversification portfolio throughout North America. We have $591 million a day of fixed price hedges for 2022 at a weighted average price of $3.17 per MCF Canadian, and that represents approximately 25% of 22 gas volumes. We have an average of $149 million a day of very attractive basis hedges in place, and an average $621 million per day in 22 exposed to export markets, including Dawn, Iroquois, U.S. Gulf Coast, Empress McNeil, Chicago, Ventura, Sumas, Moline, and PG&E. Note that the 22 hedged volumes include approximately $145 million per day of lower-priced hedges, and those were acquired in the Modern and Black Swan transactions, and they will systematically expire. We have recently acquired additional transport service, complementing our base service for winter 21-22, and we now have a total of $130 million a day exposed to the US Midwest market, and we are very constructive over the next few months on that market. In November 22, Tourmaline will have $150 million per day exposed to the Gulf Coast market, which will become JKM index exposure in January of 2023. Furthermore, we will add an incremental $100 million per day of exposure to the GTN, Malin, PG&E markets in November 22 and a further $50 million a day on the same system in November of 2023. Importantly, NGL price realizations in Q3 of 21 were up 115% over Q3 2020. And we are Canada's largest NGL producer with anticipated average production levels of approximately 72,000 barrels per day in 2022. We're very busy operationally and pleased to report that the accelerated deep cut facility projects at both Gundy and Aitken are expected to be completed ahead of the revised accelerated schedule, and importantly, on budget. We are operating 13 drilling rigs, so our full fleet as planned, and that's across Alberta and BC. 87 net wells were drilled in the third quarter, 77 net wells were stimulated and brought on production, and we expect to stimulate and bring on production a further 79 net new wells during the fourth quarter of this year. And finally, looking at our ongoing environmental performance improvement efforts, as mentioned, we're pleased to report we've already achieved the methane emission reduction target of 25% from 2018 levels by 2023. 2020 actuals of 405,000 tons are 26% lower than 18 actuals of 547,000 tons. And that's despite production growth of 17% during that period. We will continue further reducing methane, CO2, and other atmospheric emissions throughout the EP portfolio, and we'll revise our five-year environmental performance improvement plan as appropriate as we achieve these targets. And then we'll set new targets again. It's about getting out in the field and getting it done. The company's emission testing center, or we call it the ETC, at the Tourmaline Perpetual Wolf Creek Gas Plant, and it's the first of its kind in the world, is now fully operational. It's a corroboration with NGIF, which is the Natural Gas Innovation Fund and Industry, and it's critical in evolving new technology and methodologies to continue to materially reduce methane and other emissions across our whole EP portfolio. And producing the lowest emission natural gas will allow Canada to grow both domestic production and international exports. And so that's all I was going to say going through the press release. And so we're wide open for questions that listeners might have.