Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Tourmaline Q1 2022 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, May 5, 2022. I would now like to turn the conference over to Mr. Scott Kirkup. Please go ahead.

Thank you, operator, and welcome everyone to our discussion of termination results for the three months ended March 31st, 2022 and 2021. My name is Scott Kirkup. I'm the chief legal officer for termination. Before we get started, I refer you to the advisories and forwarding statements contained in the news release as well as the advisories contained in the termination and the information form and our MDMA is available on CDAR and on our websites. I also draw your attention to the material factors and assumptions in those advisories. I'm here with Mike Rose, Terminants President and Chief Executive Officer, Brian Robinson, Vice President of Finance and Chief Financial Officer, and Jamie Hurd, our Manager of Capital Markets. We will start by speaking to some of the highlights of the last quarter of our year so far. And after the next remarks, we will be open for questions. Go ahead, Mike.

Thanks, Scott, and thanks, everybody, for dialing in. We're pleased to review our Q122 results. Firstly, a few of the highlights. Record quarterly cash flow of $1.076 billion and record quarterly free cash flow of $618 million or $1.82 per billion share. That enabled us to declare a special dividend of $1.50 per common share. That will be paid May 19th of this year. And our trailing 12 months of distributed dividends now total $4.21 per share inclusive of this special dividend, and that's an implied 7% trailing yield at this point. Our full year 2022 free cash flow forecast has increased to $3.9 billion, which will allow us to pay quarterly special dividends through the balance of $22. Our Gulf Coast Shamir LNG arrangement on $140 million per day begins Jan. 1, 2023, and for reference, As of April 21, the JKM strip price was over 25 US per MMBTU. And at March 31, 22, net debt was $769 million, or 0.15 times 22 full-year forecasts for debt-to-cash flow, and that's well below the low end of the target range. Briefly on production. First quarter production of a little over 507,000 BOEs per day was within our guidance range of 500 to 510,000 BOEs per day and above full year average guidance of 500,000 BOEs per day. We exited the first quarter at average production levels of between 515 and 520,000 BOEs per day ahead of expectation and that was driven by higher activity levels during Q1, and strong well performance across all three operating complexes. So far, our record daily production rate achieved is a little over 526,000 BOEs per day, which is actually ahead of the current 23 average production guidance we provide of 515,000 BOEs per day. And we expect Q2 average production of between 500 and 505 because we'll re-inject into storage in Don and in California. We have some of our own facility turnarounds, and there's also third-party pipeline maintenance that typically happens in Q2. Looking at our financial results, as mentioned, first quarter cash flow was a record $1.08 billion. Our full-year 2022 cash flow is now $5.22 billion. That's $15.34 per diluted share, and it's actually up 29% from our previous forecast back in March. Full-year free cash flow, $3.92 billion, and that's $11.53 per diluted share. As mentioned, we achieved the long-term net debt target actually in Q4 of 2021, and we have committed to return the majority of free cash flow to shareholders through these base dividend increases, special dividends, and share buybacks. A component of free cash flow will also be used for asset acquisition opportunities within our three operating complexes and select margin-improving infrastructure investments. Given that record free cash flow outlook for the year, we're pleased to announce quarterly special dividends for the remaining three quarters of 2022. The magnitude of the special dividends in the third and fourth quarters will be a function of commodity prices and results available free cash flow. And also note that additional sustainable base dividend increases are planned for 2022. Touching on capital spending and the financial outlook, first quarter 22 EP capital spending was $442 million. Total capex in the quarter including acquisitions was $479 million. And note that acquisitions of property and land are funded by annual free cash flow and are actually not included in the base EP budget that we put in the five-year plan. We operated a larger proportion of the drilling rig fleet and completion spread through March compared to previous years and that was in part because of continued strong commodity prices and also access was really good. So this will allow for stronger Q2 production volumes than what you would see in our typical annual production profile. and that incremental March activity added approximately $20 million to Q1. Full year 2022 EP capital spending has been increased to $1.225 billion, so that's up from $1.125. The increase includes an incremental $75 million provision for inflation, and that equates to 6.7%. full-year cost inflation on top of other provisions that we had in the budget already, and also $25 million allocated to following up the multiple successful new zone, new pool expiration discoveries we've made, and we're quite excited by that. First quarter, 22 exit net debt, as mentioned, was $769 million, well below the long-term bottom end of the net debt target range of $1 billion. Briefly on marketing, we have $625 million per day accessing U.S. markets through long-term firm transport agreements, and this volume will grow to $905 million per day by exit 2023. Importantly, of course, our $140 million per day Gulf Coast LNG deal commences Jan. 1, 2023, or eight months from now. Approximately 60% of the current lower price hedges that we assumed through the acquisition of Jupiter, Modern and Black Swan will systematically roll off and these production volumes will benefit from the much higher current strip pricing for winter 2022-2023. Notably, realized NGL prices averaged 44.82 per barrel in Q1 of 22 and that's up 63% year-over-year and we do expect further strengthening of realized NGL prices through the balance of the year and recall that Tourmaline is the largest NGL producer in Canada. On EP, 84.7 new net wells were brought on production during the first quarter of 22 and we anticipate a further 44 wells coming on stream during the second quarter, and that in part is related to the increased activity in March of this year. We did achieve new record horizontal well lengths with associated record low drilling times in all three EP complexes. A couple of the pacesetters include at Progress, a lower Charity Lake horizontal, 3,509 meters long that we drilled from surface to TD with the assembly in the ground in 11.7 days. And in the greater Aitken area, we drilled just over 2,000 meters horizontal from surface to TD again with the assembly in the ground in under five days. So think about that, 4.9 days is the total. So these continually improving drill times really help reduce the impact of ongoing inflationary pressures. Some detail on our North Montney development. We continue to plan for what we call Conroy, which is our North Montney development. Notably, this expected 100,000 DOE per day liquid-rich gas project actually represents one of the largest single conventional developments upcoming in the western Canadian sedimentary basin over the next few years. So we are going to continue to grow tourmaline in a meaningful way. Current timing for full project start-up is 2025-2026, and that coincides with the start-up of LNG Canada, which we expect to be structurally positive for Western Canadian gas supply demand dynamics and, of course, natural gas pricing. So far, that full development, including production, cash flow, and capital spending, is not in the existing five-year plan that we have just published or revised one. We've drilled so far over the past nine to 12 months, 12 delineation pads on the new LaPree's Conroy Aitken lens, and that's to define liquid content, well performance profiles, and capital costs in advance of the full development. And the results, we're pleased to say, have been very strong. As part of our long-term associated congroin facilities plan, we acquired the remaining 50% non-off interest in the two Aitkin area gas plants that came in the Black Swan acquisition from Ulta Gas for $224 million, and that closed during Q2. The plants, including the deep cut expansion, have a combined processing capacity of $290 million per day, and both are operating at full capacity. Annual off-ex savings resulting from this transaction are estimated at about $27 million per year. On environmental performance improvement, after achieving our net 25% methane emission reduction target three years ahead of schedule, we're currently establishing new rigorous targets to further reduce those emissions and technology initiatives currently being developed include continued pneumatic pump retrofits, installation of solar electric pumps, conversion of separators to full solar electric and the pursuit of zero emission well site technology. We have successfully transitioned all of our drilling rigs under contract from diesel to natural gas achieving both a material emissions reduction and a net cost savings. We also continue to evolve several CCUF initiatives within all three operating complexes and plan to implement these potentially material emission reduction opportunities at a selection of our gas plants in the 2025 to 2030 timeframe. Tourmaline will begin providing low emission Canadian natural gas to Europe and Asia in 2023 via our Gulf Coast LNG pathway. And we'll continue to explore opportunities to expand this business segment. We believe that a growing Canadian LNG business providing ever lower emission Canadian natural gas to the developing world is one of the best things our country can actually do for the global atmosphere. And it's an enormous sustainable win for the entire Canadian economy. So It's an environmental win, an economic win, and an energy security win. So kind of a hat trick for Canada as we go through the playoffs here. So that's it, and happy to answer questions.