Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Tourmaline Q4 2022 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. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Scott Kirker, Chief Legal Officer. Please go ahead.

Thank you, Operator, and welcome everyone to our discussion of Termaline's results for the three months and years ending December 31, 2022 and 2021. My name is Scott Kirker and I'm Termaline's Chief Legal Officer. 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 Termaline 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'm here with Mike Rose, Tourmaline's President and Chief Executive Officer, and Brian Robinson, Vice President of Finance and Chief Financial Officer, and Jamie Hurd, the Manager of Capital Markets for Tourmaline. We will 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. Thanks, Scott, and thanks, everybody, for dialing in. We'll go over what we thought was a very strong 2022, and that's continued on into 2023. So some of the highlights. Our full-year 2022 cash flow was a record $4.9 billion, or $14.26 per diluted share, and that's up 67% over 2021. Q4 2022 cash flow was $1.4 billion, or $4.08 per diluted share. We generated a record $3.2 billion of free cash flow in 2022, and our 2022 after-tax net earnings were $4.5 billion, or $13.10 per diluted share. We also paid out $7.90 per share and based in special dividends to shareholders in 2022, which is approximately a 12% trailing yield. Our 2P reserve value per diluted share based on the current Jan 1-23 engineering price deck is $143 per share before tax or $109 after tax. Total approved is $97 before tax. 75 after tax and our PDP NAV is $54 per share. Full year 2022 average production was up 14% over 2021. Our current production is ranging between 520 and 530,000 BUEs per day and that's consistent with where our expected first quarter average will be. At current strip pricing, we expect to generate Cash flow of approximately $3.8 billion in 2023 and free cash flow of approximately $2 billion on unchanged EP capex of $1.675 billion. So we're trading right now at an approximately 10% free cash flow yield. Exit 22 net debt was $494 million or 0.1 times Q4 22 annualized cash flow. Year-end PDP reserves. We're up 25% year-over-year to essentially a billion BOEs. Total approved reserves were up 14%, and 2P reserves of 4.5 billion BOEs were up 10% over year-end 21. We replaced 240% of 2022 annual production of 183 million BOEs with our 2P additions of 440 million BOEs, and that includes 22 production. After 14 years of operations, we have 20.7 TCF of 2P natural gas reserves, one of the largest, lowest development cost, lowest emission natural gas reserve bases in North America. Looking at production in a little bit more detail, I mentioned current production between 520 and 530,000 BOEs a day, and that's despite a reduction in NGL volumes of approximately 8,000 BOEs a day relating to a third party pipeline system interruption that lasted six weeks. It's back on stream now and there's no change to our full year 23 average production guidance of a range between 520,000 and 540,000 BOEs per day. 22 average liquids production of 112,500 barrels per day was up 16% over 21. and we are the largest NGL producer in Canada. And a milestone, we produced our one billionth BOE of production since inception in 2008 on February 9th. Turning to the financial highlights in a little bit more detail, we generated, as mentioned, a record $3.2 billion of free cash flow in 2022, We increased the quarterly base dividend three times in 2022 to an annualized dollar per share, so a 39% increase over the year. And we paid for special dividends that totaled $7 per share in calendar 2022. And we have committed to returning the majority of annual free cash flow to shareholders, and we're certainly executing on that plan. And in 2023, we plan to return between 50% and 90% of free cash flow to shareholders. This year, so far, we paid a special dividend of $2 per share in early February, and we plan to pay special dividends for the remaining three quarters in the year as well. As mentioned, exit 22 net debt was $494 million, and that's well below our long-term debt target of $1 to $1.2 billion. And the company is actually in a surplus position if you include the value of our 45 million shares of Topaz Energy Corp. A little more on 22 reserves. As mentioned, PDP is now a billion BOEs and was up 25% year over year. And we're very happy to have two P reserves now of 4.5 billion BOEs and up 10% year over year. 2022 PDP FD&A costs were $8.74 per BOE, and that yielded a PDP reserve recycle ratio of 3.06. And if you use Q4 22 cash flow per BOE of 29.80, you get 3.41. And after 14 years of operation, that 20.7 TCF of 2P natural gas reserves, we believe, is the largest in Canada. Importantly, we've only booked 3,359 gross locations of our total well-defined drilling inventory of over 23,000 locations, so we've still only booked 14.6% and already have 2P reserves of 4.5 billion BUEs, so lots more to come. The current future development capital associated with the 2P reserves represents approximately four years of prospective cash flow at strip pricing. And so has always been the case, we will systematically convert those 2P reserves into PDP reserves in a very realistic timeframe. A little on marketing, we do continue to diversify our natural gas and liquids marketing portfolio in an effort to realize the best possible pricing for all of our hydrocarbon streams. Diversification has played a major role in enhancing Q4 22 cash flow. and that will continue in 2023. In January of this year, we commenced delivery of our $140 million per day to the Chenier Sabine Pass LNG facility, and by virtue of that became the first Canadian E&P company to participate in the LNG business with full exposure to JKM pricing, and that provides a material increase to our $23 cash flow. As of Feb 15, 23, the JKM strip is $19.24 US per MCF. During 23, we'll actually increase our natural gas volumes exported to Western US markets from $345 million per day to $495 million per day, with an average of 74% of that gas accessing the premium-priced PG&E California market over the calendar year. Our average realized natural gas price in Q4-22 was $6.89 per MCF, as we benefited from that aforementioned strong gas pricing in western North America. We have an average of $791 million per day hedged for 23 at a weighted average fixed price of $5.93 per MCF Canadian, $140 million per day hedged at a basis to NYMEX of $0.42 per MCF U.S., and an average of essentially $700 million per day of unhedged volumes exposed to export markets in 23, and they're all listed there, but the premium ones are Sumas, U.S. Gulf Coast, JKM, Moline, and PG&E. A little on E&P. In calendar 22, we drilled a total of 240 net wells. That equated to almost $1.3 million. and that was the most in the western Canadian sedimentary basin. We have no material facility projects in the 23 budget, hence we anticipate very strong 23 capital efficiencies of approximately 9,000 per flowing BOE, and we expect that will rank very well in the North American energy space. We, coming into the year, had 300 valid drilling permits in northeast BC. and so far we've received an additional 55 drilling permits during the first quarter so far and certainly expect more. On the exploration front in 2022, we drilled 11 new pool or new zone discoveries and we've made two additional discoveries in 2023 to date and we're currently testing those. Essentially one net rig of the 14 we're currently utilizing We'll continue to drill new pool, new zone exploration wells in 23, and these successful discoveries ultimately will access our existing infrastructure. Turning to environmental performance improvement, we've had an engineering team in place for over four years, developing and implementing new proprietary emission reduction technologies, executing our expanded water management initiatives, managing our third-party environmental-related research, and evolving a large methane testing center in the deep basin. And we intend to invest 30 to 50 million per year on further EPI initiatives. We've been displacing diesel with nat gas on all of our drilling rigs in the operated fleet, and we actually have one rig running on high line power. Since embarking on this diesel displacement initiative over five years ago, We've displaced approximately 91 million liters of diesel, and that has actually saved us 86 million while yielding an emission reduction of a little under 58,000 tons. The company is recognized as having the lowest freshwater intensity for 21 in its well stimulation operations, and that intensity is 0.11 barrels per BOE. And finally, we're pleased to announce that the board has declared a quarterly cash dividend on its common shares of 25 cents per common share, and that'll be payable on March 31st to shareholders of record at the close of business on March 15th. That's all I was going to say for comments, and so we're more than happy to answer questions that you might have.