Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Termaline Q1 2023 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. To ask a question, please press star 1 on your touch-tone phone. If at any time during this call you need assistance, please press star 0 for the operator. This call is being recorded on Thursday, May 4, 2023. I would now like to turn the conference over to Jamie Hurd, Manager of Capital Markets. Please go ahead.

Thank you, Operator, and welcome everyone to our discussion of Tourmaline's results for three months ending March 31st, 2023 and 2022. My name is Jamie Hurd, and I am Tourmaline's Manager of Capital Markets. 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 on the Tourmaline Annual Information Forum and our MD&A available on CDAR and 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 Robertson, Vice President of Finance and Chief Financial Officer. We will start by speaking at some of the highlights of the last quarter in our year so far. After Mike's remarks, we'll be open for questions.

Mike, please go ahead. Thanks, Jamie. So welcome, everyone. Good morning. We're pleased to review Tourmaline's Q1 results and answer questions you may have. So firstly, some highlights. First quarter cash flow was $1.127 billion, or $3.28 per diluted share. We generated free cash flow of $525 million in the quarter, or $1.53 per diluted share, and that allowed us to declare a special dividend of $1.50 per common share. We had record first quarter 23 average production of 526,000 BOEs a day. We continue to expect full year 23 free cash flow of $2 billion. And our March 31 net debt was $709 million or approximately 0.2 times 2023 full year forecast cash flow of $3.9 billion. Touching on production, as mentioned, first quarter averaged 526,000 BOEs a day with liquids production of a little over 114,000 barrels per day. And that's despite the Pemina NGL pipeline system interruption, which reduced production by 8,000 BOEs a day for approximately six weeks. Current total oil and liquids production has recovered to the 118,000 to 123,000 barrel per day range over the past month. Q2, 23 average production range of between 500,000 and 515,000 BOE per day is currently expected. as we begin our injection season into our storage reservoirs, and we execute our Q2 plan maintenance programs for both own account and third party. Encouragingly, the April production average has rolled up to approximately 531,000 BUEs per day, which is a record, and that is prior to storage injections, which have happened in the month as well. And our full year 23 average production guidance between 520,000 and 540,000 BOEs per day remains unchanged. Looking at financial results, as mentioned, first quarter cash flow was $1.13 billion on total capex of $595 million, generating free cash flow of $525 million. In 2023, at strip pricing as of April 14th, The company continues to expect to generate cash flow of $3.9 billion or $11.22 per diluted share and free cash flow of $2 billion or $5.80 per diluted share on unchanged EP spending of $1.7 billion. That forecast 23 cash flow remains unchanged from the previous forecast despite 2023 NYMEX gas prices declining by 12% since our last update. And this is a reflection of our strong and continuously improving natural gas market diversification portfolio. Similarly, 24 cash flow has actually improved 3% since our last forecast update. Given that strong free cash flow generation outlook for 23, the company's elected to increase the quarterly base dividend effective this quarter to $1.04 per share on an annualized basis from the current annualized dollar per share and as well declare and pay a special dividend of $1.50 per share on May 19th, 23, to shareholders of record on May 11th. Looking at marketing, our average realized NACDAS price was $6.18 per MCF Canadian in Q1, significantly higher than the ACO 5A benchmark price of $3.28 per MCF Canadian for the period. We have an average of $801 million per day hedged at a weighted average fixed price of $558 per MCF Canadian, an average of $137 million per day hedged at a basis to NYMEX of $0.46 per MCF US, and an average of $731 million of unhedged volumes exposed to export markets in 2023. And of that $731 million, 71% is exposed to the premium markets such as the U.S. Gulf Coast, JKM, Malin, PG&E, and Sumas. We commenced delivery Jan 1 of our $140 million a day to the Chenier Sabine Path LNG facility, where our average Q1 realized price before liquefaction and shipping fees was $19.44 per MCF U.S. The $23 JKM strip price as of April 14th was still $14.87 per CF US. And we also have $31 million a day hedged at a weighted average fixed JKM price of $31.26 per MCF US in 2023. And importantly, as of April 1 of this year, we were able to increase our natural gas volumes exported to Western US markets by $100 million per day to a total of $445 million per day through the completion of the Westgate expansion project. A few comments on the E&P program. We operated maximum 15 drilling rigs during Q1. We're currently operating four rigs, three of them in BC as we're in breakup. We drilled a total of 71 net wells in Q1. We completed 68 net wells in the quarter and we have an inventory of 38 ducts Entering q2 so a little higher on the duck front than than past years Importantly terminating has 388 valid drilling permits in Northeast BC now having received an incremental 82 Permits thus far in 23, which is certainly a positive development A little bit of an expiration update. As of year end 22, we had made 15 new pool or new zone discoveries since starting the expiration program well over three years ago. And in our year end 22 reserve report, we booked 1.26 TCF equivalent from those new pools. And current mapping of these pools indicates the potential for a further 3.2 TCF of raw natural gas that will delineate with follow-up drilling over the next couple of years. We also have made three additional new pool discoveries so far in 23 that are outside that reserve report. And as of year end 22, this program's added an estimated 749 Tier 1 and Tier 2 drilling locations, which get added to our existing deep inventories. On environmental performance improvement, or what we like to call EPI, looking at our diesel displacement efforts between July of 17 and the end of this first quarter, we've now displaced 106.5 million litres of diesel in our drilling and completion ops, resulting in a net cost savings of 103 million, and that includes the cost of the replacement NAT gas. And then on April 18th of this year, we announced the next step in the Diesel Displacement Initiative. Tourmaline and Clean Energy Fuels Corp. will jointly build and operate a network of up to 20 CNG stations along key highway corridors across Western Canada. And the initiative allows for the use of readily available natural gas to significantly lower emissions from heavy-duty trucks and other commercial transportation fleets. And there's lots of long-term upside to this initiative, both for emissions reduction and for building natural gas demand. So that's the end of kind of the formal remarks. So we will be pleased to take questions you may have.