Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to Tourmaline Q3 2023 Results Conference Call. At this time, all lines are in the 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 the star zero for the operator. Please be advised that this call is being recorded on Thursday, November 2, 2023. I would now like to turn the conference over to Jamie Hurd. Please go ahead.

Thank you, operator, and welcome everyone to our discussion of Tourmaline's results as of September 30th, 2023, and for the three and nine months ended September 30th, 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 their advisories on forward-looking statements contained in the news release, as well as the advisories contained in 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 Robinson, our Vice President of Finance and Chief Financial Officer. We will start by speaking to 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 and welcome everybody. Thanks for dialing in. We are pleased to review our third quarter results, outline our 24 plans and answer questions you may have. So firstly a few highlights. Third quarter cash flow was $878 million or $255 per diluted share. We generated free cash flow in the third quarter of $332 million or $0.96 per diluted share. And that enabled us to declare a special dividend of $1 per common share, and that was paid on November 1st. The company has distributed total dividends of $6.52 per share, inclusive of the November 1 special, since December 1st of 22, and that's an implied 9% trailing yield. Full year 23 free cash flow forecast is now $1.9 billion or so up. September 30, 2023 net debt was $880 million, which is 0.3 times Q3 23 annualized cash flow of $3.5 billion. Third quarter net earnings were $275 million or $0.80 per diluted share. And as you know, in October, we entered into an agreement to acquire all the shares of Bonavista Energy Corporation for $1.45 billion. That consisted of $725 million in terminally common shares and $725 million of cash, plus Bonavista's net debt at closing. And the closing of the transaction is still expected to occur in the second half of this month. Starting with production, our third quarter average production of $502 million 1,000 BOEs per day was at the higher end of our guidance of 495 to 505,000 BOEs per day. Third quarter was reduced by our planned plant turnarounds, which amounted to a 16,000 BOE a day impairment in the quarter, as well as our planned storage injections in California and Dawn. Our 2023 average production guidance remains at 520,000 BOEs per day. and we expect exit 23 production of over 600,000 BOEs per day, and that would include the acquired Bonavista volumes. Inclusive of the Bonavista assets on a maintenance-only capital budget, we anticipate 24 average annual production to range between 600,000 and 610,000 BOEs per day, and the formal guidance we're using in the five-year plan is 600,000 BOEs per day. We do plan to grow production from the Bonavista assets in 2025, and that'll be into an anticipated higher gas price environment. 2024 average liquids production of over 140,000 barrels per day is now forecast as the company evolves into one of the largest Canadian liquids producers. Tourmaline is Canada's largest natural gas producer with forecast production of over 2.7 BCF per day in calendar 2024. Briefly on financial results, as mentioned, third quarter cash flow was $879 million on total CapEx of $565 million. EP spending was $533 million, so a little under forecast. And we generated free cash flow of $332 million in the quarter. As of September 30th, 2023, the company from a balance sheet perspective is actually in a surplus position when you include the value of our 45.1 million shares of Topaz Energy Corp. And the continued strong free cash flow that we generated during the third quarter, as well as the forecast free cash flow for the fourth quarter of this year, allowed the company to pay the previously announced special dividend of $1 per share. And we also increased the base dividend from $1.04 to $1.12 per share on an annualized basis, and that's effective as of the December 23 quarterly base dividend payment. Looking at marketing, our average realized natural gas price for the quarter was $4.56 per MCF Canadian, and that was significantly higher than the ACO 5A benchmark price of $2.64 Canadian per MCF. In the fourth quarter of this year, we have an average of $755 million per day hedged at a weighted average fixed price of $507 per MCF Canadian. For 2024, the company has an average of $722 million per day hedged at a weighted average price of $535 per MCF Canadian, an average of $119 million per day hedged at a basis to NYMEX of minus $0.05 per MCF U.S., and we have an average of $833 million per day of unhedged volumes exposed to export markets in 24. And of that volume component, 65% is exposed to the premium export markets, which for us are the U.S. Gulf Coast, our Western U.S. hubs, JKM and Sumas. The company's exposure to Western U.S. markets will increase this month with the addition of 82 million per day of transportation capacity. With this addition and others, the company's natural gas exports will reach 1.08 BCF per day by exit of this year. We have further diversified our natural gas marketing portfolio by entering into a long-term Enrihub NetBack arrangement and that'll move approximately 60 million per day to the U.S. Gulf Coast. And that will expect, we're expecting that to commence in November of 2026. And we joined the Neaston and Venture as an industry supporter. That's an Indigenous-led project that will create a multi-product utility corridor, including NatGas, and that will connect Alberta, Saskatchewan, and Manitoba to Tidewater on Hudson's Bay. and the project ultimately involves support for containers, potash, and other prairie products, and envisions an electrified LNG facility actually on Hudson's Bay. Looking at our capital budget and financial outlook, as mentioned, third quarter CapEx was $533 million on E&P. Full year 23 EP capital spending is now anticipated to be approximately $1. $1.825 billion, and that is up from the prior $1.675 billion. That increase includes the incorporation of anticipated Bonavista-related capital expenditures post-closing this quarter. Incremental inflation of approximately 5% over forecast levels as that happened as we locked in services during the second and third quarters of this year for the second half, $23 billion. to first half 24 EP season and also we're accelerating the fracking of two pads into 23 from or fourth quarter of 23 from first quarter of 24 due to faster realized drilling times our board of directors has improved approved approved a full year 24 EP capital budget of 2.15 billion That reflects a 14 to 15 rig program and that includes 225 million associated with the Bonavista assets That 24 EP program is expected to deliver cash flow at strip pricing of 4.5 billion and free cash flow of 2.2 billion and those are both up from previous estimates and as in previous years we are strongly committed to returning the majority of free cash flow to shareholders and and we plan to continue our practice of quarterly special dividends during calendar 2024. Our updated five-year plan incorporates modest growth from the Bonavista assets commencing in 2025, as well as the deferral of the North Montney Phase II Conroy development by one year. And that deferral allows us to spread out facilities capex, evaluate potential Phase II facility electrification options, and it results in a significant increase in free cash flow, particularly in that 26 to 28 timeframe. And of note, between 2022 and 2028, Termaline anticipates organically growing the Northeast BC Montney gas condensate complex production or volumes by over 125,000 BOEs per day, and that's without the North Montney Phase II Conroy project. A brief EP update. We continue to operate all 13 drilling rigs and three to four frac spreads across our three EP complexes, and we anticipate adding one to two drilling rigs in calendar 24 to accommodate drilling on the Bonavista assets. During the fourth quarter of this year, we will bring 76 new wells on stream, and that will drive very strong Q4 average production volumes and a strong 2023 production exit level. During the third quarter, we delivered a new pacesetter well in the North Montney, 4.91 days from spud to rig release for a 4164-meter horizontal well. On the exploration front, as of the end of September, the company has made 19 new pool, new zone discoveries and drilled one uneconomic marginal oil well since we started that exploration program well over three years ago. The program has yielded 1.26 TCF of booked 2P reserves at year-end 22 and has also added an estimated 957 Tier 1 and Tier 2 drilling locations to an already very large inventory. Looking at the north deep basin, we are planning a new facility project It'll optimize production at the existing Musro and Kakwa plants that we operate, and it's expected to add 15,000 BWEs per day during 25 and 26, again, into that anticipated stronger natural gas pricing environment. We also completed the acquisition of assets from Whitehorse Resources Limited during the third quarter of 23 for $19.1 million. And this acquisition expands our land holdings and inventory adjacent to a cardium oil discovery that we made in the first quarter of this year in the Rest Haven-Cacoa area, and we provided some details on that well. And on the board front, we're very pleased to announce that Christopher Lee has been appointed to our board of directors, and he was at his first meeting yesterday. So I think that's enough. on the review of the press release, and we're more than happy to answer questions that you may have.