Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Tourmaline Q2 2024 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 has been recorded on Thursday, August 1, 2024. I would now like to turn the conference over to Scott Kirker. Please go ahead.

Thank you, Operator, and welcome, everyone, to our discussion of Termaline's financial and operating results as of June 30, 2024, and for the three and six months ended June 30, 2024 and 2023. My name is Scott Kirker, and I'm the Chief Legal Officer here at Termaline Oil. 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 that's 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, Termaline's President and Chief Executive Officer, Brian Robinson, our Chief Financial Officer, and Jamie Hurd, Termaline's Vice President of Capital Markets. We'll start by speaking to some of the highlights from the last quarter and our year so far. And after Mike's remarks, we will be open for questions. Go ahead, Mike.

Thanks, Scott, and thanks, everybody on the line. So firstly, a few highlights. Second quarter average production of 562,000 BOEs a day was up 13% over second quarter 23 and within our second quarter 24 average production guidance range. Our second quarter cash flow was $755 million or $212 per diluted share on EP expenditures of $307 million in the second quarter and that generated free cash flow of $434 million or $1.22 per diluted share. Given the strong continued free cash flow generation in the second quarter and the full year financial outlook, we elected to increase the quarterly base dividend effective Q3 24 by 3% to $0.33 per share or $1.32 per share on an annualized basis. And that's our third base dividend increase of the year. We also declare and pay a special dividend of 50 cents per share on August 21st of this year. And importantly, we reduced net debt by $137 million during the second quarter as well. On the production front, during this quarter of low natural gas prices, we completed multiple planned facility maintenance turnarounds. We also maximized injection into our gas storage reservoirs in California and at Dawn, Ontario. Our full year 24 average production guidance range has been revised to 575,000 to 585,000 BOEs a day, down 5,000 from the 580 to 590 previously. This will account for select third quarter frack deferrals into Q4 as we shift production into an environment of stronger anticipated natural gas prices later this year or early next year. This less than 1% production deferral is expected to have minimal impact on our 24 cash flow and actually a positive impact on 25 cash flow and free cash flow based on current strip prices. Looking a little deeper at the financial results, we realized Q2 24 net earnings of $257 million or $0.72 per diluted share, and that underscores the profitability of the business even in an extremely weak natural gas pricing environment. As previously mentioned, we remain committed to our long-term net debt target of $1.2 to $1.4 billion. And we intend to continue to make progress toward that target through 2024. And as mentioned, we did reduce net debt by $137 million in the quarter. Also, our 45.1 million shares of Topaz has a market value of around $1.1 billion as of June 30th. On marketing, Tourmaline's average realized natural gas price in the second quarter is was $3.03 per MCF Canadian, significantly higher than the 8.05A index price of $1.20 per MCF over the same period. And we benefited from our multi-year market diversification and transportation portfolio. We keep growing our export volumes and now expect to exit 24 with a total of 1.26 BCFP. per day of natural gas going to these export markets. For 2024, the company has an average of 1.03 BCF hedged at a weighted average fixed price of 4.66 per MCF Canadian. We have reduced both ACO and Station 2 exposure for the second half of 24 to approximately 9% of our total natural gas portfolio, and that's actually the lowest it's ever been. On EP, we drilled a total of 47 net wells during the second quarter, completed 38 wells, and grew our duck inventory to 36, entering Q3. We're currently operating 14 drilling rigs, and we expect to increase that to 15 by adding a rig in the fourth quarter, and we'll run the 15 rigs through to 2025 spring break-up. So we'll end up drilling more multi-well pads than what's currently in the EP plan for second half of 24 and first half 25. And simply, we believe it's a good time to capitalize on our actual lower net drilling costs and our continuously improving drill times. We'll be positioned to deliver production above currently estimated 2025 levels. And of course, that'll depend on where the price is. but we do think we're moving into a period of stronger commodity prices. But the 2024 EP capital budget remains unchanged at $2 billion due to these steadily improving drilling efficiencies. As mentioned, given current weak natural gas prices, we've shifted some originally planned well stimulation activity from the third quarter to the fourth quarter of 2024. And what we're really trying to do is match our production growth to the natural gas price curve and deliver those flush production volumes into that stronger pricing environment. And do recall we previously removed our planned 2024 natural gas growth from the EP plan in March of this year in response to week ago pricing at that time, and that's approximately 100 million per day. And over the past three years, We've consistently matched our growth in natural gas production to our incremental egress out of the western Canadian sedimentary basin, and we'll continue with that market diversification strategy. Further on E&P, an update on our North Montney development. We're excited about how fast and well our Conroy Phase 1 development is actually proceeding. There's two important facility components that are being completed. During this year, the first, the liquids condensate hub, which we actually started late in 2023, it will service both the phase one and ultimately the phase two North Montney developments. And it provides 20,000 barrels per day of condensate mercaptan treating and 70,000 barrels of condensate storage and will have regional pipeline interconnections. The total capital cost for that project is approximately $70 million, and when we did our budget reduction in March of this year, we left that project in. The second, the Birch A44i compressor station expansion will be completed during this quarter, and it's expected to add a net 6,000 BOEs a day to tourmaline production levels in 2025. Some of the other facility components in the overall Conroy development include the Aitken sales compressor, the Gundy A20i compressor expansion. That'll be completed this year as well. And then the Aitken regional gathering lines and the Aitken plant expansion, which are expected to commence construction in 2025. So we'll add 10 to 15,000 BOEs a day in 2025 through completion of the ongoing 24 facility projects Ultimately, the North Montney Phase 1 development will add 50,000 BUEs a day over the next three years. Of note, the company has received an additional 63 drilling permits since March 6th of this year for a total of 315 new drilling permits in northeast BC since January 1st of 2023. Looking at our EPI, or Environmental Performance Improvement, the company's diesel displacement initiative and drilling and completion operations has displaced approximately 152 million litres of diesel and replaced it with nat gas, and that saved us approximately $150 million since June of 2017. And obviously this has reduced a significant volume of a myriad of emissions. Our joint venture with Clean Energy Fuels for CNG and long-haul trucks continues with one station now fully operational with Edmonton, and there's four other stations that are under construction, and we expect them to be operating in the first quarter of 2025. So this initiative is a further significant diesel displacement opportunity. Our methane... Technologies continue to be advanced at the NGIF, Tourmaline Perpetual Emission Testing Center, or the ETC. It's the only one of this scale in the world, and it recently received a $15 million grant from the Alberta government to enable acceleration of these technology initiatives around the measurement and mitigation of methane emissions. And that's all I was going to say for kind of formal remarks out of the press release, and We'll open it up for questions.