Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Tourmaline Q4 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 is being recorded on Thursday, March 6, 2024. I would now like to turn the conference over to Scott Kirker. Please go ahead.

Thank you, Lena, and welcome, everyone, to our discussion of Tourmaline's financial operating results for the three months and years, and in December 3124 and December 3123. My name is Scott Crocker, and I'm the Chief Legal Officer here at Tourmaline 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 Tourmaline 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, Brian Robson, our Chief Financial Officer, and Jamie Hurd, Tourmaline's Vice President of Capital Markets. We'll start by speaking to some of the highlights of the last year. And after Mike's remarks, we will be open for questions. Go ahead, Mike.

Thanks, Scott. Good morning. Thanks, everyone, for dialing in. We're pleased to review our most recent results and provide the latest outlook and answer some questions. First, a few highlights. 2025 forecast free cash flow is now $1.4 billion based on current strip pricing, and that's up from previous guidance of $1.1 billion. Full year 2024 net earnings were $1.3 billion or $3.51 per diluted share, and that underscores the profitability of the business even in a very weak gas price environment. And to that end, we delivered strong earnings and free cash flow in 2024. during what turned out to be the worst ACO full-year pricing environment in the last 25 years. We're very pleased to announce a quarterly base dividend increase of 43% to $0.50 per share, that's effective Q1 2025, and a special dividend of $0.35 per share. With continued growth in the base business and continued improvements in realized pricing, were well-positioned to increase returns to shareholders in 2025 relative to 2024. First quarter, 25 production range of 630,000 to 635,000 BOE per day is currently anticipated. BDP reserves were increased 29% in 2024 after accounting for production. And 2P reserves were increased 14% to 5.5 billion BOEs by the end of 2024. A few comments on production. Fourth quarter, 24 average production was 605,000 BOEs per day, up 9% from the corresponding 2023 quarter. 24 average liquids production, of 138,500 barrels per day was up 17% over 2023. Condensate and NGL production volumes are expected to increase significantly over the next five years with our North Montney, West Dole ground birch, South Montney, and North Deep Basin infrastructure projects. These projects will grow both our total volumes and materially improve production. are realized corporate margins. The 25 forecast production range of 635,000 to 665,000 BOEs per day remains unchanged, and the company expects to finalize the second half 25 EP capital program during the second quarter, and we'll see where gas prices are at over the next three months or so. As mentioned, first quarter 25 production of 630,000 to 635,000 BOEs per day is anticipated. We have approximately 51 wells to bring on production in March, which is expected to result in first quarter exit volumes well in excess of 640,000 BOEs per day. Some select financial highlights. Improving strip prices have increased full year forecast 25 cash flow to 4.3 billion. And as mentioned, full year forecast 25 free cash flow is now $1.4 billion. Full year 2024 cash flow was $3.2 billion. And full year 2024 free cash flow was $1 billion. And as mentioned, given the strong growth in the base business over the past three years through a combination of high margin organic growth and accretive acquisitions, Tourmaline's Board of Directors has elected to increase the base quarterly dividend from $0.35 per share to $0.50 per share, a 43% increase, and that's effective in the first quarter of 2025. The Board also declared a special dividend of $0.35 per share to be paid on March 25th to shareholders of record on March 13th. And we do intend to pay special dividends in all four quarters of this year, inclusive of this Q1 special dividend. We paid $332 per share in combined base and special dividends in 2024, and that's a 5.3% trailing yield. Full year 24 CapEx was $1.9 billion, and that includes Q4 CapEx of $460 million. Exit 24 net debt was $1.7 billion. That's approaching our long-term net target of $1.5 billion, which is approximately 0.3 to 0.35 times forecast net debt to cash flow. And we've always believed maintaining balance sheet strength puts the company in a strong position to deal with any new macro challenges and to take advantage of new opportunities that might arise. Briefly on reserves, year-end 24 PDP reserves of 1.35 billion BUEs were up 29% after accounting for 24 annual production. Total approved reserves of 2.91 billion BUEs were up 19%, and 2P reserves of 5.5 billion BUEs were up 14%. So after 16 years of operations, Termaline now has essentially 25 TCF of economic 2P natural gas reserves and 1.36 billion barrels of 2P oil condensate and NGL reserves, all of which are pipeline connected to markets across North America. And at year-end 24, 80% of the current estimated drilling inventory of over 25,000 locations was not booked in the 24 year-end reserve report. Year-end 24 oil condensate and NGL 2P reserves of 1.36 billion barrels represent the second largest conventional liquids reserve base in Canada based on public disclosure. Of particular note, given our size, we replaced 330% of 24 annual production of 212 million BOEs with 2P additions of 700 million BOEs, including 24 productions. Our 24 PDP F and D costs were $8.45 per BOE, including changes in FDC, and that yielded a PDP reserve recycle ratio of 1.8 times, which is pretty good for a predominantly gas producer in the harsh 24 gas price environment. 2P FD and A costs in 24 were $7.28 per BOE, including changes in FDC, and that yielded a 2P recycle ratio of 2.1 times. And our 2P reserve value before taxes equates to $114 per diluted share. Revisiting the 25 capital program, full year 25 EP capital budget range remains unchanged at $2.6 to $2.85 billion. The company expects steadily improving natural gas prices in 2025. Should that price recovery materialize later in the year, the capital program will be sequenced accordingly. Facility and pipeline expenditures of approximately $300 million remain in the total 25 EP capital budget, and that includes ongoing Northeast BC, North Montney Phase 1 infrastructure build-out components, electrification pre-builds for the 26-27 West Dolan ground birch gas plant projects, and certain long lead time facility pre-orders. So the majority of the 2025 growth capital is these facility expenditures. They don't create volumes in 2025, as clearly this is a year in transition for gas prices. These volumes materialize in 2026 and 2027, a period when much improved gas prices are widely anticipated. We expect to finalize the sequencing of the entire future Northeast BC infrastructure build-out during this year, and that will include up to four new gas processing facilities. The ground birch development is now expected to consist of two separate 200 million per day deep cut plants to be installed in the 27 to 29 timeframe. Pretty much exactly what we put on the ground at Gundy C68. Some comments on marketing. The company's average realized natural gas price in 2024 was $338 per MCF Canadian, That's $1.90 per MCF above the average 24-805A index price of $1.48 per MCF. And our marketing diversification portfolio and strategic hedging program allow us to consistently outperform local hub pricing on a sustained basis. We expect to exit 2025 with over 1.3 BCF per day in exports to targeted markets including China, $904 million per day delivered to the U.S. Gulf, JKM, TTF, Western U.S. markets, and Pacific Northwest premium markets. We also secured an additional $95 million per day of ANR service to the U.S. Gulf, and we did that during this quarter. We have an average of 1.06 BCF per day hedged in 2025 at a weighted average fixed price of $507 per MCF. We do remain encouraged by the very strong demand-driven outlook for North American natural gas prices, which have improved in the majority of the sales hubs accessed by the company over Q4 2024. Western Canadian gas prices have lagged this recovery despite winter natural gas storage withdrawals averaging approximately 1.43 BCF per day versus a little over 0.7 BCF per day last winter. So we'll continue to monitor the multiple local natural gas demand catalysts anticipated in 2025, including the startup of LNG Canada. We will manage our unhedged non-export or local volumes accordingly, and in the event of very weak spring-summer 2025 gas prices, the company will optimize the pace of well stimulation and production startup activities to shape the production profile to the highest cash flow outcome. Briefly on E&P, we drilled 286 gross wells in 24 and led the Canadian industry with a total of 1.425 million meters drilled during the year. We delivered our best overall well performance in the past five years in the Alberta Deep Basin Complex, and this outperformance has been across and assets. We are currently planning to drill up to 365 net wells in 2025. As of January 1st, 2025, the ongoing new zone new pool exploration program has added a little over 2 TCF of 2P reserves of that total of 25 TCF and 1,068 Tier 1 and Tier 2 drilling locations since the program was started. There are several potential high-impact exploration wells in the 2025 program, so it will be an exciting year on that front. We continue to make select midstream investments to reduce costs and improve realized margins. Some material cost reductions realized already in the North Montney, and we expect similar improvements in the X-Crew ground bridge assets as we execute the infrastructure plan there. On an EPI, our cleantech engineering team continues to develop and implement new proprietary emission reduction technologies, execute on expanded water management initiatives, and explore industry-leading methane mitigation technologies at our ETC, as well as manage related third-party environmental research. And we've touched on the dividend already, so I think we'll turn it over for questions. Thank you.