Tourmaline Oil Corp.

Good morning, ladies and gentlemen, and welcome to the Termaline Q1 2026 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 and then the number zero for the operator. This call is being recorded on Thursday, May 7, 2026. 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 financial and operating results as of March 31, 2026, and with the three months ended March 31, 26, and 25. My name is Scott Kirker, and I'm the Chief Legal Officer here at Termaline Oil Corp. 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 Forum 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 Robinson, our Chief Financial Officer, and Jamie Hurd, Tourmaline's Vice President of Capital Markets. We'll start with Mike speaking to some of the highlights of the last quarter and the full 2025 year. After his remarks, we will be open for questions. Mike, go ahead.

Thanks, Scott. Thanks, everybody, for dialing in, and we're pleased to review our Q1 26 results and provide an update on our broad range of activities. The company achieved record production in the first quarter, generated very strong earnings, and our cash flow and free cash flow forecasts for 26 and 27 are steadily moving up. Some select highlights, continued new outperformance in bulk gas complexes, leading to production at the midpoint of guidance despite significant Q1 capital deferrals. The first two major facility projects in the Northeast BC infrastructure build-out, those being Aitken and Groundbridge, remain on schedule. Due to strong global liquids prices and our access to Pacific propane exports, our 26 NGL realizations are anticipated to increase by approximately 30% over 2025. Q1-26 cash flow was $862 million, and that generated $202 million of free cash flow for the quarter. Our Q1-26 net earnings were a very strong $658 million. We have steadily improving 26 and 27 full-year free cash flow outlooks, and net debt at March 31-26 was $1.5 billion. which is below the long-term debt target of $1.75 billion and is approximately 0.4 times net debt's cash flow. Looking briefly at production, first quarter 26 average production was 666,089 DOEs per day within the original guidance range. Unchanged 26 average production of 620,000 to 640,000 VOEs per day is anticipated. We intend to maximize the use of our new Gimsdale Alberta storage capacity as well as existing long-term Donning California storage facility positions along with potential in-basin production curtailment during periods of low prices this spring and summer. Fossil scheduled the vast majority of our 26 facility maintenance into Q2 during low gas prices, which keeps gas volumes offline. Today, that equates to around $70 million per day, and some of that is higher-cost third-party gas, and that's all largely factored into 26 guidance and Q2 guidance. Briefly on financial results, as mentioned, we generated $202 million of free cash flow in the quarter, really despite extremely weak Western North American gas prices This winter.

First quarter OpEx was $4.75 per BOE.

That's down 8% from Q1 2025. And our full year 26 OpEx of $4.50 per BOE continues to be expected. And that's down 9% from full year 2025. As we continue to make the business better, primarily through our BC build-out. Full year 26 EP capital budget remains at $2.55 billion. That's following the $350 million reduction that we announced on March 4th of this year. We have identified an additional $200 million of what is primarily D&C capital that could be deferred from the 26 EP program should Western North American nat gas prices remain leaked through the whole year. Tourmaline's exposure to international LNG prices And the increasing liquids pricing has improved current 26 free cash flow estimates to a little over 0.9 billion. And the free cash flow benefit from our exposure to JKM and TTF pricing via our LNG export-related contracts will not be realized until Q2. And that's due to the timing of LNG cargo. So that benefit was not in our Q1 cash numbers. Some marketing highlights, our average realized NatGap price in Q126 was $359 per MCF Canadian, significantly above the 8058 benchmark price of 205. per MCF for that period, as we continue to reap the benefits of our diversified marketing portfolio and strategic hedging program. We have an average of 930 million cubic feet per day of natural gas hedged for the remainder of 26 at a weighted average fixed price of 513 in MCF Canadian. We have an average of $220 million a day exposed to international pricing, TTF and JKM, in 26, and that systematically grows over the next two years. The company is also amongst Canada's largest propane producers, and similar to the natural gas business that we have, we have a long-standing propane marketing diversification strategy in place. Currently, approximately 45% of our propane production receives the Argus Far East Index propane price. And with the benefits of this improved NGL pricing and reduced ethane production, we do expect 26 NGL realizations to average close to 30% higher than they did the prior year. Looking at the EP program, I've mentioned well-out performance compared to prior five-year averages has continued in both gas complexes. In the BC-Monte complex, 25-well performance was up 22% over the previous five-year period, that being 2020 to 2024. In Q4-25 and Q1-26, This has continued. V.C. Montney well performance gas site is up 13% over the 2020 to now 2025 timeframe and the Alberta decays and is up 6% over the same time period. That's based on IP30 rates because we haven't had the wells on for as long. Just some specific well highlights. We've done extremely well as we generally do. During Q1 of 26 in what we call the North Montney, we've delivered strong pad and well performance in all three sub-complexes in the North. So at Aiken, the five-well birch pad averaged High P90 rates of 3.4 million cubic feet per day and 419 barrels per day of C5+. At Gundy, the 11-well D4G pad tested at average peak rates of 25 million cubic feet per day and 130 barrels per day of C5+. So that's across 11 wells. That's the average. It is important for investors to know that We're choking almost all of our high-deliverability gas wells in this current low local gas price environment. Further north in Conroy, the 8-well LaPree's pad averaged IP90 rates of $4.8 million a day and 283 barrels of C5+. Deep Basin also continues to deliver strong well results throughout the complex, not as robust as the BC Motney, but Very strong for the deep basin, particularly on the liquid side. So the Red Haven 3-well Wilrich APAD came on production in March. Has an average IP30 of a little under 15 million cubic feet per day and 112 barrels per day of cognosate along with that. The Ansel 8-11 3-well Wilrich APAD. Came on in February, average IP30 of 11.7 billion cubic feet per day and 217 barrels per day of C5+, which is well above normal. In the South Deep Basin, the Ferrier 222 well Glock pad started up in March, and it produced at average well rates of 724 barrels per day of C5+, and 2.7 million cubic feet per day of gas. And, you know, things to say on a broader note, our year-end 25 2P natural gas reserves of 27.7 TCF achieved with only booking 15% of current drilling inventories position the company very well. Its recent international developments render sizable economic reserves in stable jurisdictions increasingly attractive. On the EPI front, Tourmaline is the first Canadian company to be certified under the MIQ and the first company in MIQ's history to have certified integrated gas production and processing facilities. It applies to our full northeast BC gas production base of 1.6 B the day. And it positions Tourmaline to access differentiated markets where verified methane intensity influences procurement decisions in landed jurisdictions. We continue to progress the multi-year diesel displacement strategy. That's a cost savings and an emissions reduction exercise. We've displaced over 250 million liters of diesel now since we started this and saved over $245 million to date, and that includes the cost of the nat gas fuel replacement. Our new 10-year target is savings of $565 million. So these are material cost savings. And then finally, our Board of Directors intends to declare a quarterly base dividend of 50 cents per share in early June, which will be payable on June 30, 2026 to shareholders of record at the close of business on June 15, 2026. So, I think that's it for any kind of formal remarks, and we're all here to answer questions. Thanks.

Thank you. Ladies and gentlemen, We will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. First question comes from Sam Beerwell out of Jefferies LLC. Please go ahead.

Hey, good morning, guys. I guess first off on gas dynamics, like the West Coast ARB, which has been a little bit of a headwind, looks open for the summer. So I'm curious if you think that exports can pick up meaningfully over the next few months. And have we seen a reaction in the Malin and PG&E strips from lower hydro generation tied to the Grand Coulee and that stuff? Or is that all still really yet to materialize?

It's starting to materialize as we look at BC, Pac Northwest, and Northern California Hydro. It's all moved down significantly from where it was. Jamie can talk to the strips. Really, all we need in California now is some heat. We still have over a BCF a day of gas on GTN that should be going west that is Thank you. Thank you. We're excited about, but let's make sure it's not another false start. All three markets have moved up over the past week, but let's see that happen on a sustained basis. And, Jamie, I think you probably paid more attention to the strips.

Yeah, we do see ARBs coming into a place where we could expect exports to come back in July, August. And even just in the last couple of weeks, as Mike was saying, we've seen firmness and PGD and Malin directly translate into exports. So, these markets are clearly connecting right now. Some other additional points, you know, Casa Azul started taking gas a little earlier than we expected. So, that's the LNG plant in Mexico. And long has been our thesis that that plant actually impacts the California corridor more than a Delaware egress point. And that's exactly how the strips reacted on feed gas. SoCal was the market that seemed to react the strongest. That will further tighten the California corridor. As Mike was saying, it's about a BCF of export loss out of the WCSB today. And to put that in perspective, LNG Canada has recently been getting to name plates running at 2 BCF a day, averaged about 1.5 BCF per day in the first quarter. Production in basin is up modestly. It averaged roughly 0.7 BCF a day in the first quarter. but at many times has been closer to flat. We're closer to flat entering into Q2, and we're flat on exit. We would normally, with the LNG plant on at 1.5 going to 2 and production up less than 1, be in a pretty tight market. What has masked that tightness completely is this lack of exports into that West Coast market. Now, this LNG plant is going to be on for 40 to 60 years ahead of us. while this West Coast export outage or lack of economic pull is going to last until July if we get heat and August, September if we don't. And so we think this temporary disruption in how ACO is trying to balance is indeed going to be measured in months. And then we turn into a much tighter basin in the two years ahead of us. And when we look at it a little further, we see the WCSB averaging over a BCF of demand over the next five years.

Okay, understood. And then just longer term, I'm curious what you think of Canada's entree into sovereign wealth, and could the Canada Strong Fund be a tailwind for a project like Solicim's Getting Finance and Getting to FID? And do you think that sovereign wealth or any other fiscal support can realistically drive additional LNG infrastructure on the West Coast beyond LNG Canada Phase 2 and beyond citizens?

I'd say yes would be the short answer to that question. I hope there's $25 billion of additional capital available. You certainly can't hurt. All right. Got it. Thank you, Jens.

Next question comes from Patrick O'Rourke from ATB Cormac. Please go ahead.

Thanks, guys. Good morning, and thanks for taking my question. I guess just thinking about the potential of the incremental $200 million capital reduction that you've pointed to, I think that probably most reasonable people could assume that you want to see how sort of the summer plays out from storage dynamics, probably overall, but also regionally. What's sort of the gating parameters around that decision point? And then to the extent that you're choking volumes and building ducks here, does that act as a tailwind as well for the capital program in 2027?

Yes, it does, and really as soon as second half 2026, because really we went through the same exercise to some extent in 2025 and matched the production growth curve to the improving price curve and ended up achieving our production targets for 2025. So by deferring production in Q2, and deferring capital expenditures in Q2. You make that cash all back up in the second half and actually exceed it because you're going to sell into what we think is going to be a higher price environment. So, yeah, I think largely you're correct on that assumption.

Okay, great. And then with the update, do you realize some of the improved Waterborne gas prices as well as some liquid pricing, incremental free cash flow, net debt is still below sort of the target level and alluded to distribution of that. Can you walk through sort of how you see the mechanics of incremental free cash flow distribution going forth?

So I think It's a very dynamic time. You know, prices are moving dollars, sometimes, you know, almost $10 a day. And so our strategy right now is to receive this recash well. And we have some observations. One of our observations is especially in NGLs, the backwardation is incredibly steep. It's a less liquid market. There's less visibility and liquidity. And so it backwardates steeply. So it could very well outperform what Strips say today. Our go-forward plan is to receive these higher cash flows, definitely in Q2. Cash flows will benefit from the tension the war has created in all of our markets. And then once that cash is received, then we'll proceed with the decision on how it's going to be distributed. But you're right, we're below our net debt target, and we definitely have a practice of continuing to deliver excess free cash flow back to shareholders. This time, we just want to make sure we have it in our pockets first, just because the day-to-day changes and outlooks are, you know, more dramatic in this current environment.

Okay. Thank you very much.

Next question comes from Greta Draki from Goldman Sachs. Please go ahead.

Good morning, team, and thanks for taking my questions. I was just wondering if you could speak a bit about your latest views and outlook for invading power demand growth driven by data centers up in Canada. What are you seeing in terms of term-linked specific conversations, and are you seeing any new regulatory tailwinds, too?

I'll start at the end of that. On the regulatory side, the federal government deferred or eliminated the clean electricity regulations, which promotes gas-fired power in Alberta. The Alberta government, with Bill 8, stacked the regulatory process rather than run it in sequence, so logically that should make it go a little faster. We've been exploring the possibility of co-locating with a hyperscaler at one of our sites and are really a year into that evaluation process and we offer a lot if it's all competitive on a North American basis. We could do that or we could just simply be a provider of gas to another project. We don't have anything to announce at this point on our own initiative but are well into it and will certainly advise the market if something material transpires. Alberta is a great place to do this. I think our Current government recognizes it. It's something that has to get done relatively soon because there's not an infinite number of data centers that are going to get built. And we think the whole industry in Alberta on the data center behind Fence PowerGen looks a lot more legitimate as soon as a major announcement is made.

Great. Thank you. And then just for my second question, I appreciate the call you provided on your outlook for local pricing over the next several months or so. I was wondering if you could speak a bit more about your latest views on if you're looking to hedge out incremental local exposure in the near or medium term if you're able to.

Yeah, if we're able to. I mean, the reality is the scripts over the past few months really haven't offered anything that looks attractive, but we certainly intend to run with a larger hedge book than, say, we did two and three years ago.

Brian? And we have picked up a bit more LNG as well as

We're thinking about storage as a mechanism in your, you know, effective hedge book. It's like a physical hedge. You're moving volume from one quarter to the next. And so the contango in ACO is steep. I think it's going to be an incredible year to store gas with thermoline. And we now have two BCF in storage with eight to go. So we have lots of options and lots of times Thank you. Thank you. Next question comes from Joseph Schachter from Schachter Energy Research. Please go ahead. Good morning, everyone. Every time you turn on the TV on the business channels, you hear about...

Open AI, Anthropic, and all kinds of AI stuff. What's going on in terms of business side, like for Tourmaline? Are you finding benefits in the field, head office? Can you give us some example of things that you're integrating into your system and does that impact materially in terms of productivity? Does it impact your labor force? Just to get an idea of how a real company is using all of this new technology.

We're using it and evolving it in many aspects of our business currently, from learning software in the field to optimize production for wells that are on plunger lifts to drilling technology just behind the bit to learn and drill faster and faster wells. And then there's the whole myriad of opportunities within, you know, head office itself. AI bots going through 3D seismic volumes, looking at the horizons that are outside, you know, what we're landing on horizontals in the Deep Basin and the BC Montagne can really complement an exploration program that We have going on already and are the only company in Canada at scale that is doing that. So, yeah, the opportunities are endless. It's not going to distract us from what our main business is right now. And as tools, I think you just look at it as a series of tools and use them effectively.

Can you quantify yet productivity improvements or is it too early?

Yeah, I'd say too early.

Well-made. So we have one tech that we're quite pleased with, and they're a private business called Ambience. We've partnered with them, and they're steadily working across our fleet, and it's on the artificial lift side, so rod lift, going to gas lift. And the quick math is with optimized well calls, it could be a 10,000 VUEDA uplift for our business. And so that's one example of lower base decline, There's a slew of emission benefits and cost benefits on top of that, but we have found some real diamonds in our pursuit of looking at all the different applications that this can come into our business, and that's one we're really excited about and pleased with. Super.

Thanks very much for answering my question. I appreciate it.

Next question comes from Jamie Kubik from CIBC. Please go ahead.

Yeah, good morning, and thanks for taking my question. We saw a major announcement last week with respect to M&A and the Shell and ARK transaction. Tourmaline has historically been an active acquirer, particularly when gas pricing is weak. Would you be able to just discuss how the team is thinking about M&A in the current environment? Excellent.

Yeah, I don't think we've changed our mantra from what we've been saying over the past year, Jamie, that post-mid-2025, we're looking at small, complementary, tucked-in asset deals in and around existing assets and infrastructure or infrastructure that we're going to construct over the next four to five years in B.C. So we're not pursuing large M&A at this point in time.

Okay, thanks. And then we did see a dispose of an asset in this past quarter. Are further dispositions on the table, or how are you thinking about that, Mike?

Well, that was really a long-planned disposition. We sold our most mature production complex, a small component of the overall company and essentially are going to replace it with brand new lower cost production much earlier in life. And, you know, really as we went through our M&A cycles, you know, over the almost 20 years of the company, we've been pretty good at disposing of assets that we didn't really felt fit in the long term. And so, you know, there's no big dispositions being planned by the company right now.

Okay, that's all for me. Thank you.

Thank you.

Next question comes from Chris Garand, a private investor. Please go ahead.

Hey, thank you for thinking long-term for investors, but in the short term, kind of tying into that last question, the ARC Shell deal, we can all see all the metrics in the PV10, the production, the price they pay, and we know you used to do business with them or work there. Do you have any other comments about that deal, like how – Thank you, Ken. I don't think there's economies of scale for us. From a macro standpoint, we hope this is the catalyst that

Get Shell to FID LNG Canada Phase 2. You know, we know the metrics that that deal happened as well, and they're at a much higher per share valuation for tourmaline than where we're currently trading at based on existing 2P reserves. And, you know, I'm kind of sad that ARC's gone. This is a multi-decade company that's had a long storied history in the basin, and, you know, it's... It's kind of too bad that they're disappearing, but that's the business transaction that was arranged.

Okay, thanks.

Next question comes from Fai Li out of Adlam Brown. Please go ahead.

Great, thank you. Mike, I just want to quickly just learn a couple questions about the Shell acquisition arc, but I just want to, have you Have you seen any increased interest from, like, you know, given, you know, what's happened geopolitically, increased interest in the space from foreign buyers? Like, we saw Shell, obviously, but they had some unique need there. But what about other players that possibly could be looking to invest in Canada? What's your thoughts around that?

Yeah, I think there definitely is enhanced interest. We're seeing a whole lot of interest on the LNG side. And so we have a lot more approaches on doing supply deals for various liquefaction facilities across North America. And we're seeing more potential projects emerge that could add additional egress for the Western Canadian sedimentary basin. So, yeah, it's exciting times. I mean, natural gas, you know, it's really evolved into the central core of the world's energy stack, and it's going to be like that for decades to come, and it's for all kinds of good, pragmatic reasons. So we're excited. And just bear in mind that what's really exciting for us right now is that we're rapidly making a really good business that much better, from well productivity to improving costs to a fortress balance sheet to decades of book reserves. to an unmatched high-quality drilling inventory. Every aspect of our business is getting better, and lower Western North American gas prices are masking that in the short term, but it's going to be a double win for shareholders when this all turns around, and we think it can happen within a quarter on the local pricing front.

Okay. Yeah, on that note, I know Jamie talked about the temporary reasons why eco-gas might be depressed right now, and I understand It makes sense to take the actions you're doing in terms of more gas storage and increasing your dock levels. But I'm just kind of wondering, given it's temporary, what sort of agle price would we have to see in the future to avoid this kind of increased storage and docks? What kind of agle price would be $3? What price would you be looking at?

Yeah, when we're... I mean, we don't plan to increase our capital budget from what we've laid out in that five-year plan or the cadence of it. We'll make sure the first two major facility projects in the North Montney Phase 1 build-out are accomplished on time. You know... When prices are getting weaker, what do we look at? It's on that inventory slide in our COV, our break-even half-cycle economic price for the deep basins in the $1.90 to $2 range. So that's why most of the capital deferrals or cuts have been on that side of the ledger. Our BC Montney gas condensate complex, the break-even is $1.40, which is partly why the whole build-out is happening today. in the first place. And so, you know, those are the numbers that cause us to cut capital. And we've got a very, you know, well thought out, very detailed capital program over the next five years in the BC buildup. As I mentioned, we'll continue to improve our margins and drop our costs.

Okay, that's great. Just a last quick question. I was just assuming when I read your press release that you're going to get some excess cash flow in the second quarter due to the Iran war and that little bit of a windfall. I was just assuming it's going to be paid on special dividends, but it sounds like it may not necessarily be that case and you might consider other options, which brings the question under what would cause you to think about share buybacks perhaps?

Yeah, well, let's see how much free cash flow we have, and that's what Jamie was basically saying, is that Because things are so volatile and short-term, let's realize the free cash flow win above the base dividend obligation and then make decisions on where it's going to be allocated. Okay.

But would it be necessary to be looking at your share price or would there be some other factors involved?

We'll look at all the various options.

Okay.

Thank you. Thanks.

There appears to be no further questions at this time. I would now like to turn the call over to Scott for closing remarks. Go ahead, Scott.

Thanks, Josh. Thanks, everyone, for attending, and we'll talk to you at the end of next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.