TORC Oil & Gas Ltd. Announces First Quarter 2019 Financial & Operating Results; Increase to 2019 Production Guidance and Increase to the Dividend
CALGARY, May 7, 2019 /CNW/ - TORC Oil & Gas Ltd. ("TORC" or the "Company") (TSX: TOG) is pleased to announce its financial and operating results for the three months ended March 31, 2019. The associated management's discussion and analysis ("MD&A") and unaudited interim financial statements as at and for the quarter ended March 31, 2019 can be found at www.sedar.com and www.torcoil.com.
Highlights
Three months ended
(in thousands, except per share data) March 31
December 31
March 31
2019 2018 2018
---
Financial
Adjusted funds flow, excluding transaction costs (1), (2) $76,067 $54,389 $64,012
Per share basic $0.35 $0.25 $0.33
Per share diluted $0.34 $0.25 $0.32
Net cash from operating activities $53,930 $73,653 $58,294
Net income (loss) $6,335 ($24,398) $5,224
Per share basic $0.03 ($0.11) $0.03
Per share diluted $0.03 ($0.11) $0.03
Expl
oration and development expenditures (1) $54,109 $54,155 $41,670
Property acquisitions, net of dispositions (1) $146 $4,020 $2,694
Net debt (1) $396,038 $405,293 $269,521
Cash dividends declared (3) $9,761 $9,648 $7,908
Dividends declared per common share $0.066 $0.066 $0.060
Common shares
Shares outstanding, end of period 217,676 216,637 196,658
Weighted average shares (basic) 217,140 216,191 196,350
Weighted average shares (diluted) 220,530 218,399 198,835
---
Operations
Production
Crude oil (Bbls per day) 23,700 23,546 18,827
NGL (Bbls per day) 1,459 1,554 1,160
Natural gas (Mcf per day) 18,646 18,380 17,441
Barrels of oil equivalent (Boepd, 6:1) 28,267 28,163 22,894
Average realized price
Crude oil ($ per Bbl) $64.85 $52.34 $67.46
NGL ($ per Bbl) $20.32 $28.76 $26.60
Natural gas ($ per Mcf) $2.18 $1.40 $1.72
Barrels of oil equivalent ($ per Boe, 6:1) $56.86 $46.26 $58.13
Operating netback per Boe (6:1)
Operating netback (1) $32.64 $23.63 $33.64
Operating netback (prior to hedging) (1) $32.64 $23.88 $33.69
Adjusted funds flow netback per Boe (6:1)
Excluding transaction related costs (1) $29.90 $20.99 $31.07
Wells drilled:
Gross 34 16 26
Net 27.9 15.3 18.6
Success (%) 100 100 100
---
(1) Management uses these non-GAAP
financial measures to analyze
operating performance, leverage and
investing activity. These measures
do not have a standardized meaning
under GAAP and therefore may not be
comparable with the calculation of
similar measures for other
companies. See Non-GAAP
Measurements within this document
for additional information.
(2) For ease of readability, in this
press release, adjusted funds flow,
excluding transaction related costs
will be referred to as "cash flow".
(3) Cash dividends declared are net of
the share dividend program
participation.
PRESIDENT'S MESSAGE
TORC's operational momentum from 2018 was maintained into the first quarter of 2019 with a continuing focus on the Company's long term objectives of delivering disciplined growth in combination with preserving financial flexibility and providing a sustainable dividend.
TORC's active and successful drilling program was focused in both southeast Saskatchewan and Cardium core areas where the Company's quarterly objectives were to maintain 2018 year-end exit volumes while solidifying a higher base level of production to continue building future value.
TORC's disciplined approach and strong underlying asset base continues to position the Company for strategic, disciplined, long term growth.
The Company's key achievements in the first quarter of 2019 included the following:
-- Achieved record quarterly production of 28,267 boepd, up from 28,163
boepd in the fourth quarter of 2018 and 22,894 boepd in the first
quarter of 2018;
-- Generated cash flow of $76.1 million relative to $54.4 million in the
fourth quarter of 2018 and $64.0 million in the first quarter of 2018;
-- Generated cash flow per share of $0.35 per share as compared to $0.25 in
the fourth quarter of 2018 and $0.33 per share in the first quarter of
2018;
-- Successfully drilled 34 (27.9 net) wells spending $54.1 million;
-- During the first quarter, TORC declared dividends of $14.3 million of
which $4.6 million was settled under the share dividend program;
-- Achieved a payout ratio in the quarter of 84% while continuing to
organically grow production; and
-- At quarter end, the Company's net debt was $396.0 million with $351.7
million drawn on the credit facility. Subsequent to quarter end, TORC's
credit facility was reconfirmed at $500 million, providing the Company
with significant financial flexibility and liquidity.
OPERATIONAL UPDATE
TORC's first quarter production averaged 28,267 boepd (89% light oil and NGLs). Strong new well results and solid performance of the Company's existing low decline production base contributed to the continued quarter over quarter growth of the Company's production. TORC's disciplined approach provides a solid foundation for future sustainable growth.
During the first quarter, TORC executed a development program, drilling 34 (27.9 net) wells focused on the conventional and unconventional assets in southeast Saskatchewan and the Cardium in central Alberta. TORC spent $54.1 million in the first quarter representing 30% of the Company's 2019 $180 million capital budget.
SOUTHEAST SASKATCHEWAN
TORC drilled 18 (14.5 net) southeast Saskatchewan conventional wells in the first quarter. TORC's southeast Saskatchewan conventional assets are characterized by their lower risk nature and high rates of return driven by low capital costs, high netbacks and the favorable royalty regime in the province. With a long term decline profile of less than 20% and strong operating netbacks, the southeast Saskatchewan assets yield significant free cash flow to support TORC's business model.
TORC has identified more than 400 net undrilled conventional light oil locations in southeast Saskatchewan providing years of high quality drilling inventory. In 2019, TORC plans to drill a total of 45 (33.7 net) conventional wells. The focus in TORC's southeast Saskatchewan conventional properties is to maintain a stable production profile and maximize free cash flow from the assets.
On the Company's unconventional asset base in southeast Saskatchewan, TORC drilled 5 (4.5 net) wells during the first quarter in the Torquay/Three Forks geological zone. With continued strong drilling and production results the Company deferred completion of the Torquay/Three Forks program wells until the second and third quarters. In 2019, TORC plans to drill a total of 16 (12.5 net) wells continuing to drive growth in this light oil, high netback resource play. TORC has identified over 150 net development locations in the Torquay/Three Forks play providing multiple years of drilling inventory.
TORC drilled 7 (5.6 net) wells in the unconventional Midale light oil play during the first quarter. The Company continues to be encouraged with the results from this play and plans to drill a total of 18 gross (14.9 net) wells spread across the Company's land position for both the development and further delineation in 2019. TORC has identified more than 175 net future undrilled development locations across the Company's asset base for unconventional Midale production.
CARDIUM
TORC drilled 4 (3.3 net) Cardium development wells in the first quarter. For 2019, the Company has budgeted to drill a total of 9 (8.2 net) Cardium wells representing less than 5% of TORC's identified undrilled inventory.
TORC has identified more than 290 net undrilled Cardium locations for future development. With a decline profile below 25% and a deep inventory of high quality development locations, the Cardium continues to contribute meaningfully to the Company's free cash flow growth strategy.
CAPITAL PROGRAM
TORC's 2019 $180 million capital program is concentrated on the Company's primary core areas in southeast Saskatchewan, focused on both conventional opportunities and the unconventional plays, and the Cardium play in central Alberta. TORC continues to focus on operational efficiencies with a goal of achieving results that exceed budget expectations.
The capital program maintains TORC's balanced approach as the Company continues to focus on achieving long term sustainable growth, protecting the Company's strong financial position and maintaining a consistent decline profile to preserve repeatability of the business model.
Based on current commodity prices and budgeted cost structure, the Company expects to achieve significant free cash flow in 2019 above the current capital program and dividend. This free cash flow will continue to position the Company to enhance the growth, sustainability and repeatability of the Company's business model. The Company maintains the flexibility to increase capital expenditures during the second half of 2019.
INCREASED PRODUCTION GUIDANCE
Based on the strength of the underlying production base and the continued success of the Company's drilling program TORC is increasing 2019 average production guidance to 28,300 boepd from 28,000 boepd previously, and 2019 exit production guidance to 28,300 boepd from 28,000 boepd previously, with no corresponding change in the capital program.
INCREASED DIVIDEND
TORC's dividend is reviewed regularly with the Board of Directors and is an important component of TORC's overall strategy. During the first quarter, TORC declared dividends of $14.3 million of which $4.6 million was settled under the share dividend plan.
With continued production and cash flow per share growth, the Board of Directors have approved a 14% increase to the Company's annual dividend. Accordingly, TORC's annual dividend will increase to $0.30 per share ($0.025 per month) from $0.264 per share ($0.022 per month) effective for the May 2019 dividend payable in June.
The Company is committed to maintaining a disciplined approach. TORC's priorities are to act prudently to protect TORC's financial flexibility while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable and growing dividend.
DIRECTOR RETIREMENT
Mr. Raymond Chan is retiring from the Board of Directors of TORC and will not be standing for re-election at the Company's 2019 Annual General Meeting of Shareholders to be held on May 8, 2019. Mr. Chan was a founding Board member of TORC and was Chairman of the Audit Committee since inception. The Board of Directors and Management of TORC would like to thank Mr. Chan for his valuable contribution, guidance and dedication and wish him the best in his retirement.
OUTLOOK
TORC has built a sustainable growth platform of light oil focused assets and continues to enhance this platform. The stability of the high quality, low decline, light oil assets in southeast Saskatchewan and the low risk Cardium development inventory in central Alberta, combined with exposure to unconventional light oil resource plays in southeast Saskatchewan, positions TORC to provide value creation through a disciplined long term focused growth strategy with a sustainable dividend.
TORC has the following key operational and financial attributes:
High Netback Production (1) 2019E Average: 28,300 boepd
2019E Exit: 28,300
boepd
Total Proved plus Probable Reserves (2) Greater than 138 mmboe (~84% light
oil & liquids)
Southeast Saskatchewan Light Oil Greater than 400 net undrilled
conventional locations
Development Inventory
Greater than 150 net
undrilled Torquay/
Three Forks locations
Greater than 175 net
undrilled
unconventional Midale
locations
Cardium Light Oil Development Inventory Greater than 290 net undrilled
locations
Sustainability Assumptions (3) Corporate decline ~23%
Capital Efficiency
~$28,000 per boepd
(IP 365)
2019 Capital Program
$180 million
Monthly Dividend
$0.022 per share (current)
$0.025 per share (effective in May; payable in June)
Net Debt as at March 31, 2019 (4)
$396 million; $352 million drawn on a bank line $500 million
Shares Outstanding
217 million (basic)
Tax Pools
Approximately $1.9 billion
Notes:
(1) ~88% light oil & NGLs.
(2) All reserves information in
this press release are gross
reserves. The reserve
information for TORC in the
foregoing table is derived
from the independent
engineering report effective
December 31, 2018 prepared by
Sproule & Associates Limited
("Sproule") evaluating the
oil, NGL and natural gas
reserves attributable to all
of our properties (the "TORC
Reserve Report").
(3) Refers to full cycle capital
efficiency which is the all-
in corporate capital budget
divided by the IP365 of the
associated wells. Corporate
decline refers to TORC's
estimated oil and gas
production decline rate in the
normal life cycle of a well.
(4) See "Non-GAAP Measures".
An updated corporate presentation can be found at www.torcoil.com.
READER ADVISORIES
Forward Looking Statements
This press release contains forward?looking statements and forward?looking information (collectively "forward?looking information") within the meaning of applicable securities laws relating to the Company's plans, strategy, business model, focus, objectives and other aspects of TORC's anticipated future operations and financial, operating and drilling and development plans and results, including, expected future production, production mix, reserves, drilling inventory, net debt, cash flow and free cash flow, financial flexibility and liquidity, capital costs, operating netbacks, operational efficiencies, decline rate and decline profile, product mix, capital expenditure program, capital efficiencies, commodity prices, royalties, tax pools and future growth. In addition, and without limiting the generality of the foregoing, this press release contains forward?looking information regarding: the focus and allocation of TORC's 2019 capital budget; anticipated average and exit production rates, available free cash flow, management's view of the characteristics and quality of the opportunities available to the Company; TORC's dividend policy and plans; and other matters ancillary or incidental to the foregoing.
Forward?looking information typically uses words such as "anticipate", "believe", "project", "target", "guidance", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future. The forward?looking information is based on certain key expectations and assumptions made by TORC's management, including expectations concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; capital efficiencies; decline rates; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and TORC's ability to access capital
Statements relating to "reserves" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.
Although the Company believes that the expectations and assumptions on which such forward?looking information is based are reasonable, undue reliance should not be placed on the forward?looking information because TORC can give no assurance that they will prove to be correct. Since forward?looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward?looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward?looking information will transpire or occur, or if any of them do so, what benefits that the Company will derive there from. Management has included the above summary of assumptions and risks related to forward?looking information provided in this press release in order to provide securityholders with a more complete perspective on TORC's future operations and such information may not be appropriate for other purposes.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect TORC's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
These forward?looking statements are made as of the date of this press release and TORC disclaims any intent or obligation to update publicly any forward?looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
Dividends
The payment and the amount of dividends declared in any month will be subject to the discretion of the board of directors and will depend on the board of director's assessment of TORC's outlook for growth, capital expenditure requirements, funds from operations, potential acquisition opportunities, debt position and other conditions that the board of directors may consider relevant at such future time. The amount of future cash dividends, if any, may also vary depending on a variety of factors, including fluctuations in commodity prices and differentials, production levels, capital expenditure requirements, debt service requirements, operating costs, royalty burdens and foreign exchange rates.
Non?GAAP Measurements
This press release includes non-GAAP measures commonly used in the oil and natural gas industry. These non-GAAP measures do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS", or alternatively, "GAAP") and therefore may not be comparable with the calculation of similar measures by other companies. For details, descriptions and reconciliations of these non-GAAP measurements, see the Company's Management's Discussion and Analysis for the three months ended March 31, 2019.
"Adjusted funds flow, including transaction related costs" represents cash flow from operating activities prior to changes in non-cash operating working capital and settlement of decommissioning obligations. "Adjusted funds flow, excluding transaction related costs" represents cash flow from operating activities prior to changes in non-cash operating working capital, settlement of decommissioning obligations and transaction related costs. Management considers these measures to be useful as they assist in the determination of the Company's ability to generate liquidity necessary to finance capital expenditures, settlement of decommissioning obligations and funding of its dividend. Transaction related costs are incurred during asset and/or corporate acquisitions and are typically not considered a cost incurred in the normal course of business. As a result, excluding transaction related costs from adjusted funds flow further assists in the determination of the Company's ability to generate liquidity in the normal course of business. For ease of readability, in this press release, "adjusted funds flow, excluding transaction related costs" is also referred to as "cash flow". TORC calculates cash flow per share using the same method and shares outstanding that are used in the determination of earnings per share.
"Net debt" is calculated as current assets (excluding financial derivative assets) less: i) current liabilities (excluding financial derivative liabilities) and ii) bank debt. Management considers this measure to be useful in determining the Company's leverage.
"Operating netback" or "netback" represents revenue and realized gain or loss on financial derivatives, less royalties, operating expenses and transportation expenses and has been presented on a per Boe basis. Management believes that in addition to net income, operating netback is a useful measure as it assists in the determination of the Company's operating performance and profitability.
"Exploration and development expenditures" represents expenditures on property, plant and equipment ("PP&E") excluding: acquisitions, non-cash PP&E additions and capitalized general and administrative expenses. See Capital Expenditures in the MD&A for further details.
"Property acquisitions, net of dispositions" represents additions to PP&E related to the Company's asset and/or corporate acquisition and disposition activity.
"Free cash flow" represents adjusted funds flow, excluding transaction related costs, less i) exploration and development expenditures", and ii) cash dividends paid. Management considers this measure to be useful in determining its ability to finance capital expenditures and fund its dividend.
"Payout ratio" represents cash dividends paid, plus exploration and development expenditures, divided by adjusted funds flow, excluding transaction related costs. The Company considers this to be a key measure of sustainability.
Oil and Gas Disclosures
The term "boe" or barrels of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.
This press release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the TORC Reserve Report effective December 31, 2018 and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates prepared by a qualified reserves evaluator based on TORC's prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves. Of the 1,015 net drilling locations identified herein, 350 are proved locations, 137 are probable locations and 528 are unbooked locations. Of the 400 net conventional drilling locations identified herein, 165 are proved locations, 60 are probable locations and 175 are unbooked locations. Of the 150 net Torquay/Three Forks drilling locations identified herein, 41 are proved locations, 25 are probable locations and 84 are unbooked locations. Of the 175 net unconventional Midale drilling locations identified herein, 80 are proved locations, 17 are probable locations and 78 are unbooked locations. Of the 290 net Cardium drilling locations identified herein, 64 are proved locations, 35 are probable locations and 191 are unbooked locations.
Unbooked locations have been identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that TORC will drill all unbooked drilling locations and, if drilled, there is no certainty that such locations will result in additional oil and gas reserves or production. The drilling locations on which we actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by drilling existing wells in relative close proximity to such unbooked drilling locations, some of other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and, if drilled, there is more uncertainty that such wells will result in additional oil and gas reserves or production.
SOURCE TORC Oil & Gas Ltd.
