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Scott Kirker – Secretary and General Counsel

Mike Rose – Chairman, President and CEO

Brian Robinson – VP, Finance and CFO


Robert Bellinski – Morningstar

Ray Kwan – Macquarie

Tourmaline Oil Corporation (OTCPK:TRMLF) Q3 2013 Earnings Call November 14, 2013 12:00 PM ET


Good morning ladies and gentlemen, welcome to the Tourmaline Oil Corp 2013 Third Quarter Results Conference Call. I would now like turn the meeting over to Mr. Scott Kirker. Please go ahead Mr. Kirker.

Scott Kirker

Thanks John. Welcome everyone to Tourmaline’s Q3 interim report. I’m here with Mike Rose, Chief Executive Officer and Brian Robinson, our Chief Financial Officer. Mike will say a few words and then we’ll have time for questions at the end. I also like to refer you to any of to our online CEDAR filings for any conditions that are prior to this conference call. Go ahead Mike?

Mike Rose

Hey, good morning everybody, thanks for dialing in and we’re pleased to go through our release of yesterday. Couple of production highlights, we reached a daily record of 92,000 Boe per day in November 2013 with excess production volumes being generated by our 16 rig program and we’re able to increase our 2013 exit guidance by 15% to between 110,000 and 115,000 Boes per day. Third quarter production of 2013 was a record at just over 74,000 Boes a day, and it was actually up 6% quarter-over-quarter. Our cash flow of just over $120 million, was up 90% from the comparison period in 2012. We had record earnings of $91.4 million. Our very strong cost performance continues with Q3 OpEx $4.36 per Boe and cash G&A of $0.68 per Boe. And during the quarter we increased our bank facility from $750 million to $900 million.

Looking at production a little more in detail. We reached the 92,000 Boe a day mark and that’s without the contribution from our two $50 million a day each plant expansions in the deep basin and that’s what’s allowed us to take the exit up. We also with that 92,000 had 14,500 Boes – 14,500 barrels per day of oil and liquids. In addition, we got another 12,500 Boe per day that’s actually tied into our facilities and just awaiting facility expansions and then another 18,000 Boes of behind pipe or tested production that’s in the process of being tied-in. and we’ll generate additional volume we’re estimating 26 wells that are either drilled or being completed and then they’ll get tied-in during the next 2 to 2.5 months.

We should achieve our full year 2014 guidance of 118,000 Boes a day during Q1 we’re thinking probably by middle of the quarter. And that will represent 54% growth in average production for the 2014 over 2013 and that will mean it’s six years in a row that we’ve been able to grow our production year-over-year by over 50%.

Third quarter production of 74,096 Boes per day was reduced by approximately 4,500 Boes a day due to the previously disclosed issues with the third-party client we use at Spirit River. We continue to work with the plant operator and we’ve actually been able to significantly increase production during the past month.

Our full year 2013, average guidances now 76,500 Boes per day which is between our original 2013 guidance of 75,000 Boes per day and the increased guidance announced in Q2 of 80,000 Boes per day, and that will be 51% growth year-over-year. We have exceeded already our liquids exit target for 2013 at 14,500 Boes per day and our guidance was 13,000.

Looking at the financial results. As I mentioned, cash flow of $120.6 million, was up 90% year-over-year. We had strong earnings in Q3 nine months earnings are $91.4 million and it’s really our very strong cost structure that allows us to continue to post earnings and what really is a difficult gas price environment and certainly was in Q3.

Third quarter net debt pro forma the October 8, 2013 equity financing was $503.8 million we expect that 2013 exit debt of $560 million. And that really is 0.8 times annualized anticipated Q4 cash flow of $175 million, so we’ve kept the balance sheet in extremely strong shape. We have now a board approved 2014 EP Capital program of $900 million, we’re expecting full year 2014 cash flow of just over $1 billion, that does assume an AECO natural gas price of $3.86 per Mcf and an oil price of US$97 per barrel. So we can deliver a 54% growth next year with slightly less than a cash flow budget if those commodity price projections are accurate.

Turning to the EP Program, lots of well results just looking that release and with 16 rigs running we’re going to continue to have a series of results to inform investors about. Starting with the Deep Basin, we are the busiest driller in the Alberta Deep Basin we’ve got 10 rigs operating there, 6 are pursuing cretaceous Wilrich horizontal targets and those are at Edson, Minehead, Banshee, Smoky-Horse and Kakwa. Two rigs are pursuing primarily Notikewin horizontal targets, occasionally Bluesky and Cardium. One rig is working the Wilrich in structure targets in the Lovett-Basing area and the tenth rig is drilling vertical wells in pursuit of 3D seismic defined multi objective vertical opportunities along the Western margin of our Deep Basin asset base.

Tourmaline continues to deliver what we think are industry-leading horizontal Wilrich results with several highlights this quarter. The most recent two-well pad at Musreau, Kakwa tested at a final combined rate of 54.6 million per day with 360 barrels per day of free condensate. The most recent Edson Wilrich horizontal at 14 of 19 and that was joint with Perpetual, tested at a final rate of 40 million a day and came on through the new gas plant there at a restricted rate of 20 million per day.

At Minehead very big well at 8-35 final rate of 19.8 million at a flowing pressure of 4.3 MPa and that will come on-stream through our Banshee plant expansion in December. And we have approximately 14 additional Wilrich horizontals to bring on production during the balance of November and December and then going to the plant expansions at Wild River and Banshee both of which remain on schedule for our first half December startup.

Cretaceous Notikewin horizontal well results have also been very strong. Our Marsh well tested at 14.7 million at 6 MPa and we’ll have four additional Notikewin horizontals to bring on stream either at Banshee or Wild River during December. And as I mentioned, both of those plant expansions are right on schedule for the first half December startup.

Moving to BC, NEBC in our Montney condensate asset we got in production as high as 33,000 Boes a day, with that we have an additional approximately 5,000 Boes a day shut-in due to capacity constraints. We will conduct a 50 million per day expansion in the second half of 2014 in BC which will further grow the volumes in Sunrise-Dawson. We’re very excited about the first Montney pad at Sundown utilizing the completion techniques that we’ve been steadily evolving at Sunrise-Dawson which have worked out extremely well. So that three well pad at Sundown tested at a final combined stabilized gas rate of just over 37 million per day. We have in excess of 250 follow-up locations on that very large land block we have down there. So is going to become one of the more significant producing properties for the company over the next two to three years.

In the short term in Q1 we’ll build a 25 million a day facility to bring some of that shut-in production on stream and then ramp-up the facility construction and concert with subsequent drilling. And then finally in the Peace River High with our Charlie Lake Oil Complex it’s probably the most exciting part of the release from our perspective, the Charlie Lake horizontals continue to exceed our expectations. We’ve drilled an additional 20 horizontals since July of this year and that includes four successful pool of delineation wells in Earring and Mulligan which is both 40 miles north of the original Spirit River Pool.

Included in those four delineation wells Earring 15-16, has a 20 day IP of 735 Boes per day and constituting that is 350 barrels a day of oil and 2.3 million a day gas to both 30 API oil. Mulligan 1-14 tested at a final rate of 560 Boes per day constituted of 360 barrels per day of oil both 32 API and 1.2 million a day of gas. And Pingel 1-30 is currently flow testing at 375 barrels per day of oil. And what’s always encouraging on the Peace River High you find multiple horizons that are hydrocarbon charge and that has certainly happened. So in addition to the primary Charlie Lake objective those first five delineation wells have encountered an additional nine separate hydrocarbon bearing zones either above or below the main Charlie Lake objective and those will be pursued in time as well.

In the original Spirit River Pool our first concurrently stimulated horizontal well pair had a final oil test rate or IP rate of just over 2,400 barrels per day, that’s 40 degree API oil and just a little bit of gas so that 0.5 million a day. So we find several more of these concurrently stimulated well pairs along with 65 mile long regional pool and that could lead to a step change improvement in well performance although obviously the current performance that we are getting is quite strong as it is. At Spirit River [Proper] our total productive capacity from the Charlie Lake is 16,000 Boes per day, pool production has been steadily increased from 6,000 Boes per day in September to over 8,000 Boes per day in November. And we’re continuing to work with the plant operator to figure out how to bring a portion of the addition shut-in volumes on stream and right now that totals about 8,000 Boes per day. We ultimately will build our own 100%, owned and operated sour gas injection plant at Spirit River, right now that scheduled for Q3, 2014.

We’re also commencing construction of a battery in the Mulligan area to process the – drilling oil volumes that are coming from that area. So, so far to-date on the play we’ve drilled 60 successful Charlie Lake horizontals both at Spirit River and into the regional extent of the oil pool and zero dry-holes.

Our completed stimulated well costs are averaging between $3.5 million and $4 million right now. Reserves at Spirit River 2P are just under 350,000 stock tank barrels equivalent. We control 485 sections along the regional oil pool which is about 80% of the pool as we currently map it and we now have – we’ve identified internally over 1200 future Charlie Lake horizontal location. So we’re staging, drilling and facility construction to grow volumes to a significant level over the next two years.

And finally on the two exploration part of the program,, our first exploration well at Sunset 11-17 is currently drilling in the upper Paleozoic and if things go well we’re approximately three weeks from encountering the primary objective in the Devonian. And I think that’s all I was going to say about our release of yesterday and so we’ll open it up for questions.

Question-And-Answer Session


Thank you. (Operator Instructions) Our first question is from Robert Bellinski from Morningstar. Please go ahead.

Robert Bellinski – Morningstar

Good morning and thanks for taking the call. I had a question about downspacing at Charlie Lake. You recently had an application for special wells basin approved and I was wondering is this just a one-off opportunity to add a few wells or are there some more white spread implications there? Thanks.

Mike Rose

Well I think ultimately there are white spread implications along the trend of the pool and we are consistently putting in those applications with the EUB to further downspace.

Robert Bellinski – Morningstar

That’s great. Do you have a figure for what you are targeting as far as wells per section at this point or…

Mike Rose

Right now with our location estimate in the Spirit River main pool we’re using three wells per section and along the regional pool outside as Spirit River we are using two. So there is an opportunity down the road as we get more wells to potentially increase that downspacing but right now we’ve got a lot of wells to drill as it is.

Robert Bellinski – Morningstar

Okay, that’s great. Thanks.

Mike Rose

Thank you.


Thank you. (Operator Instructions) We have a question from Ray Kwan of Macquarie. Please go ahead.

Ray Kwan – Macquarie

Hey guys. Just a quick question on the liquids. With your current production in liquids being 14,500 and better than expectations like what’s the main like contribution to that, is that the Charlie Lake that you attributed to and I guess my secondly on a question is just looking at just 2014 how do you think about relative to what you put in your presentation in terms of liquids growth here?

Mike Rose

Well I’ll answer the first part and I think Bryan will probably answer the second part. The increase recently in the liquids production is attributable to growth in the Charlie Lake Oil you are right on that but we’ve also had some significant condensate increases at Musreau-Kakwa and in our BC Montney gas condensate asset. We’ve had significant increases in liquid production there. The new plant that we started up towards the end of July at [indiscernible] has an enhanced shallow cut capabilities so it’s not a deep cut, but we’re recovering more of the liquid stream down to but not including the ethane and that’s produced a bump in liquids production as well. So certainly comes from sort of three main components and as far as 14 Bryan…

Brian Robinson

In 2014 our full year average guidance of 118,000 barrels includes just under 19,000 barrels of oil and liquids. So it starts out in the first quarter contributing 14% of our production and in the final quarter goes to 17% above 75% of those liquids are either oil or condensate.

Ray Kwan – Macquarie

That’s great. And just a second question just more on the Charlie Lake in the newer areas. Is there any differences in API or sour content in the Earring and Mulligan region that you can comment?

Mike Rose

Yeah, the oil gravity little heavier so it’s in the 30-32 API but the associated gas is [Sweden], we can get down to Spirit River, the H2S content varies anywhere from zero to 2.5% H2S but the gravity is 40.

Ray Kwan – Macquarie

Perfect. Thank you.

Mike Rose:


Thank you. (Operator Instructions) And we have no further questions at this time. I’d like to turn the meeting back over to Mr. Kirker.

Scott Kirker

Great. Thanks very much for attending the conference call. And if have any further questions you obviously get hold of the same thing. Thanks.


Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.

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