Tourmaline Oil Corp. (OTCPK:TRMLF) Q1 2019 Earnings Conference Call May 9, 2019 11:00 AM ET
Scott Kirker - Secretary & General Counsel
Mike Rose - President & Chief Executive Officer
Brian Robinson - Vice President Finance & Chief Financial Officer
Conference Call Participants
Patrick O'Rourke - AltaCorp Capital
Aaron Swanson - TPH
Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tourmaline Q1 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the conference over to Mr. Scott Kirker. Please, go ahead.
Thank you, Amy, and welcome, everyone, to our discussion of Tourmaline's results for the first quarter of 2019. My name is Scott Kirker, and I'm the Secretary and General Counsel for Tourmaline. Before we get started, I would like to refer you to the advisory and forward-looking statements contained in the news release, as well as the advisories contained in the Tourmaline Annual Information Form and MD&A available on SEDAR and on our website. I'd also like to 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; and Brian Robinson, Vice President Finance and Chief Financial Officer. Mike will start by speaking to some of the highlights of the quarter. And after his remarks, we will be open for questions. Mike, go ahead.
Thanks, Scott. Good morning, everybody, and we're pleased to review our very strong Q1 2019 results. Some of the highlights. First quarter 2019 production averaged over 293,000 boes a day, and that was up 9% over the first quarter of 2018 and 6% over the prior quarter. In March, production averaged over 301,000 boes per day.
First quarter 2019 cash flow was $419 million or $1.54 per fully diluted share and that compared to first quarter CapEx of just over $384 million. Our earnings in Q1 were $87.7 million. Given the growing free cash flow, the company has decided to increase the quarterly cash dividend by 20% to $0.12 per common share from $0.10 per common share.
And major operational highlight is that the construction of the C-60-A Gundy deep-cut gas plant is complete, and we have received all the necessary approvals from the B.C. Oil and Gas Commission to commence production, and we're warming the plant up as we speak.
Looking at production, specifically, full year 2019 average production guidance remains unchanged at 300,000 boes per day, and that breaks down into 290,000 to 300,000 boes per day for the first half of 2019. And then in the second half, we're anticipating production of between 310,000 and 320,000 boes per day.
March 2019 liquids production was just over 55,000 barrels per day, so on track. January and February was impacted by weather-related outages and unplanned facility interruptions in the third -- including third-party facility interruptions on the Peace River High.
We are on track to reach the full year liquids production forecast average of 66,000 barrels per day. The new Gundy deep-cut facility provided significant growth for the final seven months of the year, and it has in fact come on stream a little earlier than what we had in our forecast.
Looking at select financial results for the first quarter. As mentioned, cash flow was $419.2 million. Our Q1, 2019, operating netback was $16.65 per boe. Our natural gas diversification and hedging strategies provided us an average realized natural gas price of CAD 3.59 per MCF and that's a 36% premium over the Q1 AECO index price of $2.64 per MCF.
Q1, 2019, operating costs were $3.49 a boe, and the start-up of Gundy and diversion of third-party volumes into our own operated plant will drop overall corporate OpEx by between $0.10 and $0.15 per boe. Our G&A expenses, up $0.46 per boe in the first quarter, continue to be amongst the lowest in the sector.
Looking at the 2019 capital program, Q1 capital spending of $384.4 million compared to first quarter cash flow of $419 million and that provided $34.8 million of free cash flow in the quarter. And recall that first quarter for us is typically the heaviest capital investment quarter during the year.
We anticipate total Q2 EP capital spending of between $200 million and $210 million or perhaps less. With the early startup of the Gundy plant providing a modest production cushion and the continued reduction of per-well capital cost, we decided to reduce our full year 2019 capital program by a further $25 million to a total for the year of $1.2 billion. And our average production guidance, however, remains unchanged at 300,000 BOEs per day.
As mentioned, we've decided to increase the quarterly cash dividend to $0.12 per common share from $0.10 per share. We continue to pursue a number of capital cost-reduction initiatives. We continue to employ multiple new technologies and field approaches to reduce our drill-and-complete capital costs.
We have reduced capital costs to drill and complete fully stimulated horizontals in all three core operating complex -- complexes by between 40% and 50% over the past six years, and we're seeking a further 10% capital cost reduction over the next two years, and we are well on our way to achieving that target.
We have now trialed 15 monobore drills in the Alberta Deep Basin, and we've realized an average $550,000 per-well capital reduction, so about 25% reduction on the drill cost. And as we more broadly implement this technology, we think the per-well capital cost reduction will realize -- will approach $650,000 per well. So that's certainly a big win.
A bit of an update on our Gundy B.C. project. Construction of the Gundy deep-cut natural gas plant, as mentioned, is complete. And we do have all the necessary approvals from BCOG to commence production. We'll begin circulating hydrocarbons through the plant during the next two weeks with steadily increasing sales volumes expected later this month.
And of note, from driving of the first pile, when we started construction of that plant, that entire 200 million per day gas and liquids deep-cut processing facility took six months and one day to complete and it came in on budget. At Gundy, we have 68 completed Montney horizontals available for production right now and then through ongoing operations on the two pads that we're currently working on.
We'll have another 22 wells available in July as those wells are completed. We continued to reduce our drill-and-complete stimulated well costs at Gundy. The most recent Gundy pacesetter well was drilled in under seven days for a total of $1.27 million. That results in a completed stimulated well cost of around $2.5 million and, of course, we're budgeting $3.3 million to $3.5 million in all of our economics. So those very strong economics that we have are just going to get better.
A little further south in B.C. in our Sunrise-Doe complex, we've realized some of our best results ever in the Lower Montney Turbidite. The C4-6 well averaged 11.7 million of gas and 994 barrels per day of free condensate at the wellhead, 485 barrels per million on a six-day test. And off the same pad, the four or six well averaged just under 13 million a day of gas and just under 1,000 barrels a day of condensate for a liquid cut of about 73 barrels per million. So both very encouraging.
And that's all we had for the formal discussion portion of this conference call. And the three of us are more than happy to answer any questions you might have.
[Operator Instructions] Your first question today comes from the line of Patrick O'Rourke of AltaCorp Capital. Your line is open.
Hey, good morning guys. Strong quarter there. I just had a couple of questions on the B.C. Montney here and, hopefully, this doesn't get too granular for the call. But looking at the results at Gundy, they've been very, very strong. You have a slide in your deck, and looking at a couple of pads, the AF32 and the CF23 seem to be pretty proximal to each other. And the CF23 is pretty good, but the AF32 looks to be absolutely outstanding. Just wondering, if there's anything geologically different between those two pads. It seems like you've tested similar lobes of the Montney there?
I'd say the only thing that was different between the two pads, geologically, they don't look a lot different. Some of the horizontals are landed in different horizons. Remember, we've got four different turbidite lobes that we exploit there. And we were also with a more recent pad changing the completion technique a little bit. So tightening up the number of stages and increasing the number of stages which help with the liquids production.
Okay. And then just one final question here. Looking at Gundy, we just talked about the strong economics there. And I know you guys talked about in the release a lot. This Doe/Lower Montney Turbidite results continue to be outstanding as well. Just wondering how you think about capital allocation between the two plays and what the potential runway is for that Lower Montney Turbidite asset going forward?
At the current time, from a facility standpoint in the southern complex, so Sunrise-Doe/Dawson, we think we're adequately capitalized from a facility's capacity standpoint. So the plan is to keep that jam full. And then we continue to plan further growth at Gundy. So that will be the big growth engine of our B.C. Montney gas condensate complex.
Okay. Thanks a lot.
Yeah, you bet. Thank you.
[Operator Instructions] We do have another question from the line of Aaron Swanson of TPH. Your line is open.
Thanks. I was just wondering about third-party volumes at Gundy. Are you still thinking about using some third-party processing facilities? Or do you think all the productions kind of just go through the new plant?
We expect to have some volumes going through third-party processing options adjacent to our own plant. And the actual magnitude of those volumes will be somewhat contingent on the gas price and the liquid cut.
Okay, perfect. Thanks.
[Operator Instructions] And there are no further questions in queue at this time. I turn the call back to the presenters.
Thanks, Amy. Thanks, everyone, for listening in. Look forward to talking to you next quarter.
And this concludes today's conference call. You may now disconnect.