TORC Oil & Gas Ltd. Announces 2019 Fourth Quarter and Year-End Financial & Operating Results; 2019 Year-End Reserves; and Increase in 2020 Guidance
February 27, 20203:00 PM PR Newswire
CALGARY – TORC Oil & Gas Ltd. (“TORC” or the “Company”) (TSX: TOG) is pleased to announce financial and operating results for the three months and year ended December 31, 2019 and to provide 2019 year-end reserves information as evaluated by Sproule Associates Limited (“Sproule”).The associated Management’s Discussion and Analysis (“MD&A”) dated February 27, 2020 and audited financial statements as at and for the year ended December 31, 2019 can be found at www.sedar.com and www.torcoil.com. HighlightsThree months endedNine months ended(in thousands, except per share data)December 312019September 302019December 312018December 312019December 312018FinancialAdjusted funds flow, includingtransaction related costs (1)$74,037$73,768$54,389$304,997$287,074Per share basic$0.33$0.34$0.25$1.39$1.39Per share diluted$0.33$0.33$0.25$1.37$1.38Adjusted funds flow, excludingtransaction related costs (1), (2)$74,037$73,768$54,389$304,997$288,824Per share basic$0.33$0.34$0.25$1.39$1.40Per share diluted$0.33$0.33$0.25$1.37$1.39Net cash from operating activities$67,933$62,559$73,653$285,187$294,347Net income($60,593)$5,664($24,398)($37,130)$16,894Per share basic($0.27)$0.03($0.11)($0.17)$0.08Per share diluted($0.27)$0.03($0.11)($0.17)$0.08Exploration and developmentExpenditures (1)$34,026$57,006$54,155$179,993$184,856Property acquisitions, net ofDispositions (1)$6,416($565)$4,020$6,685$292,294Net debt (1)$349,689$369,571$405,293$349,689$405,293Cash dividends declared (3)$11,460$11,434$9,648$43,584$36,062Dividends declared per common share$0.075$0.075$0.066$0.288$0.256Common sharesShares outstanding, end of period221,812220,338216,637221,812216,637Weighted average shares (basic)221,080219,622216,191219,043205,793Weighted average shares (diluted)224,088221,952218,399222,325208,488OperationsProductionCrude oil (Bbls per day) (4)23,41523,38223,54623,50720,943NGL (Bbls per day)1,6161,5871,5541,5561,365Natural gas (Mcf per day)20,07920,20618,38019,58818,183Barrels of oil equivalent (Boepd, 6:1)28,37828,33728,16328,32825,339Average realized priceCrude oil ($ per Bbl)$63.05$64.65$52.34$65.64$67.78NGL ($ per Bbl)$12.71$11.91$28.76$14.16$29.49Natural gas ($ per Mcf)$2.07$0.75$1.40$1.41$1.23Barrels of oil equivalent($ per Boe, 6:1)$54.22$54.55$46.26$56.22$58.50Operating netback per Boe (6:1)Operating netback (1)$30.86$30.90$23.63$32.18$33.93Operating netback (prior to hedging) (1)$30.86$30.90$23.88$32.18$34.28Adjusted funds flow netback per Boe (6:1)Including transaction related costs (1)$28.36$28.30$20.99$29.50$31.04Excluding transaction related costs (1)$28.36$28.30$20.99$29.50$31.23Wells drilled:Gross1425168686Net11.719.015.368.571.7Success (%)100100100100100 (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.(4)Throughout this press release, “crude oil” refers to light and medium crude oil product types as defined by National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). TORC does not have any heavy crude oil production. In addition, throughout this press release, natural gas liquids (“NGL”) comprise all natural gas liquids as defined by NI 51-101 and crude oil and liquids (“light oil and liquids”) refers to light crude oil and NGL.PRESIDENT’S MESSAGETORC has consistently focused on providing shareholders with disciplined growth and a sustainable dividend while preserving financial flexibility and ensuring a consistent decline profile to maintain the future repeatability of the business strategy. 2019 was another strong year in executing this strategy as TORC was successful in achieving debt adjusted per share growth along with growing the monthly dividend to shareholders.Through the execution of a $180 million capital expenditure program in 2019, TORC successfully achieved several strategic operational objectives, including maximizing free cash flow from the Company’s conventional southeast Saskatchewan assets while growing and further delineating the Company’s unconventional assets in southeast Saskatchewan. In central Alberta, the Company continued developing and delineating the Cardium play which remains a core asset built to generate long term free cash flow.TORC’s disciplined approach, focused on an efficient capital program, prudent financial management, and an emphasis on maintaining a low underlying decline profile, positions TORC to take advantage of strategic opportunities as they arise. The Company will continue to be disciplined and focused while being proactive to further position and complement the Company’s asset base and business model.HIGHLIGHTSThe Company’s achievements in the fourth quarter and year ended 2019 include the following:Achieved record production of 28,378 boepd (88% light oil and liquids) in the fourth quarter of 2019 up from 28,163 boepd (89% light oil and liquids) in the fourth quarter of 2018;Average production increased to 28,328 boepd (88% light oil and liquids) in 2019, up from 25,339 boepd (88% light oil and liquids) in 2018;Production growth was achieved while maintaining the Company’s decline rate at approximately 23%;Successfully drilled 14 (11.7 net) wells in the fourth quarter; in 2019, the Company drilled 86 (68.5 net) successful wells;Generated cash flow of $74.0 million in the fourth quarter and $305.0 million for 2019;Cash flow per share was $0.33 per share in the fourth quarter and $1.39 per share for 2019 relative to $0.25 in the fourth quarter of 2018 and $1.40 in 2018;Declared dividends of $0.075 per share in the fourth quarter; declared dividends of $0.288 per share in 2019 up from $0.256 in 2018;Achieved a payout ratio of 73% while growing production on a debt adjusted per share basis;Exited 2019 with a strong balance sheet with net debt of $349.7 million ($303 million drawn on an available credit facility of $500 million) down from $405.3 million at year-end 2018;Increased the Company’s high quality light oil development drilling inventory through organic delineation;Successfully closed a tuck-in acquisition in the Company’s southeast Saskatchewan core area at year-end adding over 200 boepd (greater than 90% light oil), of high netback, low decline assets with a high quality light oil drilling inventory;Proved developed producing reserves increased to 55.5 mmboe at year-end 2019 up from 55.2 mmboe at year-end 2018;Proved reserves increased to 90.8 mmboe at year-end 2019 up from 90.3 mmboe at year-end 2018;Proved plus probable reserves increased to 139.7 mmboe at year-end 2019 up from 138.6 mmboe at year-end 2018;Proved plus probable reserve life index was 13.5 years at year-end 2019;Generated a proved plus probable reserve replacement ratio on production (excluding acquisitions) of 100%;Proved producing F&D of $17.70/boe resulting in a recycle ratio of 1.8x (2019 operating netback);Proved plus probable F&D (including future development costs) of $22.32/boe resulting in a recycle ratio of 1.4x (2019 operating netback); andProved plus probable FD&A (including future development costs) of $21.19/boe resulting in a recycle ratio of 1.5x (2019 operating netback).RESERVESIn this press release, all references to reserves are to gross Company reserves, meaning TORC’s working interest reserves before deductions of royalties and before consideration of TORC’s royalty interests. The reserves were evaluated by Sproule & Associates Limited (“Sproule”) in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) effective December 31, 2019. TORC’s annual information form for the year ended December 31, 2019 (the “AIF”) will contain TORC’s reserves data and other oil and natural gas information as mandated by NI 51-101. TORC expects to file the AIF on SEDAR by March 31, 2020.The following tables are a summary of TORC’s petroleum and natural gas reserves, as evaluated by Sproule, effective December 31, 2019, using Sproule’s year end forecast prices and costs. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. It is important to note that the recovery and reserves estimates provided herein are estimates only. Actual reserves may be greater or less than the estimates provided herein. Reserves information may not add due to rounding.Commencing in 2019, Sproule included additional abandonment, decomissioning and reclamation obligations (“ADR”) in the Company’s reserves evaluation, which resulted in a decrease in value relative to 2018. This change to the prior years’ practices, which were consistent with the reporting of many other companies in the industry, was made based on new guidelines contained within the COGE Handbook, which recommends adopting the best practice of including ADR costs associated with all of the Company’s assets evaluated in the Sproule Report. This includes costs for both active and inactive wells, including ADR costs for producing wells, suspended wells, service wells, gathering systems, facilities, and surface land development for all the Company’s assets. At year-end 2019, Sproule’s evaluation of TORC’s before tax NPV10 for ADR related to TORC’s 2P, 1P and PDP reserves was $69.1 million, $68.9 million, and $66.7 million, respectively, an increase of $38.6 million, $32.6 million, and $35.7 million compared to the corresponding ADR measures at the end of 2018.Reserves Summary Light and MediumCrude Oil(mbbl)Conventional Natural Gas (mmcf)NGLs(mbbl)Total Oil Equivalent(mboe)ProvedDeveloped Producing44,17646,0003,64155,484Developed Non-Producing1,7502,8301732,394Undeveloped25,45132,7002,06532,967Total Proved71,37881,5315,87990,845Probable37,40449,7583,19748,894Total Proved plus Probable108,782131,2889,076139,739Net Present Value of Future Net Revenue Before Future Income Tax Expenses and Discounted at0%5%10%15%20%($mm)($mm)($mm)($mm)($mm)ProvedDeveloped Producing1,2541,1961,041913815Developed Non-Producing5946373127Undeveloped704472322222153Total Proved2,0171,7151,4001,166995Probable1,6641,032716533416Total Proved plus Probable3,6812,7462,1161,6991,411Future Development Costs ProvedReserves($mm)Proved Plus Probable Reserves($mm)2020153.7186.42021186.3223.12022186.7268.12023120.8235.5Total Undiscounted673.1981.4Capital Expenditures and Finding, Development, and Acquisition Costs Reserves AdditionsF&D and FD&AExcluding Change inFuture Development CostsCapital Expenditures($mm)ProvedDevelopedProducing(mmboe)Total Proved(mmboe)Proved Plus Probable(mmboe)ProvedDevelopedProducing($/boe)Total Proved($/boe)Proved Plus Probable($/boe)Exploration & Development(1)180.010.110.110.217.7017.8717.65Acquisitions (net)18.104.22.168.312.448.175.15Total186.710.610.911.517.4317.1416.24 Capital ExpendituresReserves AdditionsF&D and FD&AIncluding Change inFuture Development CostsTotal Proved($mm)Proved Plus Probable($mm)Total Proved(mmboe)Proved Plus Probable(mmboe)Total Proved($/boe)Proved Plus Probable($/boe)Exploration & Development(1)211.4228.310.110.220.9322.32Acquisitions (net)15.016.00.81.318.3112.33Total226.3244.310.911.520.7321.19 1.Excludes Capitalized G&A of $5.7mmNet Asset Value per Share as at December 31, 2019 ($millions except share and per share amounts)Proved Plus Probable Reserve Value NPV10 (before tax)2,116Land and Seismic (1)140Net Debt(350)Total Net Assets (basic)1,907Basic Common Shares Outstanding (mm)222Estimated NAV per Basic Common Share$8.60 1.Includes independent third party estimate of $112mm for approximately 290,500 net acres of non-reserve assigned land and management estimate of $28mm to seismic.OPERATIONAL UPDATEWith continued success of the 2019 capital program and the Company’s solid underlying production profile, TORC achieved record production of 28,378 boepd during the fourth quarter. TORC spent a total of $180 million of exploration and development capital, including drilling 86 (68.5 net) wells.SOUTHEAST SASKATCHEWANTORC’s southeast Saskatchewan conventional assets are characterized by their lower risk nature and high rates of return driven by lower capital costs, high operating netbacks and an attractive royalty regime in Saskatchewan. With a long term production decline profile of less than 20% and high operating netbacks, the southeast Saskatchewan conventional assets yield significant free cash flow in the current commodity price environment.TORC drilled 47 (35.0 net) southeast Saskatchewan conventional wells in 2019, with 6 (5.5 net) wells drilled in the fourth quarter. In 2019, TORC was successful in maintaining a low cost structure in drilling, completion and equipping costs on conventional wells through both operational efficiencies and managing oilfield service costs.TORC continues to identify more than 400 net undrilled conventional locations in southeast Saskatchewan providing numerous years of high quality drilling inventory. In 2020, TORC plans to drill 44 (34.2 net) conventional wells. The focus on TORC’s southeast Saskatchewan conventional properties is to maximize free cash flow.On the Company’s unconventional asset base in southeast Saskatchewan, TORC has been active on the Torquay/Three Forks light oil resource play. During 2019, TORC executed on a development focused program while continuing to selectively delineate the play drilling 13 gross (12.0 net) successful wells. The Company will continue to allocate significant capital to this resource play with plans to drill 13 gross (12.0 net) wells during 2020. TORC has currently identified more than 150 net undrilled locations in the play.With continued success in the Torquay/Three Forks oil resource play, TORC plans to expand its gathering system in 2020 to continue to enhance the benefits of the Company’s centralized facility, which was completed in 2018. With the expansion to the gathering system, TORC will realize benefits through reduced trucking of fluids, reduced requirements for single well batteries, and the ability to use produced water for frac operations, providing economic gains along with environmental, safety and community benefits.TORC has been active in a number of areas prospective for unconventional Midale exploitation, drilling 18 gross (14.7 net) wells in 2019. The Company plans to continue to increase capital allocation to this play in 2020 with 17 (14.8 net) wells in the 2020 budget. The Company has identified 175 net undrilled locations in the unconventional Midale play.CARDIUMTORC has greater than 95 net light oil sections in the Cardium trend where the Company continues to identify more than 290 net undrilled locations on the Company’s asset base. During 2019, the Cardium continued to deliver solid results in this established light oil resource play. TORC drilled a total of 8 (6.8 net) Cardium wells which included drilling 3 (2.5 net) Cardium wells in the fourth quarter.With a decline profile of less than 25%, the Cardium play continues to generate free cash flow in the current commodity price environment supporting the sustainability and repeatability of the Company’s business objectives.In 2020, TORC plans to drill 8 gross (6.7 net) wells across the Company’s land position in the Cardium.CAPITAL PROGRAM AND PRODUCTION GUIDANCETORC’s $190 million capital expenditure budget for 2020 is consistent with the Company’s long term strategic objectives of delivering disciplined per share growth in combination with maintaining financial flexibility while providing a sustainable dividend. TORC’s 2020 capital budget exhibits a measured approach to both the domestic and global volatility in the crude oil price environment and reflects a balance between managing long term objectives, protecting the Company’s strong financial position and sustaining the dividend.TORC’s capital program in 2020 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (approximately 70%), and the remainder allocated to operational and facility optimization to maximize production efficiency. The capital program is concentrated on the Company’s primary core areas in southeast Saskatchewan, focused on both conventional and unconventional opportunities, along with the Cardium play in central Alberta.TORC is also prudently allocating capital in the 2020 budget to infrastructure projects that provide both near term and ongoing economic benefits along with positive environmental impacts.The Company continues to diligently focus on capital efficiency improvements through the combination of operational improvements and capital cost reductions. TORC’s $190 million 2020 capital budget is based on current capital cost realizations.TORC continues to focus on maintaining a payout ratio of less than 100% in 2020 providing flexibility to take advantage of opportunities as they arise.At year-end, 2019 TORC completed a tuck-in acquisition in the Company’s southeast Saskatchewan core area adding approximately 200 boepd (greater than 90% light oil) bringing TORC’s 2019 exit production to more than 28,500 boepd (~88% light oil and liquids). TORC anticipates that by maintaining the previously announced $190 million capital budget, 2020 average and exit production will now be 28,500 boepd (~88% light oil & liquids) up from previous guidance of 28,300 boepd (88% light oil & liquids) while continuing to maintain a decline profile of approximately 23%.DIVIDENDIn the fourth quarter, TORC declared dividends totaling $0.075 per share, or $16.6 million, of which $5.1 million was issued under the Company’s Share Dividend Plan (“SDP”). During 2019, the Company declared dividends totaling $0.288 per share or $63.2 million, of which $19.6 million was issued under the Company’s SDP.The Board of Directors has confirmed a dividend of $0.025 per common share will be paid on March 16, 2020 to shareholders of record on February 29, 2020.OUTLOOK AND SUSTAINABILITYTORC has built a solid 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 developed trust and credibility as a corporate citizen which provides a platform for the long term success of the business. Sustainability of the business includes focusing on overall social responsibility to support strong values and relationships in the workplace and in the communities TORC operates.TORC has the following key operational and financial attributes: High Netback Production (1)2020E Average: 28,500 boepd2020E Exit: 28,500 boepdTotal Proved plus Probable Reserves (2)Greater than 139 mmboe (~84% light oil & liquids)Southeast Saskatchewan Light Oil Development InventoryGreater than 400 net undrilled conventional locationsGreater than 150 net undrilled Torquay/Three Forks locationsGreater than 175 net undrilled unconventional Midale locationsCardium Light Oil Development InventoryGreater than 290 net undrilled locationsSustainability Assumptions (3)Corporate decline ~23%Current Capital Efficiency ~$29,000 per boepd (IP 365)2020 Capital Program$190 millionMonthly Dividend$0.025 per shareNet Debt as at Dec 31, 2019 (4)$349.7 million; $303 million drawnShares Outstanding222 million (basic)Tax PoolsApproximately $1.8 billion Notes:(1)~83% light oil & 5% NGLs.(2)All reserves information in this press release are gross reserves. The reserve information in the foregoing table is derived from the independent engineering report effective December 31, 2019 prepared by 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 Measurements”.An updated corporate presentation can be found at www.torcoil.com.