TORC OIL & GAS LTD.
The associated management's discussion and analysis ('MD&A') and unaudited interim financial statements as at and for the three and nine months ended
PRESIDENT'S MESSAGE
During the third quarter of 2020, TORC maintained a disciplined approach to the economic uncertainty created by the ongoing COVID-19 global pandemic and related volatility of crude oil prices. The Company's top priority remains the health and safety of the Company's employees, contractors, partners, service providers and the communities in which we operate.
TORC's proactive responses to volatility experienced in 2020 continue to demonstrate the Company's focus on the long-term objectives of delivering disciplined growth while displaying the strength and flexibility of the Company's business strategy and asset base.
TORC remains well positioned both operationally and financially to continue to execute the Company's long-term business plan and take advantage of opportunities as they arise.
The Company's key achievements in the third quarter of 2020 included the following: Achieved quarterly production of 24,995 boepd, relative to 24,905 boepd in the second quarter of 2020 and 28,337 boepd in the third quarter of 2019; Generated cash flow of
Reductions in greenhouse gas, methane and fugitive emissions
Reductions in the amount of fresh water used
Continued prevention and reduction of oil and saltwater spills
Continued safety focus and reduction of workplace incidents
Ongoing community engagement and support
Continued efforts to establish best-in-class governance practices including linking executive and employee compensation to environmental, social and governance matters
OPERATIONAL UPDATE
TORC's third quarter production averaged 24,995 boepd with the continued strong performance from the Company's successful first quarter drilling program and the long history of managing the production decline profile. TORC spent a total of
TORC has drilled 19 (15.5 net) wells on the southeast
TORC maintains an inventory of 5 (4.0 net) drilled but uncompleted
On the unconventional
CARDIUM
TORC drilled 3 (3.0 net) Cardium development wells in the first quarter of 2020. The Company has identified more than 290 net undrilled Cardium locations for future development. With a decline profile below 20% and a deep inventory of high quality development locations, the Cardium continues to support TORC's long-term strategy.
CAPITAL BUDGET AND PRODUCTION GUIDANCE
TORC maintains that the revised
Due to the proactive reduction in the 2020 budget, TORC was able to reduce net debt from
TORC's asset base provides flexibility in volatile commodity price environments due to the following key characteristics: greater than 90% operated capital program to control capital spending, low decline rate, year-round access, low capital costs per well, no drilling commitments, limited take-or-pay contracts, and no land expiry concerns.
TORC anticipates announcing the Company's 2021 capital budget and production guidance in December.
DIVIDEND
TORC's dividend strategy is reviewed regularly with the Board of Directors and is an important component of TORC's overall long-term business plan. With the crude oil market experiencing a significant and rapid decline in world prices resulting from severe dynamics coinciding with significant impacts to both supply and demand uncertainty, TORC elected to temporarily suspend the monthly dividend during the second quarter.
TORC will continue to assess the free cash flow profile and dividend policy of the Company following a continued increase in economic activity and stability of oil market dynamics.
OUTLOOK
TORC has developed significant trust and credibility as a corporate citizen, which provides a solid foundation 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 communities where TORC operates.
The stability of the high quality, low decline, light oil assets in southeast
Contact:
Tel: (403) 930-4120
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 2020 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 and nine months ended
'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.
'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 reserves evaluation prepared by Sproule as of
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.
Contact:
Tel: (403) 930-4120
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