The associated Management's Discussion and Analysis ("MD&A") dated
Highlights | Three months ended | Nine months ended | ||||
(in thousands, except per share data) | 2019 | 2019 | 2018 | 2019 | 2018 | |
Financial | ||||||
Adjusted funds flow, including | ||||||
transaction related costs (1) | ||||||
Per share basic | ||||||
Per share diluted | ||||||
Adjusted funds flow, excluding | ||||||
transaction related costs (1), (2) | ||||||
Per share basic | ||||||
Per share diluted | ||||||
Net cash from operating activities | ||||||
Net income | ( | ( | ( | |||
Per share basic | ( | ( | ( | |||
Per share diluted | ( | ( | ( | |||
Exploration and development | ||||||
Expenditures (1) | ||||||
Property acquisitions, net of | ||||||
Dispositions (1) | ( | |||||
Net debt (1) | ||||||
Cash dividends declared (3) | ||||||
Dividends declared per common share | ||||||
Common shares | ||||||
Shares outstanding, end of period | 221,812 | 220,338 | 216,637 | 221,812 | 216,637 | |
Weighted average shares (basic) | 221,080 | 219,622 | 216,191 | 219,043 | 205,793 | |
Weighted average shares (diluted) | 224,088 | 221,952 | 218,399 | 222,325 | 208,488 | |
Operations | ||||||
Production | ||||||
Crude oil (Bbls per day) (4) | 23,415 | 23,382 | 23,546 | 23,507 | 20,943 | |
NGL (Bbls per day) | 1,616 | 1,587 | 1,554 | 1,556 | 1,365 | |
Natural gas (Mcf per day) | 20,079 | 20,206 | 18,380 | 19,588 | 18,183 | |
Barrels of oil equivalent (Boepd, 6:1) | 28,378 | 28,337 | 28,163 | 28,328 | 25,339 | |
Average realized price | ||||||
Crude oil ($ per Bbl) | ||||||
NGL ($ per Bbl) | ||||||
Natural gas ($ per Mcf) | ||||||
Barrels of oil equivalent | ||||||
($ per Boe, 6:1) | ||||||
Operating netback per Boe (6:1) | ||||||
Operating netback (1) | ||||||
Operating netback (prior to hedging) (1) | ||||||
Adjusted funds flow netback per Boe (6:1) | ||||||
Including transaction related costs (1) | ||||||
Excluding transaction related costs (1) | ||||||
Wells drilled: | ||||||
Gross | 14 | 25 | 16 | 86 | 86 | |
Net | 11.7 | 19.0 | 15.3 | 68.5 | 71.7 | |
Success (%) | 100 | 100 | 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. | ||||||||||
(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 MESSAGE
TORC 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
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.
HIGHLIGHTS
The 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); and - Proved plus probable FD&A (including future development costs) of
$21.19 /boe resulting in a recycle ratio of 1.5x (2019 operating netback).
RESERVES
In this press release, all references to reserves are to gross Company reserves, meaning TORC's working interest reserves before deductions of royalties and before consideration of TORC's royalty interests. The reserves were evaluated by
The following tables are a summary of TORC's petroleum and natural gas reserves, as evaluated by Sproule, effective
Commencing in 2019, Sproule included additional abandonment, decomissioning and reclamation obligations ("ADR") in the Company's reserves evaluation, which resulted in a decrease in value relative to 2018. This change to the prior years' practices, which were consistent with the reporting of many other companies in the industry, was made based on new guidelines contained within the COGE Handbook, which recommends adopting the best practice of including ADR costs associated with all of the Company's assets evaluated in the Sproule Report. This includes costs for both active and inactive wells, including ADR costs for producing wells, suspended wells, service wells, gathering systems, facilities, and surface land development for all the Company's assets. At year-end 2019, Sproule's evaluation of TORC's before tax NPV10 for ADR related to TORC's 2P, 1P and PDP reserves was
Reserves Summary
Light and Crude Oil (mbbl) | Conventional | NGLs (mbbl) | Total Oil (mboe) | |
Proved | ||||
Developed Producing | 44,176 | 46,000 | 3,641 | 55,484 |
Developed Non-Producing | 1,750 | 2,830 | 173 | 2,394 |
Undeveloped | 25,451 | 32,700 | 2,065 | 32,967 |
Total Proved | 71,378 | 81,531 | 5,879 | 90,845 |
Probable | 37,404 | 49,758 | 3,197 | 48,894 |
Total Proved plus Probable | 108,782 | 131,288 | 9,076 | 139,739 |
Net Present Value of Future Net Revenue
Before Future Income Tax Expenses and Discounted at | |||||
0% | 5% | 10% | 15% | 20% | |
($mm) | ($mm) | ($mm) | ($mm) | ($mm) | |
Proved | |||||
Developed Producing | 1,254 | 1,196 | 1,041 | 913 | 815 |
Developed Non-Producing | 59 | 46 | 37 | 31 | 27 |
Undeveloped | 704 | 472 | 322 | 222 | 153 |
Total Proved | 2,017 | 1,715 | 1,400 | 1,166 | 995 |
Probable | 1,664 | 1,032 | 716 | 533 | 416 |
Total Proved plus Probable | 3,681 | 2,746 | 2,116 | 1,699 | 1,411 |
Future Development Costs
Proved Reserves ($mm) | Proved Plus Probable ($mm) | |
2020 | 153.7 | 186.4 |
2021 | 186.3 | 223.1 |
2022 | 186.7 | 268.1 |
2023 | 120.8 | 235.5 |
Total Undiscounted | 673.1 | 981.4 |
Capital Expenditures and Finding, Development, and Acquisition Costs
Reserves Additions | F&D and FD&A | |||||||||
Excluding Change in Future Development Costs | Capital ($mm) | Proved Developed Producing (mmboe) | Total (mmboe) | Proved (mmboe) | Proved Developed Producing ($/boe) | Total ($/boe) | Proved Plus ($/boe) | |||
Exploration & Development(1) | 180.0 | 10.1 | 10.1 | 10.2 | 17.70 | 17.87 | 17.65 | |||
Acquisitions (net) | 6.7 | 0.5 | 0.8 | 1.3 | 12.44 | 8.17 | 5.15 | |||
Total | 186.7 | 10.6 | 10.9 | 11.5 | 17.43 | 17.14 | 16.24 | |||
Capital Expenditures | Reserves Additions | F&D and FD&A | |||||||
Including Change in Future Development Costs | Total Proved ($mm) | Proved Plus ($mm) | Total (mmboe) | Proved Plus (mmboe) | Total ($/boe) | Proved Plus ($/boe) | |||
Exploration & Development(1) | 211.4 | 228.3 | 10.1 | 10.2 | 20.93 | 22.32 | |||
Acquisitions (net) | 15.0 | 16.0 | 0.8 | 1.3 | 18.31 | 12.33 | |||
Total | 226.3 | 244.3 | 10.9 | 11.5 | 20.73 | 21.19 | |||
1. | Excludes Capitalized G&A of |
Net Asset Value per Share as at
($millions except share and per share amounts) | |
Proved Plus Probable Reserve Value NPV10 (before tax) | 2,116 |
Land and Seismic (1) | 140 |
Net Debt | (350) |
Total Net Assets (basic) | 1,907 |
Basic Common Shares Outstanding (mm) | 222 |
Estimated NAV per Basic Common Share |
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 UPDATE
With 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
TORC's southeast
TORC drilled 47 (35.0 net) southeast
TORC continues to identify more than 400 net undrilled conventional locations in southeast
On the Company's unconventional asset base in southeast
With continued success in the
TORC has been active in a number of areas prospective for unconventional
CARDIUM
TORC 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 GUIDANCE
TORC's
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
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
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
DIVIDEND
In the fourth quarter, TORC declared dividends totaling
The Board of Directors has confirmed a dividend of
OUTLOOK AND SUSTAINABILITY
TORC 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
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 boepd 2020E Exit: 28,500 boepd |
Total Proved plus Probable Reserves (2) | Greater than 139 mmboe (~84% light oil & liquids) |
Southeast Saskatchewan Light Oil Development Inventory | Greater than 400 net undrilled conventional locations Greater than 150 net undrilled Greater than 175 net undrilled unconventional |
Cardium Light Oil Development Inventory | Greater than 290 net undrilled locations |
Sustainability Assumptions (3) | Corporate decline ~23% Current Capital Efficiency |
2020 Capital Program | |
Monthly Dividend | |
Net Debt as at | |
Shares Outstanding | 222 million (basic) |
Tax Pools | Approximately |
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 |
(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.
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, operating netbacks, decline rate and decline profile, product mix, capital expenditure program, capital efficiencies, commodity prices, tax pools and targeted 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 document 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 measures, see the Company's Management's Discussion and Analysis ("MD&A") for the three months and year 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.
"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" 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
Our oil and gas reserves statement for the year ended
This press release contains metrics commonly used in the oil and natural gas industry, such as "recycle ratio", "finding and development costs" or "F&D", "finding, development and acquisition costs" or "FD&A", "reserve replacement ratio", "reserve life index", "operating netbacks", "reserves replacement", "net asset value", "corporate decline" and "capital efficiency" . These terms do not have standardized meanings or standardized methods of calculation and therefore may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Such metrics have been calculated by management and are included herein to provide readers with additional information to evaluate the Company's performance, however such metrics should not be unduly relied upon.
Reserve life index is calculated based on the amount for the relevant reserve category divided by the production forecast as prepared by Sproule. Reserve replacement is calculated by dividing the annual reserve additions in the applicable category by our annual production. Recycle ratio is calculated by dividing the operating netback by the F&D costs or FD&A costs for the year. Finding and development costs are calculated by dividing the sum of the total capital expenditures for the year (in dollars) by the change in reserves within the applicable reserves category (in boe).
F&D costs are calculated on a per boe basis by dividing the aggregate of the change in future development costs from the prior year for the particular reserve category and the costs incurred on exploration and development activities in the year by the change in reserves from the prior year for the reserve category. FD&A costs are calculated on a per boe basis by dividing the aggregate of the change in future development costs from the prior year for the particular reserve category and the costs incurred on exploration and development activities and property acquisitions (net of dispositions) in the year by the change in reserves from the year for the reserve category. Both finding and development costs and finding, development and acquisition costs take into account reserve revisions during the year on a per boe basis. Both F&D costs and FD&A costs take into account reserves revisions during the year on a per boe basis. The aggregate of the costs incurred in the financial year and changes during that year in estimated F&D may not reflect total F&D related to reserves additions for that year. Finding and development costs both including and excluding acquisitions and dispositions have been presented in this press release because acquisitions and dispositions can have a significant impact on our ongoing reserves replacement costs and excluding these amounts could result in an inaccurate portrayal of our cost structure.
Net asset value is value is based on the estimated net present value of all future net revenue from our proved plus probable reserves, discounted at 10%, before tax, as estimated by Sprouleat year-end, with the estimated value of our undeveloped acreage and seismic and net debt. Capital efficiency 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 our estimated oil and gas production decline rate in the normal life cycle of a well.
Management uses oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare TORC's operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this press release, should not be relied upon for investment or other purposes.
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
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