Six months after its “transformative” $1.37-billion ($1 billion in cash plus 10 million common shares) acquisition of Shell Canada’s Deep Basin and Montney assets, Tourmaline Oil is going to stay out of the acquisition market and focus instead on executing a $1.3-billion capital program that will deliver annual production growth of 30 per cent at a less-than-anticipated annual cash flow of $1.4 billion.
Although the company reported a loss of nearly $32 million last year, Mike Rose, Tourmaline’s president and chief executive officer, insists 2016 was actually “a very strong year”: the company grew its reserves to 1.75 billion barrels, pushed production through the 235,000 boe/d mark in the first quarter this year and closed the Shell deal, “one of the best in a long time.”
“And we’ve done all that while keeping the balance sheet in the same extremely strong position,” Rose told a conference call discussing 2016 results. That balance sheet is strengthened by net debt that is forecast to be $1.7 billion by year-end, a mere 1.1 times forecast 2017 cash flow.
As it has for the past few years, Tourmaline will live within its means, funding its capital program entirely from cash flow, with the flexibility to trim spending in the second half if gas prices fail to live up to expectations, Rose said.
“U.S. dry gas production is down between four and five bcf/d from the peak in 2016 and several components of demand are actually up and well ahead of forecast timing, so we remain constructive but cautious,” he said.
Tourmaline, the largest producer in the Deep Basin, continued as the industry leader in all-in cash costs last year, reporting operating, transportation, general and administrative, and financing costs for 2016 of $6.80/boe, a 10 per cent reduction from 2015. And that leadership position, Rose said, isn’t likely to change this year.
“With our very low cost execution machine that we’ve assembled, coupled with our superior subsurface targets, we believe we’ll post amongst the best 2017 operating and financial metrics out there,” he said.
Much of the 2017 spending will be focused on Tourmaline’s Deep Basin assets—including the new leases acquired from Shell—but a promising new area has also been uncovered in the Peace River High complex, where Tourmaline operated three rigs in the first quarter this year pursuing Upper Charlie Lake, Lower Charlie Lake and Montney oil targets.
About 2,250 bbls/d of light oil was brought on stream from these targets in the first quarter, with another 1,500 bbls/d added early in the second quarter.
“We now have 15 horizontals drilled into the Lower Charlie Lake, and we’re pleased with the performance to date,” Rose told a conference call in early May. “We see this as a new resource play opportunity that complements the ongoing development in the Upper Charlie Lake, and of course, we’ll access the infrastructure that’s already been put in place for the development of that Upper Charlie Lake horizon.”