TORC Oil & Gas Ltd. Announces First Quarter 2014 Financial & Operational Results, Expanded Three Forks/Torquay Budget and Increase to 2014 Guidance
CALGARY, May 14, 2014 /CNW/ - TORC Oil & Gas Ltd. ("TORC" or the "Company") (TSX: TOG) is pleased to announce its financial and operating results for the three month period ended March 31, 2014. The associated Management's Discussion and Analysis ("MD&A") and unaudited interim financial statements as at and for the quarter ended March 31, 2014 can be found at www.sedar.com and www.torcoil.com.
|(in thousands, except per share data)||
March 31, 2014
December 31, 2013
March 31, 2013
|Funds flow from operations, including|
|transaction related costs/recovery (1)||$47,207||$41,458||$15,275|
|Per share basic (2)||$0.52||$0.45||$0.40|
|Per share diluted (2)||$0.50||$0.45||$0.38|
|Funds flow from operations, excluding|
|transaction related costs/recovery (1)||$47,207||$40,769||$15,275|
|Per share basic (2)||$0.52||$0.45||$0.40|
|Per share diluted (2)||$0.50||$0.44||$0.38|
|Net income (loss)||$8,029||($17,841)||$1,130|
|Per share basic (2), (3)||$0.09||($0.20)||$0.03|
|Per share diluted (2), (3)||$0.09||($0.20)||$0.03|
|Exploration and development expenditures||$37,740||$60,075||$49,481|
|Property acquisitions (dispositions), net||($27)||($4,859)||$232|
|Net debt (working capital) (4)||$145,528||$145,183||($38)|
|Common shares (2)|
|Shares outstanding, end of period||91,823||91,423||38,587|
|Weighted average shares (basic)||91,620||91,258||38,587|
|Weighted average shares (diluted)||94,159||92,929||39,755|
|Crude oil and NGL (Bbls per day)||8,924||8,841||3,294|
|Natural gas (Mcf per day)||9,630||7,951||5,677|
|Barrels of oil equivalent (Boepd, 6:1)||10,529||10,166||4,240|
|Average realized price|
|Crude oil and NGL ($ per Bbl)||$92.60||$80.61||$82.06|
|Natural gas ($ per Mcf)||$5.54||$3.61||$3.34|
|Barrels of oil equivalent ($ per Boe, 6:1)||$83.55||$72.93||$68.22|
|Netback per Boe (6:1) ($)|
|Operating netback (1)||$53.49||$47.00||$43.61|
|Operating netback (prior to hedging) (1)||$55.00||$45.92||$43.57|
|Funds flow netback (including transaction related costs) (1)||$49.82||$44.33||$40.02|
|Funds flow netback (excluding transaction related costs) (1)||$49.82||$43.59||$40.02|
Management uses these financial measures to analyze operating
performance and leverage. The definitions of these
measures are found in the Company's MD&A for the three months ended March 31, 2014. These measures do not have
any standardized meaning prescribed by International Financial Reporting Standards and therefore may not be
comparable with the calculation of similar measures for other companies.
In September 2013, the Company consolidated its outstanding common
shares, stock options, incentive shares and
warrants on a 1 for 5 basis. As a result, the number of outstanding common shares, stock options, incentive shares and
warrants of comparative periods have been reduced by a factor of five, in order for the comparative common share, stock
options, incentive shares, warrants, per share and per diluted share amounts to be equivalent.
In the three months ended December 31, 2013, the diluted number of
shares is equivalent to the basic number of shares
due to stock options, incentive shares, performance and restricted awards, and/or warrants being antidilutive. Therefore,
in the calculation of net loss per share in this period, the diluted per share amount is equivalent to the basic per share
Net debt (working capital) is calculated as current assets (excluding
financial derivative assets) less current liabilities
(excluding financial derivative liabilities), bank debt and non-current deferred lease incentives.
TORC has consistently focused on building a sustainable growth platform and the first quarter of 2014 represented the start of another exciting year for TORC on the execution of this disciplined strategy. TORC continued strong operational momentum in the first quarter of 2014, with a very active and successful drilling program in both the Cardium and in southeast Saskatchewan.
The Company's key achievements in the first quarter of 2014 included the following:
Achieved record quarterly production of 10,529 boepd in the first
quarter of 2014, up from 10,166 in the fourth quarter of 2013 and 4,240
boepd in the first quarter of 2013;
Generated cash flow of $47.2 million, up from $40.8 million in the
fourth quarter of 2013 and $15.3 million in the first quarter of 2013;
Cash flow per share increased to $0.52 per share in the first quarter of
2014 as compared to $0.45 in the fourth quarter of 2013 and $0.40 per
share in the first quarter of 2013;
Drilled 13 (8.5 net) wells in the first quarter of 2014 with 100%
At quarter end, the Company was drawn $95 million on an available $350
million credit facility, with net debt of approximately $145 million;
Net debt to annualized first quarter cash flow was less than 0.8 times;
Paid dividends of $0.135 per share to shareholders in the first quarter
Subsequent to the end of the first quarter, entered into multiple on
strategy asset acquisitions in TORC's core Cardium and southeast
Saskatchewan areas adding high netback production, high quality
development drilling locations and adding reserves, production and cash
flow per share without straining the Company's balance sheet;
Pro forma the subsequent acquisitions, TORC estimates net debt to be
approximately $200 million;
Subsequent to quarter end, the Company's bank facility was increased to
Subsequent to quarter end, the Company expanded its 2014 capital
allocation to the emerging Three Forks/Torquay light oil resource play
in southeast Saskatchewan; and
- With continued operational outperformance and subsequent tuck-in acquisition activity, the Company is pleased to increase its 2014 average production forecast to more than 11,000 boepd (~85% light oil and liquids) from the previous 10,300 boepd estimate and 2014 exit production forecast to more than 11,300 boepd (~85% light oil and liquids) from the previous guidance of 10,550 boepd.
TORC's first quarter production averaged 10,529 boepd, achieving a record production level for the Company and continuing the trend of consecutive quarterly production growth since TORC went public in 2012. Strong well performance from new wells drilled and existing low decline production across all of TORC's core areas contributed to this solid production achievement.
TORC spent $38 million on capital activities in the first quarter including drilling 13 (8.5 net) wells with 100% success.
In the first quarter, TORC drilled 9 (6.5 net) Cardium development wells achieving a 100% success rate. With a very active first quarter program, TORC realized cost efficiencies through the continuous nature of the development program. In addition, TORC continues to evolve its completion methodology with the goal of improving frac coverage and ultimately achieving improved production profiles. Specifically, TORC completed the majority of the first quarter Cardium program using slick water fracs with 25 stage intervals, placing 20 tons of sand per interval from our previous completion technique of 20 intervals by 25 tons per interval. TORC believes this revised completion method will result in better frac coverage and ultimately superior long term production performance of the wells.
TORC's budget in the Cardium for 2014 includes the drilling of 29 gross (17.9 net) wells across the Company's land position. The Company has identified more than 275 net undrilled locations on over 90 net light oil development sections. The 2014 budget of 17.9 net wells represents less than 10% of this high quality development inventory.
TORC has identified an area in the heart of the Monarch play which is expected to be the focus of the Company's development efforts. TORC plans to drill three development wells focused on the initial 20 net section development area in 2014 with the first well to be spud in May.
In the fourth quarter of 2013, TORC drilled and completed a delineation well (4-20) located approximately three miles northwest of TORC's 16-2 discovery well. Also in the fourth quarter of 2013, TORC drilled its first development well (14-1) directly offsetting the Company's 16-2 discovery well. The 14-1 well was completed and brought on production in the first quarter of 2014. Both the 4-20 step out well and the 14-1 development well were completed with increased frac intervals and increased tonnage relative to earlier completions. The 4-20 step out well has now been on production for greater than 90 days with an IP 90 production rate of 427 bbls per day of light oil. Total production over this 90 day period was 38,400 bbls of oil, 22 percent greater than the 16-2 discovery well over the same time period. The 14-1 well has also demonstrated encouraging initial production rates in excess of the 16-2 discovery well since being brought on production at the end of the first quarter.
The goal of the 2014 capital program is to demonstrate repeatability and continued optimization in this initial 20 net section development area. TORC estimates that the initial development focus area contains more than 75 net potential development locations. In aggregate, TORC has exposure to over 150 net sections of land at Monarch. The initial development area represents less than 15% of TORC's landholdings in the area.
TORC drilled 4 (2.0 net) southeast Saskatchewan wells in the first quarter of 2014 with a 100% success rate.
In 2014, TORC's budget includes the drilling of approximately 14 net conventional wells in southeast Saskatchewan. This represents approximately 10% of the Company's currently identified conventional development drilling inventory of over 150 net locations. These wells are characterized by their lower risk nature and high rates of return driven by their lower capital costs, high netbacks and the favorable royalty regime in Saskatchewan.
Activity in the Three Forks/Torquay geological zone continued to increase significantly in southeast Saskatchewan during the first quarter of 2014 including drilling and land acquisition activity adjacent to TORC's acreage. TORC drilled an exploration well (0.5 net) into the Three Forks /Torquay play in the fourth quarter of 2013. The well was placed on production at the end of December and produced intermittently in the first quarter of 2014 with an IP 90 production rate of 101 bbls of oil per day. Based on initial results combined with encouraging competitor results, TORC has elected to expand its capital program in this emerging light oil resource play in 2014 to continue to derisk the Company's land position. TORC is budgeting to drill 3.5 net delineation wells across its 70 net sections of prospective acreage during the remainder of 2014.
Subsequent to the end of the first quarter of 2014, TORC entered into multiple on strategy tuck-in asset acquisitions in the Company's core Cardium areas and in its conventional light oil properties in southeast Saskatchewan. These acquisitions represent both increases in working interests and acquisitions of properties adjacent to the Company's current operations resulting in increased efficiencies. On a combined basis, TORC acquired production greater than 800 boepd (75% light oil and liquids) and proven plus probable reserves of over 4 mmboe (internally estimated by a qualified reserves engineer in accordance with NI 51-101 and the COGE Handbook) for a total combined purchase price of approximately $70 million translating into metrics of $87,500 per boepd, $17.50 on a proven plus probable basis, less than 5 times cash flow and a recycle ratio greater than 2.4 times assuming C$90 Edmonton light oil pricing. As the Company is not increasing its core capital expenditure program in 2014, TORC is currently budgeting over $7 million of free cash flow from the acquired assets for the remainder of the year. The asset acquisitions are all being funded through existing credit facilities and the Company currently estimates pro forma net debt to be approximately $200 million.
With stronger than forecast production volumes and higher than forecast commodity prices, TORC's free cash flow has exceeded our initial budget. This additional free cash flow has permitted TORC to increase our 2014 capital expenditures above the $125 million core capital budget. Specifically, the Company will continue to further advance the emerging Three Forks/Torquay light oil resource play in southeast Saskatchewan by increasing our capital budget by $10 million of delineation capital in 2014. These delineation wells will be exploratory in nature, focused on the continued de-risking of this light oil resource play. Due to the exploratory nature of this program, TORC has not budgeted for any production volumes associated with the additional delineation capital.
The capital budget increase for 2014 and the core operating area tuck-in acquisitions will be accomplished without raising equity or stressing the Company's balance sheet with pro forma debt to run rate cash flow of approximately one times.
INCREASED PRODUCTION GUIDANCE
With continued outperformance in all operating areas along with the on strategy tuck-in acquisitions, TORC is increasing its 2014 average production forecast to more than 11,000 boepd (~85% light oil and liquids) from the previous 10,300 boepd estimate and 2014 exit production forecast to more than 11,300 boepd (~85% light oil and liquids) from the previous 10,550 boepd estimate. This production increase represents a 7% production per share increase over TORC's previous exit guidance while maintaining a corporate production decline profile of 25%.
TORC paid dividends totaling $0.135 per share in the first quarter of 2014. The Board of Directors has confirmed a dividend of $0.045 per common share to be paid on June 16, 2014 to common shareholders of record on May 31, 2014.
TORC's shareholders may receive dividend payments in the form of cash or may elect to receive dividend payments in the form of common shares through the Company's Stock Dividend Plan ("SDP"). Participation in the SDP is optional. Shareholders, wherever resident, are encouraged to consult their own tax advisors regarding the tax consequences to them of receiving cash or stock dividends.
During the first quarter of 2014 TORC paid dividends of $12.4 million, of which $4.0 million was issued under the SDP.
TORC has built a sustainable growth platform of light oil focused assets. The stability of the high quality, low decline, light oil assets in southeast Saskatchewan, combined with the low risk Cardium development inventory in central Alberta and exposure to the emerging light oil resource play at Monarch in southern Alberta and to the Three Forks/Torquay play in southeast Saskatchewan, positions TORC for value creation through a disciplined growth strategy and a sustainable dividend.
Based on average production of 11,000 boepd, C$90 Edmonton light oil and C$4.00 per mcf AECO pricing, 2014 cash flow is now estimated at approximately $180 million. With a $125 million core development capital program, a $10 million delineation capital program plus a $38 million cash dividend, TORC's cash requirement to achieve its production forecast plus fund its dividend is approximately $173 million in 2014.
At current commodity prices and pro forma production, run rate cash flow is in excess of $200 million. With current net debt pro forma the subsequent acquisitions of approximately $200 million on a bank line of $375 million, TORC maintains significant financial flexibility and a debt to cash flow ratio of approximately one times.
To provide additional certainty around its guidance, TORC has undertaken an active commodity hedging program to further protect our core capital spending requirements and dividend policy and currently has an average of 4,500 boepd hedged for the remainder of 2014.
TORC has the following key operational and financial attributes:
|High Netback Production||
2014E Avg: greater than 11,000 boepd (~85% light oil & NGLs)
2014E Exit: greater than 11,300 boepd (~85% light oil & NGLs)
|Reserves (1)||Greater than 51 mmboe (84% light oil & NGLs) Total Proved plus Probable|
Southeast Saskatchewan Light Oil
|150 net undrilled locations (<10% to be drilled in 2014)|
|Cardium Light Oil Development Inventory||275 net undrilled locations (<10% to be drilled in 2014)|
|Emerging Light Oil Resource Exposure||
Greater than 150 net sections at Monarch
Greater than 70 net sections of Three Forks/Torquay exposure
Corporate decline ~25%
Light Oil Full Cycle Capital Efficiency ~$40,000/boepd (IP 365)
$45 per boe cash netback ($90 Edm light)
|2014E Cash Flow (2)||~$180 million|
2014 Core Capex
2014 Delineation Capex
2014 Total Capex
|Annual Dividend (paid monthly)||
$0.54 per share
$38 million (net of CPPIB share dividend participation)
|Targeted Growth||5-7% ($90 Edm light)|
|Targeted All-in-Payout Ratio||Less than 100%|
|Net Debt & Bank Line||
Estimated current net debt of $200 million (pro forma subsequent
Bank line of $375 million
|Debt/Cash Flow (pro forma run rate)||~ 1.0x|
|Shares Outstanding||91.8 million (basic)|
|Tax Pools||Greater than $1 billion|
|(1)||Company gross reserves being pro forma TORC's working interest share before deduction of royalties and without including any royalty interests of pro forma TORC. Based on the independent reserve report, effective as of December 31, 2013, prepared by Sproule Associates Limited, and TORC internal evaluations of the subsequent acquisitions, prepared by a qualified reserves evaluator in accordance with NI 51-101 and the COGE Handbook.|
|(2)||Based on $90 Edmonton Light and $4.00 AECO.|
TORC Oil & Gas Ltd. is a Calgary based company active in the acquisition, exploration, development and production of crude oil and natural gas in Western Canada.
Note regarding 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 and other aspects of TORC's 2014 capital budget, strategic objectives, anticipated future operations, dividend increases, financial, operating and production results, operational initiatives and the expected results, including expected 2014 average production, exit production, cash flow, netbacks, decline rates, net debt to cash flow, capital expenditure program, commodity pricing, dividends, targeted growth, tax pools and drilling and development plans and the timing thereof. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding: the Company's objectives; the focus and allocation of TORC's 2014 capital budget; management's view of the characteristics and quality of TORC's assets, including the high quality, low-risk, light oil, high netback, development nature of TORC's properties, the magnitude of opportunities available to the Company on its assets, the production profile and decline rates on the Company's assets, the Company's exposure to large scale resource plays, the repeatability of operations and the drilling inventory available to the Company; production, growth, debt, dividend and payout ratio guidance for 2014; anticipated maintenance capital expenditures and growth capital expenditures in 2014; targeted growth rates; 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 and assumptions 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.
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.
This document contains the term "cash flow" and "netbacks", which do not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with the calculation of similar measures by other companies. TORC uses cash flow and netbacks to analyze financial and operating performance. TORC feels these benchmarks are key measures of profitability and overall sustainability for TORC. Both of these terms are commonly used in the oil and gas industry. Cash flow and operating netbacks are not intended to represent operating profits nor should they be viewed as an alternative to cash flow provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Cash flows are calculated as cash flows from operating activities less changes in non-cash working capital. Netbacks are determined by deducting royalties, production expenses and transportation and selling expenses from oil and gas revenue. TORC calculates cash flow per share using the same method and shares outstanding that are used in the determination of earnings per share.
Information Regarding Disclosure on Oil and Gas Reserves and Operational Information:
Our oil and gas reserves statement for the year ended December 31, 2013, which includes complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, is contained within our Annual Information Form which is available on our SEDAR profile by at www.sedar.com. The recovery and reserve estimates contained herein are estimates only and there is no guarantee that the estimated reserves will be recovered. In relation to the disclosure of estimates for individual properties, such estimates may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. The Company's belief that it will establish additional reserves over time with conversion of probable undeveloped reserves into proved reserves is a forward-looking statement and is based on certain assumptions and is subject to certain risks, as discussed above under the heading "Note regarding forward looking statements".
Meaning of Boe and Boepd
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.
Initial Production Rates
Any references in this news release to initial production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue to produce and decline thereafter. Additionally, such rates may also include recovered fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Initial production or test are not necessarily indicative of long-term performance of the relevant well or fields or of ultimate recovery of hydrocarbons.
SOURCE TORC Oil & Gas Ltd.For further information:
President and Chief Executive Officer
TORC Oil & Gas Ltd.
Telephone: (403) 930-4120
Facsimile: (403) 930-4159
Jason J. Zabinsky
Vice President, Finance and Chief Financial Officer
TORC Oil & Gas Ltd.
Telephone: (403) 930-4120
Facsimile: (403) 930-4159