Tourmaline Oil Corp. Announces Q2 2012 Financial Results - Continues Record Production Growth

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Aug 02, 2012, 17:00 ET

CALGARY, Aug. 2, 2012 /CNW/ - Tourmaline Oil Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to announce results for the six months ended June 30, 2012 and provide an update on its 2012 EP program.

Q2 2012 Highlights

Record Q2 2012 production of 51,022 boepd representing 81% growth over Q2 2011.
Record operating costs of $4.83/boe, a 16% reduction from Q2 2011.
Positive earnings maintained despite a natural gas price 49% below Q2 2011 and 12% below Q1 2012.
Expansion of the Company's credit facility from $375.0 million to $575.0 million.
Record liquids production of 6,560 bpd - a 16% increase from the first quarter of 2012 and a 119% increase over Q2 2011.
Total cash costs⁽¹⁾ of $8.64 per boe - a 16% improvement over the Q1 2012 cash costs of $10.29 per boe.

Production Outlook

Second quarter 2012 production was a record 51,022 boepd, an 81% increase over second quarter 2011 and a 9% increase from the first quarter of 2012. Oil and liquid production of 6,560 bopd in the second quarter of 2012 represented a 119% increase over second quarter 2011 volumes. Full-year 2012 average production guidance was increased to 50,000 boepd from 47,000 boepd during the first quarter of 2012; production for the year is now expected to average between 50,000 and 51,500 boepd. The Company is targeting a 2012 exit production level of between 55,000 and 57,500 boepd. Oil and liquid production is expected to reach between 9,000 and 10,000 bopd by exit 2012. Tourmaline's preliminary 2013 average annual production estimate has been increased from 63,000 to 65,000 boepd, as the strong organic growth is expected to continue.

Second half 2012 and first quarter 2013 production growth will be accomplished by a series of projects and EP programs including:

1)	Completion of the ongoing Musreau plant expansion in September 2012 which will bring onstream approximately 25.0 - 30.0 mmcfpd of the estimated 47.5 mmcfpd currently behind pipe.
2)	The ongoing Deep Basin horizontal drilling program targeting high-rate Wilrich, Falher and Notikewin objectives. The Company expects to have between 25 and 30 new horizontal wells on-stream through existing owned-and-operated gas plants by the end of the first quarter 2013.
3)	Completion of a new 50 mmcfpd gas facility at Dawson-Sunrise late in the first quarter of 2013 - the Company currently has approximately 60 mmcfpd behind pipe and is planning to drill and complete an additional 15-18 Montney horizontal wells during the next nine months.
4)	The ongoing Spirit River horizontal Triassic Charlie Lake infill and pool expansion program will result in approximately 15 new horizontal wells by the end of the first quarter 2013. The majority of these wells will be brought on-stream by the end of Q1 2013.

2012 EP Capital Program and Cash Flow Forecast

Second quarter 2012 capital spending was $53.8 million, compared to $130.1 million during the second quarter of 2011. Full-year 2012 capital spending of $410.0 million is now anticipated, the modest increase is a result of expanded EP programs at Sunrise-Dawson, Musreau, Ansell-Edson and Spirit River. Net debt⁽²⁾ was reduced during the second quarter of 2012 to $334.9 million from $382.4 million at the end of Q1 2012.

The expansion of the Company's credit facility to $575.0 million from $375.0 million was finalized during the second quarter providing Tourmaline with considerable additional financial flexibility. A preliminary 2013 capital program of $525.0 million is currently planned.

Full-year 2012 cash flow is now expected to be $315.7 million ($1.91 per diluted share), resulting in net debt at December 31, 2012 of $282.0 million.

Alberta Deep Basin

Tourmaline is currently operating four drilling rigs in the Alberta Deep Basin, three rigs are pursuing horizontal targets, one is testing vertical targets. Five new gas wells have been drilled thus far in the second half of 2012 and will be completed during the next few weeks. A total of 25 new horizontals and six verticals are anticipated in the Deep Basin during the second half, including outside operated wells. Approximately 15 Wilrich, 9 Notikewin-Falher and 1 Cardium horizontal are planned. The principal 2H 2012 Deep Basin facility project is the Musreau gas plant expansion from 25.0 to 50.0 mmcfpd capacity. The project is proceeding as scheduled with a September 2012 completion date targeted.

Sunrise-Dawson, BC

Tourmaline plans to operate one rig drilling Montney horizontals in the Sunrise-Dawson complex during the second half of 2012. The program will concentrate on the new high-deliverability, liquid-rich Montney turbidite lobes delineated with the Q4 2011/Q1 2012 drilling results. The wells in these new lobes are producing at average initial rates of 15.0 mmcfpd with condensate and NGL rates of between 40 and 50 bbls/mm. The Company currently has approximately 60 mmcfpd of liquid-rich gas production behind pipe and is planning a new 50 mmcfpd gas plant with a late Q1 2013 completion target. This new plant will bring total production from the Sunrise-Dawson complex to between 125.0 - 130.0 mmcfpd and 4,000 - 5,000 bbls/day of condensate and NGLs. Tourmaline's most recent Montney horizontal well in the complex was drilled in 11 days for a record low cost of $1.67 million.

Spirit River, Alberta

Current production from Spirit River is approximately 3,200 bopd of light oil and 14.0 mmcfpd of associated gas. Ongoing drilling in the Phase 1 development area is expected to bring oil production from the complex to 5,000 bopd by Q2 2013. The Company is employing one rig drilling Charlie Lake horizontals with the second half 2012 EP program. Seven of the ten planned horizontals in the second half will focus on oil pool expansion opportunities to the east and south of the initial large pool. Two new horizontals in the peripheral areas have already been drilled in the second half program, with encouraging initial results. The most recent horizontal was drilled in 13.5 days for $1.9 million - a cost record. The most recent horizontal completion was also a record with 18 stages stimulated for $1.6 million total cost.

________________________________________

⁽¹⁾	Cash costs are comprised of royalties, transportation, operating, general and administrative expenses, as well as interest expense.
⁽²⁾	Net debt is defined as long-term bank debt plus working capital (adjusted for the fair value of financial instruments). See "Non-IFRS Financial Measures" in the attached Management's Discussion and Analysis.



CORPORATE SUMMARY - SECOND QUARTER 2012

		Three Months Ended June 30,					Six Months Ended June 30,
		2012			2011	Change	2012		2011		Change
OPERATIONS
Production
	Natural gas (mcf/d)		266,771		151,634	76%		256,631		138,576	85%
	Crude oil and NGL (bbls/d)		6,560		2,991	119%		6,112		2,703	126%
	Oil equivalent (boe/d)		51,022		28,263	81%		48,884		25,799	89%

Product prices⁽¹⁾
	Natural gas ($/mcf)	$	2.23	$	4.38	(49)%	$	2.38	$	4.42	(46)%
	Crude oil and NGL ($/bbl)	$	77.75	$	95.54	(19)%	$	84.11	$	89.96	(7)%

Operating expenses ($/boe)		$	4.83	$	5.74	(16)%	$	5.00	$	5.75	(13)%

Transportation expenses ($/boe)		$	1.85	$	1.98	(7)%	$	1.82	$	1.94	(6)%

Operating netback ($/boe)		$	14.22	$	24.52	(42)%	$	14.84	$	23.84	(38)%

Cash general & administrative expenses($/boe)⁽²⁾		$	0.69	$	1.16	(41)%	$	0.79	$	1.21	(35)%


FINANCIAL ($000, EXCEPT PER SHARE)
Revenue			100,461		86,433	16%		204,599		154,980	32%
Royalties			3,399		3,501	(3)%		11,870		7,730	54%

Funds from operations			61,121		60,415	1%		122,957		105,355	17%
Funds from operations per share		$	0.37	$	0.41	(10)%	$	0.75	$	0.73	3%

Net earnings			1,012		15,192	(93)%		3,988		17,919	(78)%
Net earnings per share		$	0.01	$	0.10	(90)%	$	0.02	$	0.12	(83)%

Capital expenditures			53,831		130,075	(59)%		270,255		347,627	(22)%

Weighted average shares outstanding (diluted)								163,921,951		144,601,769	13%

Net debt								(334,867)		(76,037)	340%

^{____________________________________________
(1)}Product prices include realized gains and losses on financial instrument contracts.
⁽²⁾Excluding interest and financing charges.

Forward-Looking Information

This press release contains forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this press release contains forward-looking information concerning Tourmaline's anticipated petroleum and natural gas production, cash flows, net debt levels, capital efficiency and capital spending, projected operating costs, disposition initiatives, the timing for facility expansions, as well as Tourmaline's future drilling prospects and plans, business strategy, future development and growth opportunities, prospects and asset base. The forward-looking information is based on certain key expectations and assumptions made by Tourmaline, including expectations and assumptions concerning: prevailing commodity prices and exchange rates; applicable royalty rates and tax laws; future well production rates and reserve volumes; the timing of receipt of regulatory approvals; the performance of existing wells; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; and the availability and cost of labour and services. Although Tourmaline 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 Tourmaline can give no assurances that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; marketing and transportation; loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; ability to access sufficient capital from internal and external sources; failure to obtain required regulatory and other approvals; and changes in legislation, including but not limited to tax laws, royalties and environmental regulations.

Also included in this press release is an estimate of Tourmaline's 2012 cash flow, which is based on the various assumptions as to production levels, capital expenditures, and other assumptions disclosed in this press release and including commodity price assumptions for natural gas (AECO - $2.57/mcf) and crude oil (WTI (US) - $94.10/bbl) and an exchange rate assumption of $0.99 (US/CDN). To the extent such estimate constitutes a financial outlook, it was approved by management of Tourmaline on August 2, 2012 and is included to provide readers with an understanding of Tourmaline's anticipated cash flow based on the capital expenditure and other assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.

Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Tourmaline, or its operations or financial results, are included in the Management's Discussion and Analysis forming part of this press release (See "Forward-Looking Statements" therein) and reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Tourmaline's website (www.tourmalineoil.com).

The forward-looking information contained in this press release is made as of the date hereof and Tourmaline undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless expressly required by applicable securities laws.

Additional Reader Advisories

See also "Forward-Looking Statements", "Boe Conversions" and "Non-IFRS Financial Measures" in the attached Management's Discussion and Analysis.

"Funds from operations", "operating netback" and "net debt" as used in this press release are financial measures commonly used in the oil and gas industry, which do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). See "Non-IFRS Financial Measures" in the attached Management's Discussion and Analysis for the definition and description of these terms.

Certain Definitions:

bbls	barrels
boe	barrel of oil equivalent
boepd	barrel of oil equivalent per day
bopd	barrel of oil, condensate or liquids per day
gjsd	gigajoules per day
mmboe	millions of barrels of oil equivalent
mbbls	thousand barrels
mmcf	million cubic feet
mmcfpd	million cubic feet per day
mmcfpde	million cubic feet per day equivalent
mcfe	thousand cubic feet equivalent
mmbtu	million British thermal units

Conference Call Tomorrow at 9:00 a.m. MT (11:00 a.m. ET)

Tourmaline will host a conference call tomorrow, August 3, 2012 starting at 9:00 a.m. MT (11:00 a.m. ET). To participate, please dial 1-888-231-8191 (toll-free in North America), or local dial-in 647-427-7450, a few minutes prior to the conference call.

The conference call ID number is 99191968.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis ("MD&A") should be read in conjunction with Tourmaline's unaudited interim condensed consolidated financial statements and related notes for the six months ended June 30, 2012 and the consolidated financial statements for the year ended December 31, 2011. Both the consolidated financial statements and the MD&A can be found at www.sedar.com. This MD&A is dated August 2, 2012.

The financial information contained herein has been prepared in accordance with International Financial Reporting Standards ("IFRS"). All dollar amounts are expressed in Canadian currency, unless otherwise noted.

Certain financial measures referred to in this MD&A are not prescribed by IFRS. See "Non-IFRS Financial Measures" for information regarding the following Non-IFRS financial measures used in this MD&A: "funds from operations", "operating netback", "working capital (adjusted for the fair value of financial instruments)" and "net debt".

Additional information relating to Tourmaline can be found at www.sedar.com.

Forward-Looking Statements - Certain information regarding Tourmaline set forth in this document, including management's assessment of the Company's future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. Such statements represent Tourmaline's internal projections, estimates or beliefs concerning, among other things, an outlook on the estimated amounts and timing of capital investment, anticipated future debt, production, revenues or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. These statements are only predictions and actual events or results may differ materially. Although Tourmaline believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Tourmaline's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Tourmaline.

In particular, forward-looking statements included in this MD&A include, but are not limited to, statements with respect to: the size of, and future net revenues from, crude oil, NGL (natural gas liquids) and natural gas reserves; future prospects; the focus of and timing of capital expenditures; expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development; access to debt and equity markets; projections of market prices and costs; the performance characteristics of the Company's crude oil, NGL and natural gas properties; crude oil, NGL and natural gas production levels and product mix; Tourmaline's future operating and financial results; capital investment programs; supply and demand for crude oil, NGL and natural gas; future royalty rates; drilling, development and completion plans and the results therefrom; future land expiries; dispositions and joint venture arrangements; amount of operating, transportation and general and administrative expenses; treatment under governmental regulatory regimes and tax laws; and estimated tax pool balances. In addition, statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future.

These forward-looking statements are subject to numerous risks and uncertainties, most of which are beyond the Company's control, including the impact of general economic conditions; volatility in market prices for crude oil, NGL and natural gas; industry conditions; currency fluctuation; imprecision of reserve estimates; liabilities inherent in crude oil and natural gas operations; environmental risks; incorrect assessments of the value of acquisitions and exploration and development programs; competition; the lack of availability of qualified personnel or management; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; hazards such as fire, explosion, blowouts, cratering, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; stock market volatility; ability to access sufficient capital from internal and external sources; the receipt of applicable approvals; and the other risks considered under "Risk Factors" in Tourmaline's most recent annual information form available at www.sedar.com.

With respect to forward-looking statements contained in this MD&A, Tourmaline has made assumptions regarding: future commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment and services; effects of regulation by governmental agencies; and future operating costs.

Management has included the above summary of assumptions and risks related to forward-looking information provided in this MD&A in order to provide shareholders with a more complete perspective on Tourmaline's future operations and such information may not be appropriate for other purposes. Tourmaline's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Company will derive therefrom. Readers are cautioned that the foregoing lists of factors are not exhaustive.

These forward-looking statements are made as of the date of this MD&A and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Boe Conversions - Per barrel of oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent (6:1). Barrel of oil equivalents (Boe) may be misleading, particularly if used in isolation. A Boe conversion ratio of 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.

PRODUCTION

	Three Months Ended			Six Months Ended
	June 30, 2012	June 30, 2011	Change	June 30, 2012	June 30, 2011	Change
Natural Gas (mcf/d)	266,771	151,634	76%	256,631	138,576	85%
Crude oil and NGL (bbl/d)	6,560	2,991	119%	6,112	2,703	126%
Oil equivalent (Boepd)	51,022	28,263	81%	48,884	25,799	89%

Production for the three months ended June 30, 2012, averaged 51,022 Boe/d, an 81% increase over the average production for the same quarter of 2011 of 28,263 Boe/d. Production was 87% natural gas weighted in the second quarter of 2012 compared to 89% natural gas weighted in the second quarter of 2011.

For the six months ended June 30, 2012, production increased 89% to 48,884 Boe/d from 25,799 Boe/d for the same period of 2011.

The Company's significant production growth when compared to 2011 can be attributed to new wells that have been brought on-stream since June 30, 2011, as well as property and corporate acquisitions.

REVENUE

		Three Months Ended					Six Months Ended
(000s)			June 30, 2012		June 30, 2011	Change		June 30, 2012		June 30, 2011	Change
Revenue from:
	Natural Gas	$	54,042	$	60,427	(11)%	$	111,030	$	110,964	-%
	Oil and NGL		46,419		26,006	78%		93,569		44,016	113%
Total revenue from oil, NGL and gas sales		$	100,461	$	86,433	16%	$	204,599	$	154,980	32%

Revenue for the three months ended June 30, 2012, increased 16% to $100.5 million from $86.4 million for the same quarter of 2011. For the six months ended June 30, 2012, revenue was $204.6, a 32% increase over revenue of $155.0 million for the same period of 2011. Revenue growth is consistent with the increase in production over the same periods, partially offset by lower realized natural gas prices. Revenue includes all petroleum, natural gas and NGL sales and realized gains on financial instruments.

TOURMALINE PRICES:

	Three Months Ended					Six Months Ended
		June 30, 2012		June 30, 2011	Change		June 30, 2012		June 30, 2011	Change
Natural Gas ($/mcf)	$	2.23	$	4.38	(49)%	$	2.38	$	4.42	(46)%
Oil and NGL ($/bbl)	$	77.75	$	95.54	(19)%	$	84.11	$	89.96	(7)%
Oil equivalent ($/Boe)	$	21.64	$	33.61	(36)%	$	23.00	$	33.19	(31)%

The realized average natural gas prices for the three and six months ended June 30, 2012 were 49% and 46%, respectively, lower than the same periods of the prior year. Realized crude oil and NGL prices decreased 19% and 7% for the three and six months ended June 30, 2012, respectively, compared to the same periods of 2011.

The realized natural gas price for the quarter ended June 30, 2012 was $2.23/mcf, which is 17% (June 30, 2011 - 12%) higher than the AECO benchmark due to a combination of higher heat content in the Company's Alberta Deep Basin natural gas production and positive commodity contracts. Realized prices exclude the effect of unrealized gains or losses. Once these gains and losses are realized they are included in the per unit amounts.

BENCHMARK OIL AND GAS PRICES:

		Three Months Ended
			June 30, 2012		June 30, 2011	Change
Natural Gas
	NYMEX Henry Hub (US$/mcf)	$	2.35	$	4.38	(46)%
	AECO (Cdn$/mcf)	$	1.91	$	3.90	(51)%
Oil
	NYMEX (US$/bbl)	$	93.35	$	102.34	(9)%
	Edmonton Par (Cdn$/bbl)	$	84.97	$	103.59	(18)%

RECONCILIATION OF AECO INDEX TO TOURMALINE'S REALIZED GAS PRICES:

	Three Months Ended
($/mcf)		June 30, 2012		June 30, 2011	Change
AECO index	$	1.91	$	3.90	(51)%
Heat/quality differential		0.15		0.27	(44)%
Realized gain		0.17		0.21	(19)%
Tourmaline realized natural gas price	$	2.23	$	4.38	(49)%

CURRENCY - EXCHANGE RATES:

	Three Months Ended
		June 30, 2012		June 30, 2011	Change
Cdn/US$	$	0.9898	$	1.0334	(4)%

ROYALTIES

	Three Months Ended				Six Months Ended
(000s)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Natural Gas	$	(3,072)	$	169	$	(2,101)	$	1,609
Oil and NGL		6,471		3,332		13,971		6,121
Total royalties	$	3,399	$	3,501	$	11,870	$	7,730
Royalties as a percentage of revenue		3.4%		4.1%		5.8%		5.0%

For the quarter ended June 30, 2012, the average effective royalty rate decreased to 3.4% compared to 4.1% for the same quarter of 2011. For the six months ended June 30, 2012, the average effective royalty was 5.8% compared to 5.0% for the same period of 2011. Natural gas royalties for both the three and six months ended June 30, 2012, reflect positive GCA adjustments recorded in the second quarter of 2012, as well as, additional royalty incentives on some of the Company's producing wells which were not recorded until approved by the Government.

As a result of the above noted royalty credits received in the second quarter of 2012, the Company now expects its royalty rate for 2012 to be approximately 7% versus the previously forecasted rate of 10%. The royalty rate is sensitive to commodity prices, however, and as such, a change in commodity prices will impact the actual rate.

OTHER INCOME

For the quarter ended June 30, 2012, other income was $1.2 million, which includes $0.7 million in processing income, compared to $1.6 million for the same quarter of 2011, of which $1.2 million related to processing income. For the six months ended June 30, 2012, other income was $2.7 million compared to $2.0 million for the same period of the prior year. Tourmaline continues to build and acquire interests in facilities which have helped to generate increased third-party processing income.

OPERATING EXPENSES

	Three Months Ended					Six Months Ended
($000s, except per unit amounts)		June 30, 2012		June 30, 2011	Change		June 30, 2012		June 30, 2011	Change
Operating expenses	$	22,419	$	14,762	52%	$	44,500	$	26,862	66%
Per Boe	$	4.83	$	5.74	(16)%	$	5.00	$	5.75	(13)%

Operating expenses include all periodic lease and field-level expenses and exclude income recoveries from processing third-party volumes. For the second quarter of 2012, total operating expenses increased 52% from $14.8 million in the second quarter of 2011 to $22.4 million in 2012 attributable to the significant increase in production over the same period. On a per Boe basis, the costs decreased 16% from $5.74/Boe for the second quarter of 2011 to $4.83/Boe in the second quarter of 2012 due to increased production and the impact of redirecting natural gas from third-party facilities to Tourmaline owned-and-operated infrastructure. Tourmaline's operating expenses in the second quarter of 2012 include third-party processing, gathering and compression fees of approximately $4.0 million or 18% of total operating costs (June 30, 2011- $3.2 million or 22% of total operating costs).

For the six months ended June 30, 2012, total operating expenses were $44.5 million, or $5.00/Boe, compared to $26.9 million, or $5.75/Boe for the same period of 2011. Although total operating expenses increased commensurate with production, the costs per Boe decreased 13% reflecting increased operational efficiencies.

The Company now expects its full year 2012 operating costs to average approximately $5.00 per Boe, which is a reduction from its previous guidance of $5.25 per Boe. Actual costs per Boe can change, however, depending on a number of factors including the Company's actual production levels.

TRANSPORTATION

Transportation costs for the three months ended June 30, 2012 were $8.6 million or $1.85 per Boe (three months ended June 30, 2011 - $5.1 million or $1.98 per Boe, respectively). Transportation costs for the six months ended June 30, 2012 were $16.2 million or $1.82 per Boe (six months ended June 30, 2011 - $9.1 million or $1.94 per Boe, respectively). The increase in total transportation costs can be attributed to increased production. On a per-Boe basis, transportation costs for the three and six months ended June 30, 2012 are lower primarily due to the expansion of the Company's owned-and-operated Sunrise plant in December 2011 whereby increased volumes are now going to this plant which is in closer proximity versus previous third-party facilities.

GENERAL & ADMINISTRATIVE EXPENSES ("G&A")

	Three Months Ended					Six Months Ended
(000s)		June 30, 2012		June 30, 2011	Change		June 30, 2012		June 30, 2011	Change
G&A expenses	$	6,043	$	5,898	2%	$	12,883	$	11,505	12%
Administrative and capital recovery		(149)		(780)	(81)%		(338)		(1,588)	(79)%
Capitalized G&A		(2,698)		(2,139)	26%		(5,499)		(4,269)	29%
Total G&A expenses	$	3,196	$	2,979	7%	$	7,046	$	5,648	25%
Per Boe	$	0.69	$	1.16	(41)%	$	0.79	$	1.21	(35)%

G&A expenses for the second quarter of 2012 were $3.2 million compared to $3.0 million for the same quarter of the prior year. G&A costs per Boe for the second quarter of 2012 decreased 41% down to $0.69 per Boe, compared to $1.16 per Boe for the same quarter of 2011.

For the six months ended June 30, 2012, G&A expenses were $7.0 million or $0.79/Boe compared to $5.6 million or $1.21/Boe for the same period of 2011. The increase in G&A expenses in 2012 compared to 2011 is primarily due to office staff additions and higher rent expense as the Company increased its head office space. The higher total G&A expenses result from the need to manage the larger production, reserve and land base. Notwithstanding this, the Company's G&A expenses per Boe continue to trend downward as Tourmaline's production base continues to grow faster than its accompanying G&A costs.

G&A costs for 2012 are not expected to exceed $1.00 per Boe. Actual costs per Boe can change, however, depending on a number of factors including the Company's actual production levels.

SHARE-BASED COMPENSATION

	Three Months Ended				Six Months Ended
(000s)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Share-based payments	$	7,416	$	5,448	$	15,032	$	10,588
Capitalized share-based payments		(3,708)		(2,724)		(7,516)		(5,294)
Total share-based payments	$	3,708	$	2,724	$	7,516	$	5,294
Per Boe	$	0.80	$	1.06	$	0.84	$	1.13

Tourmaline uses the fair value method for the determination of all non-cash related share-based payments. During the second quarter of 2012, 855,000 stock options were granted to employees, officers, directors and key consultants at a weighted-average exercise price of $23.03, and 250,534 options were exercised, bringing $2.3 million of cash into treasury. The Company recognized $3.7 million of share-based compensation expense in the second quarter of 2012 compared to $2.7 million in the second quarter of 2011. Capitalized share-based payments for the second quarter of 2012 were $3.7 million compared to $2.7 million for the same quarter of the prior year.

For the six months ended June 30, 2012, share-based compensation expense totalled $7.5 million and capitalized share-based payments were $7.5 million (2011-$5.3 million and $5.3 million, respectively). The increase in share-based compensation in 2012 compared to 2011 reflects the increased number of employees due to increased activity.

DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A")

	Three Months Ended				Six Months Ended
($000s, except per unit amounts)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Depletion, depreciation and amortization	$	61,790	$	38,561	$	117,797	$	68,869
Per Boe	$	13.31	$	15.00	$	13.24	$	14.75

DD&A expense was $61.8 million for the second quarter of 2012 compared to $38.6 million for the same period of 2011 due to higher production volumes, as well as a larger capital asset base being depleted. The per-unit DD&A rate for the second quarter of 2012 was $13.31/Boe compared to $15.00/Boe for the second quarter of 2011.

For the six months ended June 30, 2012, DD&A expense was $117.8 million (June 30, 2011 - $68.9 million) with an effective rate of $13.24/Boe (June 30, 2011 - $14.75/Boe). The lower DD&A rate, for both the three and six months ended June 30, 2012 compared to the same periods of 2011, reflects strong reserve additions derived from Tourmaline's exploration and production program.

FINANCE EXPENSES

Finance expenses for the three and six months ended June 30, 2012, totalled $2.8 million and $4.9 million and are comprised of interest expense and accretion of provisions (June 30, 2011 - $1.3 million and $2.0 million, respectively). The increased finance expenses are largely due to higher interest expense resulting from a higher balance drawn on the credit facility in 2012.

CASH FLOW FROM OPERATIONS, FUNDS FROM OPERATIONS AND NET EARNINGS

	Three Months Ended					Six Months Ended
		June 30, 2012		June 30, 2011	Change		June 30, 2012		June 30, 2011	Change
Cash flow from operating activities	$	42,566	$	42,112	1%	$	102,093	$	88,998	15%

Funds from operations ⁽²⁾	$	61,121	$	60,415	1%	$	122,957	$	105,355	17%
Funds from operations per share ^{(1) (2)}	$	0.37	$	0.41	(10)%	$	0.75	$	0.73	3%

Net earnings	$	1,012	$	15,192	(93)%	$	3,988	$	17,919	(78)%
Earnings per share ⁽¹⁾	$	0.01	$	0.10	(90)%	$	0.02	$	0.12	(83)%

Operating netback per Boe ⁽²⁾	$	14.22	$	24.52	(42)%	$	14.84	$	23.84	(38)%

⁽¹⁾	Fully diluted
⁽²⁾	See "Non-IFRS Financial Measures"

Funds from operations for the three months ended June 30, 2012 were $61.1 million or $0.37 per diluted share compared to $60.4 million or $0.41 per diluted share for the same period of 2011. For the six months ended June 30, 2012, funds from operations were $123.0 million or $0.75 per diluted share, which is slightly higher than the June 30, 2011, funds from operations of $105.4 million or $0.73 per diluted share. Funds from operations in 2012 reflect increased production over 2011 offset by lower realized natural gas prices.

After-tax earnings for both the three and six months ended June 30, 2012 are lower at $1.0 million ($0.01 per diluted share) and $4.0 million ($0.02 per diluted share), respectively, compared to $15.2 million ($0.10 per diluted share) and $17.9 million ($0.12 per diluted share), respectively, for the same periods of 2011. Although, the after-tax earnings for the first six months of 2012, compared to 2011, reflect increased production, as well as, a gain on divestitures of $7.3 million, they have been impacted by significantly lower realized natural gas prices, as well as, higher depletion, operating and transportation expenses recorded in 2012.

CAPITAL EXPENDITURES

	Three Months Ended				Six Months Ended
(000s)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Land and seismic	$	4,461	$	19,446	$	15,299	$	24,260
Drilling and completions		24,490		34,347		172,785		165,817
Facilities		22,149		44,569		88,156		117,332
Property acquisitions		58		27,972		974		42,748
Property dispositions		(50)		-		(12,568)		(7,009)
Other		2,723		3,741		5,609		4,479
Total cash capital expenditures	$	53,831	$	130,075	$	270,255	$	347,627

During the second quarter of 2012, the Company invested $53.8 million of cash consideration, net of dispositions, compared to $130.1 million for the same period of 2011. Expenditures on exploration and production were $51.1 million compared to $98.4 million for the same quarter of 2011. The lower expenditures in 2012 are a result of a reduced capital budget due to lower commodity prices realized in 2012.

The following table summarizes the drill, complete and tie-in activities for the period:

	Six Months Ended
	June 30, 2012
		Gross	Net
Drilled		25	20.93
Completed		32	27.15
Tied-in		24	20.13

LIQUIDITY AND CAPITAL RESOURCES

On April 4, 2012, the Company issued 1.4 million flow-through common shares at a price of $28.80 per share for gross proceeds of $40.4 million. The proceeds were used to temporarily reduce bank debt and will be used to fund the Company's 2012 capital exploration program.

In June 2012, the Company amended and restated its bank credit facility to be a covenant-based facility rather than a borrowing base facility. This facility is a 3-year extendible revolving facility in the amount of $550 million plus a $25 million operating revolver from a syndicate of six lenders with an initial maturity date of June, 2015. The maturity date may, at the request of the Company and with the consent of the lenders, be extended on an annual basis. The facility is secured by a first ranking floating charge over all assets of the Company and its material subsidiaries. The facility can be drawn in either Canadian or U.S. funds and bears interest at the bank's prime lending rate, bankers' acceptance rates or LIBOR (for U.S. borrowings), plus applicable margins. The facility will provide the Company with greater flexibility by providing access to an additional $200 million over the previous facility.

Under the terms of the bank credit facility, Tourmaline has provided its covenant that, on a rolling four quarter basis: (i) the ratio of EBITDA to interest expense shall equal or exceed 3.5:1, (ii) the ratio of senior debt to EBITDA shall not exceed 3:1, (iii) the ratio of total debt to EBITDA shall not exceed 4:1, and (iv) the ratio of senior debt to total capitalization shall not exceed 0.5:1. As at June 30, 2012, the Company is in compliance with all debt covenants.

At June 30, 2012, Tourmaline had negative working capital of $19.8 million, after adjusting for the fair value of financial instruments (the unadjusted working capital deficiency was $15.3 million) (December 31, 2011 - $146.6 million and $146.3 million, respectively). Management believes the Company has sufficient liquidity and capital resources to fund the remainder of its 2012 and 2013 exploration and development program through expected cash flow from operations and its unutilized bank credit facility. As at June 30, 2012, the Company's bank debt balance was $315.1 million (December 31, 2011 - $81.7 million), and net debt of $334.9 million (December 31, 2011 - $228.3 million).

SHARES OUTSTANDING

As at August 2, 2012, the Company has 160,481,746 common shares outstanding and 14,616,363 stock options granted and outstanding.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

In the normal course of business, Tourmaline is obligated to make future payments. These obligations represent contracts and other commitments that are known and non-cancellable.

Payments Due by Year (000s)		2012		2013		2014		2015		2016 and Thereafter		Total
Operating leases	$	1,273	$	2,266	$	2,121	$	526	$	-	$	6,186
Flow-through obligations		41,177		40,378		-		-		-		81,555
Firm transportation agreements		13,796		29,257		20,842		11,427		718		76,040
Bank debt⁽¹⁾		-		-		-		348,024		-		348,024
	$	56,246	$	71,901	$	22,963	$	359,977	$	718	$	511,805

⁽¹⁾	Includes interest expense at an annual rate of 3.33% being the rate applicable to outstanding bank debt at June 30, 2012.

FINANCIAL RISK MANAGEMENT

The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Board has implemented and monitors compliance with risk management policies.

The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company's activities. The Company's financial risks are discussed in note 5 of the Company's audited consolidated financial statements for the year ended December 31, 2011.

As at June 30, 2012, the Company has entered into certain financial derivative and physical delivery sales contracts in order to manage commodity risk. These instruments are not used for trading or speculative purposes. The Company has not designated its financial derivative contracts as effective accounting hedges, even though the Company considers all commodity contracts to be effective economic hedges. As a result, all such commodity contracts are recorded on the consolidated statement of financial position at fair value, with changes in the fair value being recognized as an unrealized gain or loss on the consolidated statement of income and comprehensive income. The contracts that the Company has entered into in the first half of 2012 are detailed in note 3 of the Company's interim condensed consolidated financial statements for the three and six months ended June 30, 2012.

The following table provides a summary of the unrealized gains and losses on financial instruments for the three and six months ended June 30, 2012:

	Three Months Ended				Six Months Ended
(000s)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Unrealized gain on financial instruments	$	7,343	$	3,122	$	4,977	$	371
Unrealized (loss) on investments held for trading		(84)		(68)		(103)		(86)
Total	$	7,259	$	3,054	$	4,874	$	285

The Company has entered into physical contracts to manage commodity risk. These contracts are considered normal sales contracts and are not recorded at fair value in the consolidated financial statements. These contracts have been disclosed in note 3 of the Company's interim condensed consolidated financial statements for the three and six months ended June 30, 2012.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on a regular basis. The emergence of new information and changed circumstances may result in actual results or changes to estimates that differ materially from current estimates. The Company's use of estimates and judgments in preparing the interim condensed consolidated financial statements is discussed in note 1 of the consolidated financial statements for the year ended December 31, 2011.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Company's Chief Executive Officer and Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and procedures ("DC&P") to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company's Chief Executive Officer and Chief Financial Officer by others, particularly during the periods in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. All control systems by their nature have inherent limitations and, therefore, the Company's DC&P are believed to provide reasonable, but not absolute, assurance that the objectives of the control systems are met.

The Company's Chief Executive Officer and Chief Financial Officer have designed, or caused to be designed under their supervision, internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of the Company's financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. There were no changes in the Company's ICFR during the period beginning on March 31, 2012 and ending on June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR.

It should be noted that a control system, including the Company's disclosure and internal controls and procedures, no matter how well conceived can provide only reasonable, but not absolute assurance that the objectives of the control system will be met and it should not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud.

BUSINESS RISKS AND UNCERTAINTIES

Tourmaline monitors and complies with current government regulations that affect its activities, although operations may be adversely affected by changes in government policy, regulations or taxation. In addition, Tourmaline maintains a level of liability, property and business interruption insurance which is believed to be adequate for Tourmaline's size and activities, but is unable to obtain insurance to cover all risks within the business or in amounts to cover all possible claims.

See "Forward-Looking Statements" in this MD&A and "Risk Factors" in Tourmaline's most recent annual information form for additional information regarding the risks to which Tourmaline and its business and operations are subject.

IMPACT OF NEW ENVIRONMENTAL REGULATIONS

Environmental legislation, including the Kyoto Accord, the federal government's "EcoACTION" plan and Alberta's Bill 3 - Climate Change and Emissions Management Amendment Act, is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Given the evolving nature of the debate related to climate change and the resulting requirements, it is not possible to determine the operational or financial impact of those requirements on Tourmaline.

RECENT PRONOUNCEMENTS ISSUED

The following pronouncements from the IASB will become effective for financial reporting periods beginning on or after January 1, 2013 and have not yet been adopted by the Company. All of these new or revised standards permit early adoption with transitional arrangements depending upon the date of initial application.

		IFRS 9 - Financial Instruments addresses the classification and measurement of financial assets.

		IFRS 10 - Consolidated Financial Statements builds on existing principles and standards and identifies the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company.

		IFRS 11 - Joint Arrangements establishes the principles for financial reporting by entities when they have an interest in arrangements that are jointly controlled.

		IFRS 12 - Disclosure of Interest in Other Entities provides the disclosure requirements for interests held in other entities including joint arrangements, associates, special purpose entities and other off balance sheet entities.

		IFRS 13 - Fair Value Measurement defines fair value, requires disclosure about fair value measurements and provides a framework for measuring fair value when it is required or permitted within the IFRS standards.

		IAS 19 - Employee Benefits revises the existing standard to eliminate options to defer the recognition of gains and losses in defined benefit plans, requires re-measurements of a defined benefit plan's assets and liabilities to be presented in other comprehensive income and increases disclosure.

		IAS 27 - Separate Financial Statements revised the existing standard which addresses the presentation of parent company financial statements that are not consolidated financial statements.

		IAS 28 - Investments in Associate and Joint Ventures revised the existing standard and prescribes the accounting for investments and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

The IASB also issued Presentation of Items of Other Comprehensive Income, an amendment to IAS 1 Financial Statement Presentation. The amendment addresses the presentation of other comprehensive income and requires the grouping of items within other comprehensive income that might eventually be reclassified to the profit and loss section of the income statement. The change becomes effective for financial years after July 1, 2012 with earlier adoption permitted.

The Company has not completed its evaluation of the effect of adopting these standards on its financial statements.

NON-IFRS FINANCIAL MEASURES

This MD&A includes references to financial measures commonly used in the oil and gas industry such as "funds from operations", "operating netback", "working capital (adjusted for the fair value of financial instruments)" and "net debt", which do not have any standardized meaning prescribed by IFRS. Management believes that in addition to net income and cash flow from operating activities; funds from operations, operating netback, net debt and working capital (adjusted for the fair value of financial instruments) are useful supplemental measures in assessing Tourmaline's ability to generate the cash necessary to repay debt or fund future growth through capital investment. Readers are cautioned, however, that these measures should not be construed as an alternative to net income or cash flow from operating activities determined in accordance with IFRS as an indication of Tourmaline's performance. Tourmaline's method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. For these purposes, Tourmaline defines funds from operations as cash provided by operations before changes in non-cash operating working capital, defines operating netback as revenue (excluding processing income) less royalties, transportation costs and operating expenses and defines working capital (adjusted for the fair value of financial instruments) as working capital adjusted for the fair value of financial instruments. Net debt is defined as long-term bank debt plus working capital (adjusted for the fair value of financial instruments).

Funds from Operations

A summary of the reconciliation of cash flow from operating activities (per the statement of cash flow), to funds from operations, is set forth below:

	Three Months Ended				Six Months Ended
(000s)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Cash flow from operating activities	$	42,566	$	42,112	$	102,093	$	88,998
Change in non-cash working capital		18,555		18,303		20,864		16,357
Funds from operations	$	61,121	$	60,415	$	122,957	$	105,355

Operating Netback

Operating netback is calculated on a per-Boe basis and is defined as revenue (excluding processing income) less royalties, transportation costs and operating expenses, as shown below:

	Three Months Ended				Six Months Ended
($/Boe)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Revenue, excluding processing income	$	21.64	$	33.60	$	23.00	$	33.19
Royalties		(0.73)		(1.36)		(1.33)		(1.66)
Transportation costs		(1.85)		(1.98)		(1.82)		(1.94)
Operating expenses		(4.83)		(5.74)		(5.00)		(5.75)
Operating netback ⁽¹⁾	$	14.22	$	24.52	$	14.84	$	23.84

⁽¹⁾	May not add due to rounding.

Working Capital (Adjusted for the Fair Value of Financial Instruments)

A summary of the reconciliation of working capital to working capital (adjusted for the fair value of financial instruments) is set forth below:

(000s)		As at June 30, 2012		As at December 31, 2011
Working capital/(deficit)	$	(15,311)	$	(146,317)
Fair value of financial instruments - short-term (asset)/liability		(4,498)		(276)
Working capital/(deficit) (adjusted for the fair value of financial instruments)	$	(19,809)	$	(146,593)

Net Debt

A summary of the reconciliation of net debt is set forth below:

(000s)		As at June 30, 2012		As at December 31, 2011
Bank debt	$	(315,058)	$	(81,749)
Working capital/(deficit)		(15,311)		(146,317)
Fair value of financial instruments - short-term (asset)/liability		(4,498)		(276)
Net debt	$	(334,867)	$	(228,342)

SELECTED QUARTERLY INFORMATION

	2012		2011				2010
($000s, unless otherwise noted)	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Q3
PRODUCTION
Crude oil and NGL(bbls)	596,992	515,408	415,074	316,890	272,184	217,121	236,502	147,997
Gas (mcf)	24,276,149	22,430,621	18,437,079	17,058,132	13,798,653	11,283,617	11,251,067	9,502,337
Oil equivalent (Boe)	4,643,016	4,253,845	3,487,920	3,159,912	2,571,959	2,097,724	2,111,680	1,731,720
Crude oil and NGL (bbls/d)	6,560	5,664	4,512	3,444	2,991	2,412	2,571	1,609
Gas (mcf/d)	266,771	246,490	200,403	185,414	151,634	125,374	122,294	103,286
Oil equivalent (Boe/d)	51,022	46,746	37,912	34,347	28,263	23,308	22,953	18,823
FINANCIAL
Gross revenue, net of royalties	105,567	94,781	98,309	98,225	87,551	62,019	63,340	46,822
Cash flow from operating activities	42,566	59,527	61,801	77,622	42,112	46,886	46,109	40,685
Funds from operations ⁽¹⁾	61,121	61,836	73,311	62,686	60,415	44,940	44,940	31,250
Per diluted share	0.37	0.38	0.45	0.40	0.41	0.32	0.34	0.25
Net earnings	1,012	2,976	16,074	8,688	15,192	2,727	5,865	428
Per basic share	0.01	0.02	0.10	0.06	0.11	0.02	0.05	0.00
Per diluted share	0.01	0.02	0.10	0.06	0.10	0.02	0.04	0.00
Total assets	2,862,502	2,878,261	2,711,024	2,517,607	2,030,285	1,936,836	1,816,043	1,546,820
Working capital	(15,311)	(176,029)	(146,317)	(120,080)	(31,963)	(139,138)	(49,642)	(78,205)
Working capital (adjusted for the fair value of financial instruments)⁽¹⁾	(19,809)	(175,696)	(146,593)	(123,858)	(31,592)	(136,933)	(49,170)	(78,314)
Capital expenditures	53,831	216,424	232,167	249,162	130,075	217,553	217,064	151,944
Total outstanding shares (000s)	160,459	158,807	158,578	151,906	145,215	138,124	136,191	123,841
PER UNIT
Gas ($/mcf)	2.23	2.54	3.76	4.25	4.38	4.48	4.17	4.36
Crude oil and NGL ($/bbl)	77.75	91.48	93.05	87.01	95.54	83.00	75.94	70.49
Revenue ($/Boe)	21.64	24.48	30.95	31.67	33.61	32.68	30.74	29.94
Operating netback ($/Boe) ⁽¹⁾	14.22	15.52	21.39	21.21	24.52	22.99	22.66	19.12

⁽¹⁾	See Non-IFRS Financial Measures.

The oil and gas exploration and production industry is cyclical in nature. The Company's financial position, results of operations and cash flows are principally impacted by production levels, and commodity prices, particularly natural gas prices. The Company has had continued growth over the last eight quarters summarized in the table above. The Company's average annual production has increased from 17,856 Boe per day in 2010 to 31,007 Boe per day in 2011, and 48,884 Boe per day in the first half of 2012. The production growth can be attributed to both the Company's exploration and development activities, as well as, from acquisitions of producing properties. Over the same period, natural gas prices have declined, with the largest declines occurring in 2012. The Company's cash flows from operating activities were $143.3 million in 2010, $228.4 million in 2011, and 2012 estimated cash flows (based on the first six months annualized) of $204.2 million. The 2012 estimated cash flows reflect the effects of the lower realized natural gas prices in 2012. Commodity price changes can indirectly impact expected production by changing the amount of funds available to reinvest in exploration, development and acquisition activities in the future. Decreases in commodity prices not only reduce revenues and cash flows available for exploration, they may also challenge the economics of potential capital projects by reducing the quantities of reserves that are commercially recoverable. The Company's capital program is dependent on cash flows generated from operations and access to capital markets.

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(000s) (unaudited)			June 30, 2012		December 31, 2011
Assets
Current assets:
	Accounts receivable	$	40,790	$	60,799
	Prepaid expenses and deposits		3,082		5,313
	Fair value of financial instruments (note 3)		4,498		276
			48,370		66,388
Investments			-		233
Fair value of financial instruments (note 3)			681		-
Exploration and evaluation assets (note 4)			617,899		620,515
Property, plant and equipment (note 5)			2,195,552		2,023,888
		$	2,862,502	$	2,711,024
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities	$	63,681	$	212,705
			63,681		212,705
Bank debt (note 7)			315,058		81,749
Decommissioning obligations (note 6)			52,427		50,463
Long-term obligation			9,001		10,864
Fair value of financial instruments (note 3)			-		74
Deferred premium on flow-through shares			17,017		11,316
Deferred taxes			115,205		107,977
Shareholders' equity:
	Share capital (note 9)		2,176,790		2,140,660
	Non-controlling interest (note 8)		15,802		15,079
	Contributed surplus		61,172		47,776
	Retained earnings		36,349		32,361
			2,290,113		2,235,876
		$	2,862,502	$	2,711,024

Commitments (note 12)
Subsequent events (note 3)
See accompanying notes to the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

		Three Months Ended				Six Months Ended
(000s) except per-share amounts (unaudited)			June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Revenue:
	Oil and natural gas sales	$	96,324	$	83,705	$	195,097	$	146,986
	Royalties		(3,399)		(3,501)		(11,870)		(7,730)
			92,925		80,204		183,227		139,256
	Realized gain on financial instruments		4,137		2,728		9,502		7,994
	Unrealized gain on financial instruments (note 3)		7,259		3,054		4,874		285
	Other income		1,246		1,565		2,745		2,035
			105,567		87,551		200,348		149,570
Expenses:
	Operating		22,419		14,762		44,500		26,862
	Transportation		8,611		5,103		16,159		9,083
	General and administration		3,196		2,979		7,046		5,648
	Share-based payments		3,708		2,724		7,516		5,294
	(Gain)/loss on divestitures		(66)		-		(7,272)		3,630
	Depletion, depreciation and amortization		61,790		38,561		117,797		68,869
			99,658		64,129		185,746		119,386
Results from Operating Activities			5,909		23,422		14,602		30,184
Finance expenses			2,805		1,304		4,936		2,033
Income before taxes			3,104		22,118		9,666		28,151
	Deferred taxes		1,781		6,655		4,955		9,786
Net income and comprehensive income for the period before non-controlling interest			1,323		15,463		4,711		18,365
Net income and comprehensive income attributable to:
	Shareholders of the Company		1,012		15,192		3,988		17,919
	Non-controlling interest (note 8)		311		271		723		446
		$	1,323	$	15,463	$	4,711	$	18,365

Income per share attributable to common shareholders (note 10)
	Basic	$	0.01	$	0.11	$	0.03	$	0.13
	Diluted	$	0.01	$	0.10	$	0.02	$	0.12

See accompanying notes to the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(000s) except per-share amounts (unaudited)
		Share Capital		Contributed Surplus		Retained Earnings		Non- Controlling Interest		Total Equity
Balance at December 31, 2011	$	2,140,660	$	47,776	$	32,361	$	15,079	$	2,235,876
Issue of common shares (note 9)		31,867		-		-		-		31,867
Share issue costs, net of tax		(1,608)		-		-		-		(1,608)
Share-based payments		-		7,516		-		-		7,516
Capitalized share-based payments		-		7,516		-		-		7,516
Options exercised (note 9)		5,871		(1,636)		-		-		4,235
Income attributable to common shareholders		-		-		3,988		-		3,988
Income attributable to non-controlling interest		-		-		-		723		723
Balance at June 30, 2012	$	2,176,790	$	61,172	$	36,349	$	15,802	$	2,290,113


(000s) except per-share amounts (unaudited)
		Share Capital		Contributed Surplus		Retained Earnings/(Deficit)		Non- Controlling Interest		Total Equity
Balance at December 31, 2010	$	1,508,052	$	29,262	$	(10,320)	$	13,909	$	1,540,903
Issue of common shares		213,695		-		-		-		213,695
Share issue costs, net of tax		(7,568)		-		-		-		(7,568)
Share-based payments		-		5,294		-		-		5,294
Capitalized share-based payments		-		5,294		-		-		5,294
Options exercised		7,694		(2,148)		-		-		5,546
Income attributable to common shareholders		-		-		17,919		-		17,919
Income attributable to non-controlling interest		-		-		-		446		446
Balance at June 30, 2011	$	1,721,873	$	37,702	$	7,599	$	14,355	$	1,781,529

See accompanying notes to the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOW

			Three Months Ended				Six Months Ended
(000s) (unaudited)				June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Cash provided by (used in):
Operations:
	Net income		$	1,012	$	15,192	$	3,988	$	17,919
	Items not involving cash:
		Depletion and depreciation		61,790		38,561		117,797		68,869
		Accretion		308		341		615		674
		Share-based payments		3,708		2,724		7,516		5,294
		Deferred taxes		1,781		6,655		4,955		9,786
		Unrealized (gain) on financial instruments (note 3)		(7,259)		(3,054)		(4,874)		(285)
		Realized (gain) on sale of investments		(38)		-		(38)		-
		(Gain)/loss on divestitures		(66)		-		(7,272)		3,630
		Non-controlling interest		311		271		723		446
	Decommissioning expenditures			(426)		(275)		(453)		(978)
	Changes in non-cash operating working capital			(18,555)		(18,303)		(20,864)		(16,357)
				42,566		42,112		102,093		88,998
Financing:
	Issue of common shares			42,673		176,712		44,613		226,984
	Share issue costs			(1,700)		(7,590)		(2,145)		(10,054)
	Increase in bank debt			108,388		6,810		233,309		44,445
				149,361		175,932		275,777		261,375
Investing:
	Exploration and evaluation			(8,413)		(55,709)		(34,031)		(107,928)
	Property, plant and equipment			(45,410)		(46,394)		(247,818)		(203,960)
	Property acquisitions			(58)		(27,972)		(974)		(42,748)
	Proceeds from divestitures			50		-		12,568		7,009
	Proceeds from sale of investments			168		-		168		338
	Repayment of long-term obligation			(932)		(931)		(1,863)		(1,863)
	Changes in non-cash investing working capital			(137,332)		(87,038)		(105,920)		(66,381)
				(191,927)		(218,044)		(377,870)		(415,533)
Changes in cash				-		-		-		(65,160)
Cash, beginning of period				-		-		-		65,160
Cash, end of period			$	-	$	-	$	-	$	-

Cash is defined as cash and cash equivalents.
See accompanying notes to the interim condensed consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2012 and 2011
(tabular amounts in thousands of dollars, unless otherwise noted) (unaudited)

Incorporation:

Tourmaline Oil Corp. (the "Company") was incorporated under the laws of the Province of Alberta on July 21, 2008. The Company is engaged in the acquisition, exploration, development and production of petroleum and natural gas properties. The Company is engaged in the exploration for, and development and production of, oil and natural gas and conducts many of its activities jointly with others. These consolidated financial statements reflect only the Company's proportionate interest in such activities.

The Company's registered office is located at 3700, 250 - 6^th Avenue S.W., Calgary, Alberta, Canada T2P 3H7.

1. BASIS OF PREPARATION

These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting". These unaudited interim condensed consolidated financial statements do not include all of the information and disclosure required in the annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2011.

The accounting policies and significant accounting judgments, estimates, and assumptions used in these unaudited interim condensed consolidated financial statements are consistent with those described in Notes 1 and 2 of the Company's audited consolidated financial statements for the year ended December 31, 2011.

The unaudited interim condensed consolidated financial statements were authorized for issue by the Board of Directors on August 2, 2012.

2. DETERMINATION OF FAIR VALUE

A number of the Company's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement purposes based on the following method. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Measurement:

Tourmaline classifies the fair value of transactions according to the following hierarchy based on the amount of observable inputs used to value the instrument.

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1. Prices are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.
Level 3 - Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

3. FINANCIAL RISK MANAGEMENT

The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company's activities. The Company's financial risks are consistent with those discussed in note 5 of the Company's audited consolidated financial statements for the year ended December 31, 2011.

As at June 30, 2012, the Company has entered into certain financial derivative and physical delivery sales contracts in order to manage commodity risk. These instruments are not used for trading or speculative purposes. The Company has not designated its financial derivative contracts as effective accounting hedges, even though the Company considers all commodity contracts to be effective economic hedges. As a result, all such commodity contracts are recorded on the interim condensed consolidated statement of financial position at fair value, with changes in the fair value being recognized as an unrealized gain or loss on the interim condensed consolidated statement of income and comprehensive income.

The Company has entered into the following financial derivative contracts since December 31, 2011 to June 30, 2012:

Type of Contract

Quantity

Time Period

Contract Price

Fair Value

Financial Swap

100 bbls/d

July 2012 - June 2013

US$100.10/bbl

478

Financial Swap

100 bbls/d

August 2012 - July 2013

US$101.10/bbl

503

Financial Swap

100 bbls/d

August 2012 - December 2013

US$100.60/bbl

672

Financial Swap

100 bbls/d

January 2013 - December 2013

US$101.05/bbl

468

Financial Swap

100 bbls/d

July 2012 - March 2013

US$103.30/bbl

461

Financial Swap

100 bbls/d

January 2013 - December 2013

US$101.45/bbl

483

Financial Swap

100 bbls/d

January 2013 - December 2013

US$103.40/bbl

555

Financial Swap⁽¹⁾

400 bbls/d

April 2012 - December 2012

US$109.00/bbl

1,711

Swaption⁽¹⁾

400 bbls/d

January 2013 - December 2013

US$108.00/bbl

(186)

⁽¹⁾	This is a combined transaction (European swaption) whereby the Company provided the option to extend an oil swap into 2013 to realize a higher price on an oil swap in 2012. The option to extend can only be exercised on December 31, 2012.

The following contracts were entered into subsequent to June 30, 2012:

Type of Contract

Quantity

Time Period

Contract Price

Financial Swap⁽¹⁾

100 bbls/d

July 2013 - December 2013

US$99.00/bbl

Swaption⁽¹⁾

100 bbls/d

January 2014 - December 2014

US$100.00/bbl

Financial Swap⁽¹⁾

100 bbls/d

July 2013 - December 2013

US$97.50/bbl

Swaption⁽¹⁾

100 bbls/d

January 2014 - December 2014

US$100.00/bbl

Financial Swap⁽²⁾

10,000 MMbtu/d

January 2013 - December 2013

US$4.15/MMbtu

Swaption⁽²⁾

10,000 MMbtu/d

January 2014 - December 2014

US$4.15/MMbtu

⁽¹⁾	This is a combined transaction (European swaption) whereby the Company provided the option to extend an oil swap into 2014 to realize a higher price on an oil swap in 2013. The option to extend can only be exercised on December 31, 2013.
(2)	This is a combined transaction (European swaption) whereby the Company provided the option to extend a natural gas swap into 2014 to realize a higher price on a natural gas swap in 2013. The option to extend can only be exercised on December 23, 2013.

On May 29, 2012, the Company entered into an interest rate swap. The following table outlines the realized and unrealized losses on the interest rate contract recorded on the consolidated statement of income and comprehensive income for the three and six months ended June 30, 2012:

(000s)

Term

Type (Floating
to Fixed)

Amount

Company Fixed
Interest Rate (%)

Counter Party
Floating Rate Index

Realized
(Loss)

Unrealized
(Loss)

May 29, 2012-
May 29, 2014

Swap

$150,000

1.35%

Floating Rate

(16)

(607)

The following table provides a summary of the unrealized gains/(losses) on financial instruments for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended				Six Months Ended
(000s)		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Unrealized gain on financial instruments	$	7,343	$	3,122	$	4,977	$	371
Unrealized (loss) on investments held for trading		(84)		(68)		(103)		(86)
Total	$	7,259	$	3,054	$	4,874	$	285

As at June 30, 2012, if the future strip prices for oil were $1.00 per bbl higher, with all other variables held constant, before-tax earnings would have been $0.6 million (June 30, 2011 - $0.4 million) lower. An equal and opposite impact would have occurred to before-tax earnings and the fair value of the derivative contracts liability if oil prices were $1.00 per bbl lower. In addition to the financial commodity contracts discussed above, the Company has entered into physical contracts to manage commodity risk. These contracts are considered normal sales contracts and are not recorded at fair value in the consolidated financial statements.

The Company has entered into the following physical contracts since December 31, 2011 to June 30, 2012:


Type of Contract	Quantity	Time Period	Contract Price
AECO/Nymex Differential Swap	6,000 MMbtu/d⁽¹⁾	February 2012 - December 2012	Nymex less USD$0.42/MMbtu
AECO/Nymex Differential Swap	5,000 MMbtu/d	February 2012 - December 2012	Nymex less USD$0.325/MMbtu
AECO/Nymex Differential Swap	7,000 MMbtu/d	February 2012 - December 2012	Nymex less USD$0.44/MMbtu
AECO/Nymex Differential Swap	5,000 MMbtu/d	November 2012 - March 2013	Nymex less USD$0.405/MMbtu
AECO/Nymex Differential Swap	5,000 MMbtu/d	November 2012 - October 2013	Nymex less USD$0.445/MMbtu
AECO/Nymex Differential Swap	10,000 MMbtu/d	November 2012 - October 2013	Nymex less USD$0.3975/MMbtu
AECO Costless Collar	5,000 Gjs/d	July 2012 - December 2012	$1.70/GJ floor - $2.15/GJ ceiling
AECO Costless Collar	5,000 Gjs/d	July 2012 - December 2012	$1.80/GJ floor - $2.25/GJ ceiling

⁽¹⁾	This is a restructuring of a previously held contract whereby the volumes, contract price and time period of the contract were amended subsequent to December 31, 2011.

The following contracts were entered into subsequent to June 30, 2012:


Type of Contract	Quantity	Time Period	Contract Price
AECO/Nymex Differential Swap	5,000 MMbtu/d	November 2012 - December 2013	Nymex less USD$0.425/MMbtu
AECO/Nymex Differential Swap	10,000 MMbtu/d	January 2013 - December 2013	Nymex less USD$0.4575/MMbtu
AECO/Nymex Differential Swap	10,000 MMbtu/d	January 2014 - December 2014	Nymex less USD$0.415/MMbtu

4. EXPLORATION AND EVALUATION ASSETS

(000s)
As at December 31, 2011		$	620,515
	Capital expenditures		37,123
	Transfers to property, plant and equipment (note 5)		(37,968)
	Acquisitions		199
	Divestitures		(1,970)
As at June 30, 2012		$	617,899

General and administrative expenditures for the six months ended June 30, 2012 of $2.7 million (December 31, 2011 — $8.2 million) have been capitalized and included as exploration and evaluation assets. Non-cash share-based payments in the amount of $3.1 million (December 31, 2011 - $9.4 million) were also capitalized and included in exploration and evaluation assets.

5. PROPERTY, PLANT AND EQUIPMENT

Cost

(000s)
As at December 31, 2011		$	2,276,303
	Capital expenditures		252,242
	Transfers from exploration and evaluation (note 4)		37,968
	Change in decommissioning liabilities (note 6)		1,946
	Acquisitions		775
	Divestitures		(3,470)
As at June 30, 2012		$	2,565,764

Accumulated Depletion, Depreciation and Amortization

(000s)
As at December 31, 2011		$	252,415
	Depletion, depreciation and amortization		117,797
As at June 30, 2012		$	370,212

Net Book Value

(000s)
As at December 31, 2011	$	2,023,888
As at June 30, 2012	$	2,195,552

General and administrative expenditures for the six months ended June 30, 2012 of $2.8 million (December 31, 2011 - $1.8 million) have been capitalized and included as costs of oil and natural gas properties. Also included in oil and natural gas properties are non-cash share-based payments of $4.4 million (December 31, 2011 - $2.3 million).

Future development costs for the six months ended June 30, 2012 of $1,596 million (December 31, 2011 - $1,539 million) were included in the depletion calculation.

6. DECOMMISSIONING OBLIGATIONS

The Company's decommissioning obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Company estimates the total undiscounted amount of cash flow required to settle its decommissioning obligations is approximately $73.3 million (December 31, 2011 - $72.5 million), with some abandonments expected to commence in 2021. A risk-free rate of 2.49% (December 31, 2011 - 2.49%) and an inflation rate of 2.0% (December 31, 2011 - 2.0%) were used to calculate the fair value of the decommissioning obligations.

(000s)			Six Months Ended June 30, 2012		Year Ended December 31, 2011
Balance, beginning of period		$	50,463	$	35,279
	Obligation incurred		1,946		6,048
	Obligation incurred on corporate acquisitions		-		2,430
	Obligation incurred on property acquisitions		-		1,845
	Obligation divested		(144)		(481)
	Obligation settled		(453)		(1,047)
	Accretion expense		615		1,315
	Change in future estimated cash outlays		-		5,074
Balance, end of period		$	52,427	$	50,463

7. BANK DEBT

In June 2012, the Company amended and restated its bank credit facility to a covenant-based facility rather than a borrowing base facility. This facility is a three-year extendible revolving facility in the amount of $550 million plus a $25 million operating revolver from a syndicate of lenders with an initial maturity date of June 2015. The maturity date may, at the request of the Company and with the consent of the lenders, be extended on an annual basis. The facility is secured by a first ranking floating charge over all assets of the Company and its material subsidiaries. The facility can be drawn in either Canadian or U.S. funds and bears interest at the bank's prime lending rate, bankers' acceptance rates or LIBOR (for U.S. borrowings), plus applicable margins, which range from 2.00 to 3.25 percent over bankers' acceptance rates depending on the Company's senior debt to EBITDA ratio.

As at June 30, 2012, Tourmaline's bank debt balance was $315.1 million (December 31, 2011 - $81.7 million). Included in the Company's bank debt balance is $319.2 million in draws on the credit facility, predominantly through bankers' acceptances, partially offset by prepaid credit facility renewal fees of $1.5 million, as well as, prepaid interest on bankers' acceptances of $2.6 million. In addition, Tourmaline has outstanding letters of credit of $4.1 million (December 31, 2011 - $3.6 million), which reduce the credit available on the facility.

8. NON-CONTROLLING INTEREST

Tourmaline owns 90.6 percent of Exshaw Oil Corp., a private company engaged in oil and gas exploration in Canada.

A reconciliation of the non-controlling interest is provided below:

(000s)		Six Months Ended June 30, 2012		Year Ended December 31, 2011
Balance, beginning of period	$	15,079	$	13,909
Share of subsidiary's net income for the period		723		1,170
Balance, end of period	$	15,802	$	15,079

9. SHARE CAPITAL

(a) Authorized

Unlimited number of Common Shares without par value.
Unlimited number of non-voting Preferred Shares, issuable in series.

(b) Common Shares Issued

	Six Months Ended June 30, 2012			Year Ended December 31, 2011
($000s)	Number of Shares		Amount	Number of Shares		Amount
Balance, beginning of period	158,577,586	$	2,140,660	136,191,061	$	1,508,052
For cash on public offering of common shares	-		-	11,725,000		335,737
For cash on public offering of flow-through common shares^{(1) (2)}	1,402,000		31,867	1,361,500		44,290
For cash on private placement of flow-through common shares	-		-	1,580,000		39,658
Issued on corporate acquisitions	-		-	6,363,523		210,124
For cash on exercise of stock options	479,701		4,235	1,356,502		12,532
Contributed surplus on exercise of stock options	-		1,636	-		4,856
Share issue costs	-		(2,145)	-		(19,329)
Tax effect of share issue costs	-		537	-		4,740
Balance, end of period	160,459,287	$	2,176,790	158,577,586	$	2,140,660

⁽¹⁾	On December 1, 2011, the Company issued 1.36 million flow-through shares at $41.00 per share for total gross proceeds of $55.8 million. The implied premium on the flow-through shares was determined to be $11.5 million or $8.47 per share. A total of 0.16 million shares were purchased by insiders. As at June 30, 2012, the Company is committed to spending the remaining unspent amount of $41.2 million on qualified exploration and development expenditures by December 31, 2012. The expenditures were renounced to investors in February 2012, with an effective date of renunciation of December 31, 2011.
⁽²⁾	On April 4, 2012, the Company issued 1.4 million flow-through shares at $28.80 per share for total gross proceeds of $40.4 million. The implied premium on the flow-through shares was determined to be $8.5 million or $6.07 per share. A total of 0.15 million shares were purchased by insiders. The expenditures will be renounced to investors with an effective renunciation date of December 31, 2012. The Company is committed to spending the entire $40.4 million on qualified exploration and development expenditures by December 31, 2013.

10. EARNINGS PER SHARE

Basic earnings-per-share was calculated as follows:

	Three Months Ended				Six Months Ended
		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Net earnings for the period (000s)	$	1,012	$	15,192	$	3,988	$	17,919
Weighted average number of common shares - basic		160,236,254		141,619,564		159,426,316		139,259,452
Earnings per share - basic	$	0.01	$	0.11	$	0.03	$	0.13

Diluted earnings-per-share was calculated as follows:

	Three Months Ended				Six Months Ended
		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Net earnings for the period (000s)	$	1,012	$	15,192	$	3,988	$	17,919
Weighted average number of common shares - diluted		164,627,751		147,338,844		163,921,951		144,601,769
Earnings per share - fully diluted	$	0.01	$	0.10	$	0.02	$	0.12

There were 4,673,024 options excluded from the weighted-average share calculation for the six months ended June 30, 2012 because they were anti-dilutive (June 30, 2011 - 1,320,000).

11. SHARE-BASED PAYMENTS

The Company has a rolling stock option plan. Under the employee stock option plan, the Company may grant options to its employees up to 16,045,929 shares of common stock. The exercise price of each option equals the volume-weighted average market price for the five days preceding the issue date of the Company's stock on the date of grant and the option's maximum term is five years. Options are granted throughout the year and vest 1/3 on each of the first, second and third anniversaries from the date of grant.

	Six Months Ended
	June 30, 2012			June 30, 2011
	Number of Options		Weighted Average Exercise Price	Number of Options		Weighted Average Exercise Price
Stock options outstanding, beginning of period	14,213,523	$	16.82	11,997,000	$	12.24
Granted	905,000		23.13	1,175,000		27.79
Exercised	(479,701)		8.83	(619,335)		8.96
Forfeited	-		-	(179,999)		13.64
Stock options outstanding, end of period	14,638,822	$	17.47	12,372,666	$	13.86

The following table summarizes stock options outstanding and exercisable at June 30, 2012:

Range of Exercise Price	Number Outstanding at Period End	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price	Number Exercisable at Period End		Weighted Average Exercise Price
$7.00 - $8.00	2,700,967	1.40	$	7.09	2,700,967	$	7.09
$10.00 - $15.00	4,543,998	2.21		12.84	3,528,998		12.33
$16.68 - $32.78	7,393,857	3.89		24.11	1,429,500		20.82
	14,638,822	2.91	$	17.47	7,659,465	$	12.07

The fair value of options, granted during the year, was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and resulting values:

		June 30, 2012		June 30, 2011
Fair value of options granted (weighted average)	$	7.95	$	10.67
Risk-free interest rate		2.37%		2.36%
Estimated hold period prior to exercise		4 years		5 years
Expected volatility		40%		40%
Forfeiture rate		2%		2%
Dividend per share	$	0.00	$	0.00

12. COMMITMENTS

On December 1, 2011, the Company issued 1.36 million common shares on a flow-through basis at a price of $41 per share for total gross proceeds of $55.8 million. As of June 30, 2012, the Company has spent $14.6 million on eligible expenditures and is committed to spend the remainder of $41.2 million before December 31, 2012.

On April 4, 2012, the Company issued 1.4 million common shares on a flow-through basis at a price of $28.80 per share for gross proceeds of $40.4 million. The Company is committed to spend the entire $40.4 million on qualified exploration expenditures by December 31, 2013.

In the normal course of business, Tourmaline is obligated to make future payments. These obligations represent contracts and other commitments that are known and non-cancellable:

Payments Due by Year (000s)		2012		2013		2014		2015		2016 and Thereafter		Total
Operating leases	$	1,273	$	2,266	$	2,121	$	526	$	-	$	6,186
Flow-through obligations		41,177		40,378		-		-		-		81,555
Firm transportation agreements		13,796		29,257		20,842		11,427		718		76,040
Bank debt⁽¹⁾		-		-		-		348,024		-		348,024
	$	56,246	$	71,901	$	22,963	$	359,977	$	718	$	511,805

⁽¹⁾	Includes interest expense at an annual rate of 3.33% being the rate applicable at June 30, 2012.

About Tourmaline Oil Corp.

Tourmaline is a Canadian intermediate crude oil and natural gas exploration and production company focused on long-term growth through an aggressive exploration, development, production and acquisition program in the Western Canadian Sedimentary Basin.

SOURCE: Tourmaline Oil Corporation

Tourmaline Oil Corp.
Michael Rose
Chairman, President and Chief Executive Officer
(403) 266-5992

Tourmaline Oil Corp.
Brian Robinson
Vice President, Finance and Chief Financial Officer
(403) 767-3587; [email protected]

Tourmaline Oil Corp.
Scott Kirker
Secretary and General Counsel
(403) 767-3593; [email protected]

OR

Tourmaline Oil Corp.
Suite 3700, 250 - 6th Avenue S.W.
Calgary, Alberta T2P 3H7
Phone: (403) 266-5992
Facsimile: (403) 266-5952
Website: www.tourmalineoil.com

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