TORC Oil & Gas Ltd. VREYD

TD

[retiredcf]

TORC Oil & Gas Ltd.

(TOG-T) C$1.52

Q3/20 in Line; Focus on FCF Maximization, Capital Preservation

Event

TORC announces Q3/20 financial and operating results.

Impact: NEUTRAL

Q3/20 production of 25.0 mBOE/d was in line with TD (24.9 mBOE/d) and consensus (24.9 mBOE/d); CFPS of $0.16 was also in line with TD ($0.16) and consensus ($0.16). Most notably, TORC was able to keep Q3/20 production flat, while spending only $6.2mm and generating $35.6mm in cash flow. Q4/20 production is also expected to average 24.9 mBOE/d on a $7.5mm capital program, further reducing TORC's net debt without sacrificing the production base.

2021 budget expected in mid-December; we currently forecast that TORC will maintain its 2020 exit production target of 25.0 mBOE/d, with a modest $120mm capital program. This should further pay down debt, ultimately achieving a Q4/21 net debt/cash flow ratio of 2.1x, with no deterioration in the company's productive capacity, in our view. As a function of a decreased activity level in 2020, the corporate decline rate now stands at 20%, which provides us further confidence in the company's ability to sustain current production levels with WTI prices as low as US$37.50/bbl.

There is little to report operationally, given the company's muted 2020 development program (currently at $80mm, down from the $190mm contemplated earlier this year). That said, this has resulted in an improved decline rate (20%) and the preservation of the company's light oil inventory (400 conventional wells in Southeast Saskatchewan, 325 unconventional wells between the Midale and the Torquay, and 290 wells in the Cardium).

TD Investment Conclusion

Although the quarter was in line with expectations, we highlight the following corporate strengths that support our investment thesis. TORC provides investors with the ability to allocate capital across a balanced portfolio of assets in varying development stages. Although the balance sheet is above TORC's historical range, it is still below the peer-group average as TORC was quick to suspend the dividend and capital program as dictated by the collapse in oil prices earlier this year. Our estimates are largely unchanged, and we are maintaining our $2.50 target price and BUY recommendation.