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.
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Highlights
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(in thousands, except per share data)
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Three months
ended
March 31, 2014
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Three months
ended
December 31, 2013
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Three months
ended
March 31, 2013
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Financial
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Funds flow from operations, including
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transaction related costs/recovery (1)
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$47,207
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$41,458
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$15,275
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Per share basic (2)
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$0.52
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$0.45
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$0.40
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Per share diluted (2)
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$0.50
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$0.45
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$0.38
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Funds flow from operations, excluding
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transaction related costs/recovery (1)
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$47,207
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$40,769
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$15,275
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Per share basic (2)
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$0.52
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$0.45
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$0.40
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Per share diluted (2)
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$0.50
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$0.44
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$0.38
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Net income (loss)
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$8,029
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($17,841)
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$1,130
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Per share basic (2), (3)
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$0.09
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($0.20)
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$0.03
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Per share diluted (2), (3)
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$0.09
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($0.20)
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$0.03
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Exploration and development expenditures
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$37,740
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$60,075
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$49,481
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Property acquisitions (dispositions), net
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($27)
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($4,859)
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$232
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Net debt (working capital) (4)
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$145,528
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$145,183
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($38)
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Common shares (2)
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Shares outstanding, end of period
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91,823
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91,423
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38,587
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Weighted average shares (basic)
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91,620
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91,258
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38,587
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Weighted average shares (diluted)
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94,159
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92,929
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39,755
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Operations
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Production
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Crude oil and NGL (Bbls per day)
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8,924
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8,841
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3,294
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Natural gas (Mcf per day)
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9,630
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7,951
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5,677
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Barrels of oil equivalent (Boepd, 6:1)
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10,529
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10,166
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4,240
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Average realized price
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Crude oil and NGL ($ per Bbl)
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$92.60
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$80.61
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$82.06
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Natural gas ($ per Mcf)
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$5.54
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$3.61
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$3.34
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Barrels of oil equivalent ($ per Boe, 6:1)
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$83.55
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$72.93
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$68.22
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Netback per Boe (6:1) ($)
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Operating netback (1)
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$53.49
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$47.00
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$43.61
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Operating netback (prior to hedging) (1)
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$55.00
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$45.92
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$43.57
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Funds flow netback (including transaction related costs) (1)
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$49.82
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$44.33
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$40.02
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Funds flow netback (excluding transaction related costs) (1)
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$49.82
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$43.59
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$40.02
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Wells drilled:
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Gross
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13
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21
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9
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Net
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8.5
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12.8
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5.6
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Success (%)
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100
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100
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100
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(1)
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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.
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(2)
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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.
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(3)
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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
amount.
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(4)
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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.
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PRESIDENT'S MESSAGE
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:
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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;
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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;
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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;
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Drilled 13 (8.5 net) wells in the first quarter of 2014 with 100%
success;
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At quarter end, the Company was drawn $95 million on an available $350
million credit facility, with net debt of approximately $145 million;
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Net debt to annualized first quarter cash flow was less than 0.8 times;
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Paid dividends of $0.135 per share to shareholders in the first quarter
of 2014;
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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;
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Pro forma the subsequent acquisitions, TORC estimates net debt to be
approximately $200 million;
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Subsequent to quarter end, the Company's bank facility was increased to
$375 million;
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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
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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.
OPERATIONAL UPDATE
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.
CARDIUM
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.
MONARCH
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.
SOUTHEAST SASKATCHEWAN
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.
ACQUISITIONS
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.
REVISED BUDGET
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%.
DIVIDENDS
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.
OUTLOOK
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:
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High Netback Production
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2014E Avg: greater than 11,000 boepd (~85% light oil & NGLs)
2014E Exit: greater than 11,300 boepd (~85% light oil & NGLs)
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Reserves (1)
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Greater than 51 mmboe (84% light oil & NGLs) Total Proved plus Probable
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Southeast Saskatchewan Light Oil
Development Inventory
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150 net undrilled locations (<10% to be drilled in 2014)
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Cardium Light Oil Development Inventory
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275 net undrilled locations (<10% to be drilled in 2014)
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Emerging Light Oil Resource Exposure
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Greater than 150 net sections at Monarch
Greater than 70 net sections of Three Forks/Torquay exposure
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Sustainability Assumptions
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Corporate decline ~25%
Light Oil Full Cycle Capital Efficiency ~$40,000/boepd (IP 365)
$45 per boe cash netback ($90 Edm light)
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2014E Cash Flow (2)
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~$180 million
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2014 Core Capex
2014 Delineation Capex
2014 Total Capex
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$125 million
$10 million
$135 million
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Annual Dividend (paid monthly)
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$0.54 per share
$50 million
$38 million (net of CPPIB share dividend participation)
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Targeted Growth
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5-7% ($90 Edm light)
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Targeted All-in-Payout Ratio
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Less than 100%
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Net Debt & Bank Line
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Estimated current net debt of $200 million (pro forma subsequent
acquisitions)
Bank line of $375 million
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Debt/Cash Flow (pro forma run rate)
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~ 1.0x
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Shares Outstanding
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91.8 million (basic)
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Tax Pools
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Greater than $1 billion
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Notes:
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(1)
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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.
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(2)
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Based on $90 Edmonton Light and $4.00 AECO.
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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.
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Dividends
The payment and the amount of dividends declared in any month will be
subject to the discretion of the board of directors and will depend on
the board of director's assessment of TORC's outlook for growth,
capital expenditure requirements, funds from operations, potential
acquisition opportunities, debt position and other conditions that the
board of directors may consider relevant at such future time. The
amount of future cash dividends, if any, may also vary depending on a
variety of factors, including fluctuations in commodity prices and
differentials, production levels, capital expenditure requirements,
debt service requirements, operating costs, royalty burdens and foreign
exchange rates.
Non-GAAP Measures
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.
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SOURCE TORC Oil & Gas Ltd.
