Tourmaline Oil Corp. (TSX:TOU) ("Tourmaline" or the "Company") is pleased to
announce results for the three and nine months ended September 30, 2013 and
provide an update on its 2013 EP program.
Q3 2013 Highlights
-- Record daily production of 92,000 boepd achieved in November 2013.
-- 2013 exit guidance increased by 15% to 110,000-115,000 boepd.
-- Record average production for the third quarter of 74,096 boepd, a 6%
increase over the second quarter of 2013.
-- Third quarter cash flow(1) of $120.6 million, up 90% over the same
period in 2012.
-- Record nine month earnings of $91.4 million.
-- Continued top-tier cost control performance with third quarter operating
expenses at $4.36/boe and cash G&A of $0.68/boe.
-- Increased bank facility from $750 million to $900 million in November
2013.
-- Continued industry-leading Wilrich well results in the Alberta Deep
Basin including the two-well pad at Kakwa that commenced production at
54.6 mmcfpd in November 2013.
-- The initial 3 well Montney pad at Sundown, utilizing the completion
technique evolved at Sunrise-Dawson, tested at 37.1 mmcfpd.
-- The first concurrently-stimulated horizontal well pair at Spirit River,
Alberta tested at a final oil rate of 2,435 bpd with 0.5 mmcfpd of gas.
-- Multiple, successful, regional Charlie Lake horizontal oil wells.
Production Update
Current production has reached an estimated 92,000 boepd including 14,500 bpd of
oil and liquids. In addition, the Company has approximately 12,500 boepd of
tied-in production currently shut-in awaiting expanded facility capacity, as
well as a further 18,000 boepd of tested production currently being tied-in. An
additional 26 wells, either drilling or being completed, will also be tied-in
during the next 2.5 months.
Tourmaline is increasing its 2013 exit production guidance to between 110,000
and 115,000 boepd. Forecast 2014 average production of 118,000 boepd is
currently expected to be achieved in late January or early February 2014. This
represents 54% growth in average production for full year 2014 over 2013. This
will also be the sixth year in a row that year-over-year production has grown by
over 50%.
Third quarter production averaged 74,096 boepd, a 54% increase over the third
quarter of 2012 and a 6% increase over the second quarter of 2013. Third quarter
production was reduced by approximately 4,500 boepd at Spirit River due to the
inability of the third party plant, currently being utilized to process
associated gas volumes for the pool, to accept the full available gas volumes
from Tourmaline. Both parties continue to address the matter and production
levels have been steadily increasing over the past month.
Tie-in approvals from the new Alberta Energy Regulator since July 1 have been
approximately 2-3 months slower than approvals during the first half of the
year. This has resulted in several tie-ins being delayed until November 2013
from the originally scheduled August/September time frame which also negatively
impacted third quarter volumes.
Full year 2013, average production of 76,500 boepd is now anticipated - between
original 2013 guidance of 75,000 boepd and the increased guidance announced in
Q2 2013 of 80,000 boepd. This represents 51% growth over 2012 average production
volumes of 50,804 boepd. Tourmaline's current liquids production of 14,500 boepd
has already exceeded the estimated 2013 liquids exit volume target of 13,000
boepd.
2013/2014 Financial Update
Third quarter 2013 cash flow(1) was $120.6 million, a 90% increase over third
quarter 2012. Full year 2013 cash flow(1) of $540 million is now anticipated, a
93% increase over full year 2012.
Third quarter earnings were $9.2 million compared to a $4.8 million loss in the
third quarter of 2012. The nine months earnings were a record $91.4 million.
Third quarter EP Capital spending was $355.0 million and the Company spent
$108.8 million on a series of previously announced acquisitions during the
quarter. The third quarter expenditures included $62 million on the plant
expansions at Banshee and Wild River, related gathering systems and enhanced
liquids extraction equipment, all scheduled to support increased Q4 2013
production levels.
Full year 2013, capital spending of $1,050 million is now anticipated. Third
quarter net debt(1) pro-forma the October 8, 2013 equity financing was $503.8
million with 2013 exit net debt(1) now expected at $560 million. This represents
0.80 times annualized anticipated Q4 cash flow(1) of $175 million. A 2014 EP
Capital program of $900.0 million has been approved, full year 2014 cash flow(1)
is projected at $1,002 million, assuming an AECO natural gas price of $3.86/mcf
and a WTI oil price of US $97.00/bbl.
The Company expanded its bank facility with its existing banking syndicate to
$900.0 million in early November.
Deep Basin Update
Tourmaline currently has 10 drilling rigs operating in the Deep Basin of
Alberta. Six of the rigs are drilling Cretaceous Wilrich horizontal targets at
Edson, Minehead, Banshee, Smoky-Horse and Kakwa. Two rigs are pursuing
Notikewin, Bluesky and Cardium horizontal targets throughout the Deep Basin
complex. One rig is pursuing horizontal Wilrich in structure targets in the
Lovett-Basing area and the tenth rig is pursuing 3D seismic defined
multi-objective vertical opportunities along the Western margin of the asset
base.
The Company continues to deliver industry leading horizontal Wilrich results
with several high-deliverability wells drilled and tested during the third
quarter. The most recent two-well pad at Kakwa (13-15/4-10) tested at a final
combined rate of 54.6 mmcfpd with 360 bbl/day of free condensate. The most
recent Edson Wilrich horizontal at 14-19, joint with Perpetual Energy Inc.,
tested at a final rate of 40 mmcfpd and commenced production at a restricted
rate of 20 mmcfpd in October. The Minehead 8-35 horizontal tested at a final
rate of 19.8 mmcfpd @ 4.3 MPa and will be on-stream through the expanded Banshee
plant by year end. The Company has 14 new Wilrich horizontals to bring on
production during the balance of November and December. As the Company expands
the use of pad drilling in its Wilrich development, drill-and-complete costs are
expected to continue to drop.
Results from the Cretaceous Notikewin horizontal development continue to exceed
expectations, the most recent horizontal at Marsh 16-26, tested at a final rate
of 14.7 mmcfpd @ 6.0 MPa. The Company has four additional Notikewin horizontals
that are drilled and will be completed and tied-in prior to year end.
The most recent 3D seismic defined multi-objective vertical at Banshee 9-30
tested at a final comingled test rate of 13.9 mmcfpd @ 2.1 MPa.
The ongoing plant expansions at Banshee/Minehead and Wild River are both
proceeding on schedule and are anticipated to start up during the first half of
December. Each expansion will add 50 mmcfpd of gas processing capacity.
NEBC Montney Update
Current production from the NEBC Montney complex is 33,000 boepd, with a further
5,000 boepd of additional tied-in production shut-in due to capacity
constraints. The Company plans a further 50 mmcfpd processing capacity expansion
for the complex, with an estimated third quarter 2014 start up. Tourmaline plans
to operate two drilling rigs in BC pursuing Montney horizontal targets
throughout 2014. Current operating costs at Sunrise-Dawson are below $3.00/boe.
During the third quarter, the Company has utilized the highly successful Montney
completion technique, developed at Sunrise-Dawson, on the Montney section at
Sundown, with very strong results. The initial 3-well Montney horizontal pad at
Sundown tested at a final combined stabilized gas rate of 37.1 mmcfpd.
Tourmaline has in excess of 250 horizontal Montney follow-up locations on the
current Company Montney landholdings at Sundown. The Company is planning to
build a new 25 mmcfpd gas facility at Sundown in the first quarter of 2014 to
handle the increased production volumes. This property is now expected to become
a significant NEBC producing entity for Tourmaline over the next two-three
years.
The Company also participated in two successful Montney wells at Septimus, with
average final test rates of 8.5 mmcfpd and 325 bbls/day of condensate.
Peace River High Charlie Lake Oil Complex
Tourmaline is currently operating three drilling rigs delineating the regional
Charlie Lake oil pool currently covering approximately 16 townships. The Company
has drilled 20 additional successful horizontal wells since July 1, 2013,
including four successful pool delineation wells at Earring and Mulligan, 35-40
miles north of the original Spirit River Complex.
These delineation wells include the Earring 15-16 well, which has a 20-day IP of
735 boepd (350 bopd oil, 2.3 mmcfpd gas), and the Mulligan 1-14-81-8W6M which
production tested at a rate of 560 boepd (360 bpd, 1.2 mmcfpd gas). Pingel 1-
30-81-7W6M is currently flowing 375 bopd with 0.30 mmcfpd of gas and Mulligan
13-36-81-8W6 has been drilled and completed and will commence flow testing this
week. In addition to an oil-charged primary objective, these four delineation
wells have also encountered an additional nine separate hydrocarbon bearing
zones above and/or below the main Charlie Lake horizon.
In the original Spirit River pool, the Company completed its first
concurrently-stimulated horizontal well pair with final production test rates of
2,436 bpd of 40 degrees API oil and 0.5 mmcfpd of gas. The wells are
approximately 400 metres apart and were drilled into a lower productivity
portion of the pool. Tourmaline plans several more of these
concurrently-stimulated well pairs along the 65 mile long regional pool and
believes this stimulation technique has the potential for a step change
improvement in well performance.
In the main Spirit River pool, current Charlie Lake production capacity has
reached 16,000 boepd. The third party Gordondale East plant has not been able to
accept the originally-planned associated sour gas volumes of 37 mmcfpd from
Tourmaline; pool production has however been steadily increased from
approximately 6,000 boepd in September to over 8,000 boepd in November. Both
Tourmaline and the plant operator are continuing to work on opportunities to
bring additional shut-in volumes of approximately 8,000 boepd on-stream.
The Company is continuing with plans to build a 100% owned-and-operated sour gas
injection plant at Spirit River, providing a significant addition to sour gas
processing capacity in the area. A new oil battery, with initial capacity of
2,000 bopd to handle the increasing production volumes in the Mulligan-Pingel
area, is planned for the first quarter of 2014.
Tourmaline has now drilled 60 successful Charlie Lake horizontals, both at
Spirit River and into the regional oil pool, and zero dry holes to date.
Completed, stimulated well costs are now averaging between $3.5 and $4.0
million, with 2P reserves of 348 mstboe per horizontal well currently recognized
by third-party engineering at Spirit River. Tourmaline controls 485 sections
along the regional oil pool, approximately 80% of the total pool as currently
mapped, and now has over 1,200 management-identified future Charlie Lake
horizontal locations in inventory. The Company is staging drilling and facility
construction to achieve the 30,000 boepd production level from the Charlie Lake
complex in 2015.
Exploration Program Update
The first Paleozoic exploration well at Sunset 11-17 is currently drilling in
the upper Paleozoic, approximately three weeks away from the primary objective
in the Devonian. Hydrocarbon shows have been encountered from several horizons
thus far, including gas-to-surface, while drilling, from an Upper Mississippian
horizon.
The Company's first horizontal Montney test on its extensive land holdings at
Musreau-Resthaven will spud in January 2014 and the first deep exploration well
testing Devonian targets beneath the Deep Basin Cretaceous complex will spud in
February 2014.
(1) See "Non-GAAP Financial Measures" in the attached Management's Discussion
and Analysis.
CORPORATE SUMMARY - THIRD QUARTER 2013
---------------------------------------------------------------------
Three Months Ended September 30,
2013 2012 Change
---------------------------------------
OPERATIONS
Production
Natural gas (mcf/d) 396,592 255,451 55%
Crude oil and NGL (bbls/d) 7,997 5,600 43%
Oil equivalent (boe/d) 74,096 48,175 54%
Product prices(1)
Natural gas ($/mcf) $ 3.30 $ 2.52 31%
Crude oil and NGL ($/bbl) $ 91.65 $ 83.34 10%
Operating expenses ($/boe) $ 4.36 $ 3.66 19%
Transportation expenses
($/boe) $ 2.01 $ 1.97 2%
Operating netback ($/boe)(3) $ 18.59 $ 15.68 19%
Cash general & administrative
expenses ($/boe)(2) $ 0.68 $ 0.79 (14)%
FINANCIAL ($000, EXCEPT PER
SHARE)
Revenue 187,974 102,127 84%
Royalties 17,798 7,641 133%
Cash flow(3) 120,560 63,515 90%
Cash flow per share(3) $ 0.64 $ 0.38 68%
Net earnings (loss) 9,163 (4,770) 292%
Net earnings (loss) per share $ 0.05 $ (0.03) 267%
Capital expenditures 468,261 175,277 167%
Weighted average shares
outstanding (diluted)
Net debt(3)
CORPORATE SUMMARY - THIRD QUARTER 2013
----------------------------------------------------------------------------
Nine Months Ended September 30,
2013 2012 Change
----------------------------------------------
OPERATIONS
Production
Natural gas (mcf/d) 381,025 256,235 49%
Crude oil and NGL (bbls/d) 7,486 5,940 26%
Oil equivalent (boe/d) 70,990 48,646 46%
Product prices(1)
Natural gas ($/mcf) $ 3.57 $ 2.42 48%
Crude oil and NGL ($/bbl) $ 89.27 $ 83.87 6%
Operating expenses ($/boe) $ 4.31 $ 4.56 (5)%
Transportation expenses
($/boe) $ 2.00 $ 1.87 7%
Operating netback ($/boe)(3) $ 19.99 $ 15.12 32%
Cash general & administrative
expenses ($/boe)(2) $ 0.76 $ 0.79 (4)%
FINANCIAL ($000, EXCEPT PER
SHARE)
Revenue 553,750 306,726 81%
Royalties 44,015 19,511 126%
Cash flow(3) 366,029 186,472 96%
Cash flow per share(3) $ 1.96 $ 1.13 73%
Net earnings (loss) 91,351 (782) -%
Net earnings (loss) per share $ 0.49 $ (0.00) -%
Capital expenditures 817,475 445,532 83%
Weighted average shares
outstanding (diluted) 186,676,207 164,854,721 13%
Net debt(3) (689,355) (311,847) 121%
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
plans and other aspects of its anticipated future operations, management focus,
objectives, strategies, financial, operating and production results and business
opportunities, including anticipated petroleum, natural gas and natural gas
liquids production volumes, 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 and completion prospects
and plans, including the number and type of wells to be drilled in core areas,
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 currency exchange rates; applicable
royalty rates and tax laws; interest rates; future well production rates and
reserve volumes; operating costs; the timing of receipt of regulatory approvals
which include tie-in approvals; the performance of existing wells; the success
obtained in drilling new wells; the sufficiency of budgeted capital expenditures
in carrying out planned activities; the availability and cost of labour and
services; the state of the economy and the exploration and production business;
the availability and cost of financing; and ability to market oil and natural
gas successfully.
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.
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 currency 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 are estimates of Tourmaline's 2013 and 2014
cash flow and Tourmaline's 2013 exit net debt, which are 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 - $3.21/mcf and $3.86/mcf, respectively) and crude oil (WTI -
US $98.62/bbl and US $97.00/bbl, respectively) and an exchange rate assumption
of $0.98 and $0.97, respectively (US/CDN). To the extent such estimates
constitute a financial outlook, they were approved by management of Tourmaline
on November 13, 2013 and are 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 including Tourmaline's most recent Annual Information Form, which
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-GAAP Financial
Measures" in the attached Management's Discussion and Analysis.
"Cash flow", "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-GAAP Financial Measures" in the attached
Management's Discussion and Analysis for the definition and description of these
terms.
Production tests are not necessarily indicative of long-term performance or
ultimate recovery. All production tests are 3 - 5 days duration.
Certain Definitions:
bbl barrel
bpd barrels per day
boe barrel of oil equivalent
boepd or boe/d barrel of oil equivalent per day
bopd or bbl/d barrel of oil, condensate or liquids per day
gj gigajoule
gjs/d gigajoules per day
mbbls thousand barrels
mboe thousand barrels of oil equivalent
mcf thousand cubic feet
mcfe thousand cubic feet equivalent
mmboe million barrels of oil equivalent
mmbtu million British thermal units
mmbtu/d million British thermal units per day
mmcf million cubic feet
mmcfpd or mmcf/d million cubic feet per day
mstboe thousand stock tank barrels of oil equivalent
Conference Call Tomorrow at 10:00 a.m. MT (12:00 p.m. ET)
Tourmaline will host a conference call tomorrow, November 14, 2013 starting at
10:00 a.m. MT (12:00 p.m. ET). To participate, please dial (800) 565-0813
(toll-free in North America) or (416) 340-8527 a few minutes prior to the
conference call.
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 nine months ended September 30, 2013 and the
consolidated financial statements for the year ended December 31, 2012. Both the
consolidated financial statements and the MD&A can be found at www.sedar.com.
This MD&A is dated November 13, 2013.
The financial information contained herein has been prepared in accordance with
International Financial Reporting Standards ("IFRS") and sometimes referred to
in this MD&A as Generally Accepted Accounting Principles ("GAAP") as issued by
the International Accounting Standards Board ("IASB"). 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-GAAP Financial Measures" for information regarding the following
non-GAAP financial measures used in this MD&A: "cash flow", "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,
expenses, production, cash flow and 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
and cash flow 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. In
addition, as the value ratio between natural gas and crude oil based on current
prices of natural gas and crude oil is significantly different from the energy
equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
PRODUCTION
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Natural gas (mcf/d) 396,592 255,451 55% 381,025 256,235 49%
Oil and NGL (bbl/d) 7,997 5,600 43% 7,486 5,940 26%
----------------------------------------------------------------------------
Oil equivalent (boe/d) 74,096 48,175 54% 70,990 48,646 46%
----------------------------------------------------------------------------
Production for the three months ended September 30, 2013 averaged 74,096 boe/d,
a 54% increase over the average production for the same quarter of 2012 of
48,175 boe/d. Production was 89% natural gas weighted in the third quarter of
2013. For the nine months ended September 30, 2013, production increased 46% to
70,990 boe/d from 48,646 boe/d for the same period of 2012. The Company's
significant production growth, when compared to 2012, can be attributed to new
wells that have been brought on-stream since September 30, 2012, as well as
property and corporate acquisitions.
The Company expects 2013 production to average approximately 76,500 boe/d. The
slight reduction in volumes can mostly be attributed to unscheduled downtime
which occurred during the third quarter, shut-ins due to plant capacity issues
at Spirit River, plant start-up issues at the Doe plant in NEBC, as well as gas
processing issues at a third party facility at Spirit River, all of which
resulted in lower than anticipated production during the third quarter.
REVENUE
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
(000s) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Revenue from:
Natural gas $ 120,547 $ 59,195 104% $ 371,324 $ 170,225 118%
Oil and NGL 67,427 42,932 57% 182,426 136,501 34%
----------------------------------------------------------------------------
Total revenue
from natural
gas, oil and
NGL sales $ 187,974 $ 102,127 84% $ 553,750 $ 306,726 81%
----------------------------------------------------------------------------
Revenue for the three months ended September 30, 2013 increased 84% to $188.0
million from $102.1 million for the same quarter of 2012. For the nine months
ended September 30, 2013, revenue was $553.8 million, an 81% increase over
revenue of $306.7 million for the same period of 2012. Revenue growth is
consistent with the increase in production and increased commodity prices over
the same periods. Revenue includes all petroleum, natural gas and NGL sales and
realized gains on financial instruments.
TOURMALINE PRICES:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Natural gas
($/mcf) $ 3.30 $ 2.52 31% $ 3.57 $ 2.42 48%
Oil and NGL
($/bbl) $ 91.65 $ 83.34 10% $ 89.27 $ 83.87 6%
Oil equivalent
($/boe) $ 27.58 $ 23.04 20% $ 28.57 $ 23.01 24%
----------------------------------------------------------------------------
The realized average natural gas price for the three and nine months ended
September 30, 2013 was 31% and 48%, respectively, higher than the same periods
of the prior year. Realized crude oil and NGL prices increased 10% and 6%,
respectively, for the three and nine months ended September 30, 2013, compared
to the same periods of 2012.
The realized natural gas price for the quarter ended September 30, 2013 was 35%
(September 30, 2012 - 10%) higher than the AECO index price of which
approximately 12% (September 30, 2012 - 8%) relates to a premium received due to
higher heat content. The higher heat content is due to an increase in the
relative contribution of NEBC natural gas which has a higher ethane content. The
remainder of the premium received relates to positive hedging positions. The
realized gain on commodity contracts for the third quarter of 2013 ($20.1
million) has increased from the same period in the prior year ($2.3 million), as
the market price of natural gas decreased relative to the prices per the
commodity contracts settled in the period. Realized prices exclude the effect of
unrealized gains or losses. Once these gains and losses are realized they are
included in the per unit amounts.
BENCHMARK GAS AND OIL PRICES:
Three Months Ended
September 30,
2013 2012 Change
--------------------------------------------------------------------------
Natural gas
NYMEX Henry Hub (USD$/mcf) $ 3.56 $ 2.89 23%
AECO (CAD$/mcf) $ 2.45 $ 2.30 7%
Oil
NYMEX (USD$/bbl) $ 105.81 $ 92.20 15%
Edmonton Par (CAD$/bbl) $ 105.36 $ 84.87 24%
--------------------------------------------------------------------------
RECONCILIATION OF AECO INDEX TO TOURMALINE'S REALIZED GAS PRICES:
Three Months Ended
September 30,
-----------------------------------
($/mcf) 2013 2012 Change
--------------------------------------------------------------------------
AECO index $ 2.45 $ 2.30 7%
Heat/quality differential 0.30 0.18 67%
Realized gain 0.55 0.04 1,275%
--------------------------------------------------------------------------
Tourmaline realized natural gas price $ 3.30 $ 2.52 31%
--------------------------------------------------------------------------
CURRENCY - EXCHANGE RATES:
Three Months Ended
September 30,
------------------------------------
2013 2012 Change
---------------------------------------------------
CAD$/USD$ $ 0.9627 $ 1.0043 (4)%
---------------------------------------------------
ROYALTIES
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
(000s) 2013 2012 2013 2012
----------------------------------------------------------------------------
Natural gas $ 7,709 $ 592 $ 19,756 $ (1,509)
Oil and NGL 10,089 7,049 24,259 21,020
----------------------------------------------------------------------------
Total royalties $ 17,798 $ 7,641 $ 44,015 $ 19,511
----------------------------------------------------------------------------
Royalties as a
percentage of revenue 9.5% 7.5% 7.9% 6.4%
----------------------------------------------------------------------------
For the quarter ended September 30, 2013, the average effective royalty rate
increased to 9.5% compared to 7.5% for the same quarter of 2012. For the nine
months ended September 30, 2013, the average effective royalty rate was 7.9%
compared to 6.4% for the same period of 2012.
The Company continues to benefit from the New Well Royalty Reduction Program and
the Natural Gas Deep Drilling Program in Alberta as well as the Deep Royalty
Credit Program in British Columbia. The average effective royalty rate increased
in 2013 over 2012 due to increased commodity prices and, in addition, the
maximum allowable benefit has been reached on some higher producing wells
resulting in increased royalties. Also during 2012, there were additional
royalty incentives received on some of the Company's producing wells which
significantly reduced the royalty rate for that period.
The Company expects its royalty rate for 2013 to be approximately 10% as
additional wells will no longer qualify for royalty incentive programs due to
production maximums being reached and other wells coming off royalty holidays,
thereby increasing the Company's overall royalty rate. The royalty rate is also
sensitive to commodity prices, however, and as such, a change in commodity
prices will impact the actual rate.
OTHER INCOME
For the quarter ended September 30, 2013, other income was $1.7 million (three
months ended September 30, 2012 - $0.9 million), the majority of which relates
to processing income.
For the nine months ended September 30, 2013, other income was $4.2 million
(nine months ended September 30, 2012 - $3.7 million), which includes $4.2
million in processing income (nine months ended September 30, 2012 - $2.8
million). In late 2012, Tourmaline acquired, and now operates, a gas processing
facility in NEBC, which has allowed the Company to process additional volumes.
Temporary excess capacity at this plant was utilized by a third party resulting
in increased processing income for the Company. Notwithstanding this, the
Company expects processing income to decrease as the Company's production grows,
thus reducing capacity for third-party volumes in Tourmaline owned-and-operated
facilities.
OPERATING EXPENSES
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------
(000s) except
per unit
amounts 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Operating
expenses $ 29,718 $ 16,236 83% $ 83,494 $ 60,736 37%
----------------------------------------------------------------------------
Per boe $ 4.36 $ 3.66 19% $ 4.31 $ 4.56 (5)%
----------------------------------------------------------------------------
Operating expenses include all periodic lease and field-level expenses and
exclude income recoveries from processing third-party volumes. For the third
quarter of 2013, total operating expenses increased 83% from $16.2 million in
the third quarter of 2012 to $29.7 million in 2013 due to the increased variable
costs relating to new production, as well as increased property taxes in 2013.
The third quarter of 2012 included some 13th month adjustments resulting in
lower operating expenses recorded during that period. On a per-boe basis, the
costs increased 19% from $3.66/boe for the third quarter of 2012 to $4.36/boe in
the third quarter of 2013.
The Company's operating expenses in the third quarter of 2013 include
third-party processing, gathering, and compression fees of approximately $8.7
million or 29% of total operating costs (September 30, 2012 - $4.3 million or
27% of total operating costs).
For the nine months ended September 30, 2013, total operating expenses were
$83.5 million, or $4.31/boe, compared to $60.7 million, or $4.56/boe, for the
same period of 2012. Although total operating expenses increased along with
production, the costs per boe decreased 5% reflecting increased operational
efficiencies.
The Company expects its full year 2013 operating costs to average approximately
$4.25/boe, which is consistent with previous guidance. Actual costs per boe can
change, however, depending on a number of factors including the Company's actual
production levels.
TRANSPORTATION
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
(000s) except
per unit
amounts 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Natural gas
transportation $ 9,404 $ 6,279 50% $ 26,451 $ 18,362 44%
Oil and NGL
transportation 4,298 2,458 75% 12,328 6,534 89%
----------------------------------------------------------------------------
Total
transportation $ 13,702 $ 8,737 57% $ 38,779 $ 24,896 56%
----------------------------------------------------------------------------
Per boe $ 2.01 $ 1.97 2% $ 2.00 $ 1.87 7%
----------------------------------------------------------------------------
Transportation costs for the three months ended September 30, 2013 were $13.7
million or $2.01/boe (three months ended September 30, 2012 - $8.7 million or
$1.97/boe, respectively). Transportation costs for the nine months ended
September 30, 2013 were $38.8 million or $2.00/boe (nine months ended September
30, 2012 - $24.9 million or $1.87/boe, respectively). The increase in total
transportation costs for the three and nine months ended September 30, 2013 can
be attributed to increased production as well as increased oil and NGL
transportation costs. Pipeline and infrastructure constraints have resulted in a
greater use of more expensive truck transportation.
GENERAL & ADMINISTRATIVE EXPENSES ("G&A")
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
(000s) except
per unit
amounts 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
G&A expenses $ 9,791 $ 6,667 47% $ 27,227 $ 19,550 39%
Administrative
and capital
recovery (606) (484) 25% (1,332) (822) 62%
Capitalized
G&A (4,519) (2,685) 68% (11,072) (8,184) 35%
----------------------------------------------------------------------------
Total G&A
expenses $ 4,666 $ 3,498 33% $ 14,823 $ 10,544 41%
----------------------------------------------------------------------------
Per boe $ 0.68 $ 0.79 (14)% $ 0.76 $ 0.79 (4)%
----------------------------------------------------------------------------
G&A expenses for the third quarter of 2013 were $4.7 million ($0.68/boe)
compared to $3.5 million ($0.79/boe) for the same quarter of the prior year. For
the nine months ended September 30, 2013, G&A expenses were $14.8 million
($0.76/boe) compared to $10.5 million ($0.79/boe) for the same period of 2012.
The increase in G&A expenses in 2013 compared to 2012 is primarily due to staff
additions needed to manage the larger production, reserve and land base.
Overall, 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 2013 are expected to be similar to 2012 on a dollar-per-boe basis.
Actual costs per boe can change, however, depending on a number of factors
including the Company's actual production levels.
SHARE-BASED PAYMENTS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
(000s) except per unit
amounts 2013 2012 2013 2012
----------------------------------------------------------------------------
Share-based payments $ 10,882 $ 7,150 $ 27,026 $ 22,182
Capitalized share-based
payments (5,441) (3,575) (13,513) (11,091)
----------------------------------------------------------------------------
Total share-based payments $ 5,441 $ 3,575 $ 13,513 $ 11,091
----------------------------------------------------------------------------
Per boe $ 0.80 $ 0.81 $ 0.70 $ 0.83
----------------------------------------------------------------------------
The Company uses the fair value method for the determination of non-cash related
share-based payments expense. During the third quarter of 2013, 340,000 stock
options were granted to employees, officers, directors and key consultants at a
weighted-average exercise price of $40.18, and 446,367 options were exercised,
bringing $4.9 million of cash into treasury. The Company recognized $5.4 million
of share-based payment expense in the third quarter of 2013 compared to $3.6
million in the third quarter of 2012.
For the nine months ended September 30, 2013, share-based payment expense
totalled $13.5 million and capitalized share-based payments were $13.5 million
(2012 - $11.1 million and $11.1 million, respectively). Share-based payments in
2013 are higher compared to 2012 due to the additional number of employees
required to manage increased activity, along with an overall increase in the
fair value of options granted.
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A")
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
(000s) except per unit
amounts 2013 2012 2013 2012
----------------------------------------------------------------------------
Total depletion,
depreciation and
amortization $ 96,250 $ 58,733 $ 259,990 $ 176,530
Less mineral lease
expiries (15,819) - (30,845) -
----------------------------------------------------------------------------
Depletion, depreciation
and amortization $ 80,431 $ 58,733 $ 229,145 $ 176,530
----------------------------------------------------------------------------
Per boe $ 11.80 $ 13.25 $ 11.82 $ 13.24
----------------------------------------------------------------------------
DD&A expense, net of mineral lease expiries expense, was $80.4 million for the
third quarter of 2013 compared to $58.7 million for the same period of 2012 due
to higher production volumes, as well as a larger capital asset base being
depleted. The per-unit DD&A rate (excluding the impact of mineral lease
expiries) for the third quarter of 2013 was $11.80/boe compared to $13.25/boe
for the third quarter of 2012.
For the nine months ended September 30, 2013, DD&A expense was $229.1 million
(nine months ended September 30, 2012 - $176.5 million) with an effective rate
of $11.82/boe (nine months ended September 30, 2012 - $13.24/boe). The lower
DD&A rate, for the three and nine months ended September 30, 2013, compared to
the same periods of 2012, reflects strong reserve additions derived from
Tourmaline's exploration and production program.
Mineral lease expiries for the three and nine months ended September 30, 2013
were $15.8 million and $30.8 million, respectively (September 30, 2012 - nil).
The increase in expiries is a result of mineral leases acquired via property and
corporate acquisitions which were partially through their term at the date they
were purchased, and have now begun to expire. The Company prioritizes drilling
on what it believes to be the most cost-efficient and productive acreage, and
with such a large land base, the Company has chosen to not continue some of the
expiring sections of land. Tourmaline expects to continue to see mineral lease
expiries of a similar magnitude on a go-forward basis.
FINANCE EXPENSES
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------
(000s) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Interest
expense $ 2,445 $ 3,035 (19)% $ 8,025 $ 6,788 18%
Accretion
expense 533 325 64% 1,412 940 50%
Transaction
costs on
corporate and
property
acquisitions 421 - -% 1,091 172 534%
Other 247 236 5% 644 632 2%
----------------------------------------------------------------------------
Total finance
expenses $ 3,646 $ 3,596 1% $ 11,172 $ 8,532 31%
----------------------------------------------------------------------------
Finance expenses are comprised of interest expense, accretion of provisions and
transaction costs associated with corporate and property acquisitions. Finance
expenses for the three months ended September 30, 2013 totalled $3.6 million,
which are consistent with 2012 third quarter finance expenses. Finance expenses
for the nine months ended September 30, 2013 increased from $8.5 million in 2012
to $11.1 million in 2013, due to transaction costs associated with acquisitions
($0.9 million increase in 2013), and a $1.2 million increase in interest expense
resulting from a higher balance drawn on the credit facility during 2013. The
average bank debt outstanding in 2013 was $311.2 million (2012 - $236.3
million), with an average effective interest rate of 3.06% (2012 - 3.27%).
DEFERRED INCOME TAXES
For the three and nine months ended September 30, 2013, the provision for
deferred income tax expense was $8.8 million and $42.7 million, respectively,
compared to an expense of $2.4 million and $7.3 million, respectively, for the
same periods in 2012. The increase was due to higher pre-tax earnings in 2013
and an increase in the Company's effective tax rate during the third quarter of
2013 due to the Province of British Columbia increasing its provincial tax rate
from 10% to 11%.
CASH FLOW FROM OPERATING ACTIVITIES, CASH FLOW AND NET EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
(000s) except
per unit
amounts 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Cash flow from
operating
activities $ 128,192 $ 66,713 92% $ 350,387 $ 168,806 108%
Per share (1) $ 0.68 $ 0.40 68% $ 1.88 $ 1.02 84%
Cash flow (2) $ 120,560 $ 63,515 90% $ 366,029 $ 186,472 96%
Per share (1)
(2) $ 0.64 $ 0.38 68% $ 1.96 $ 1.13 73%
Net earnings
(loss) $ 9,163 $ (4,770) 292% $ 91,351 $ (782) -%
Per share (1) $ 0.05 $ (0.03) 267% $ 0.49 $ (0.00) -%
Operating
netback per
boe (2) $ 18.59 $ 15.68 19% $ 19.99 $ 15.12 32%
----------------------------------------------------------------------------
(1)Fully diluted
(2)See "Non-GAAP Financial Measures"
Cash flow for the three months ended September 30, 2013 was $120.6 million or
$0.64 per diluted share compared to $63.5 million or $0.38 per diluted share for
the same period of 2012. Cash flow for the nine months ended September 30, 2013
increased to $366.0 million or $1.96 per diluted share compared to September 30,
2012 cash flow of $186.5 million or $1.13 per diluted share. The increase in
cash flow in 2013 reflects higher commodity prices over 2012, as well as
increased production.
After-tax earnings for the three months ended September 30, 2013 are higher at
$9.2 million ($0.05 per diluted share) compared to a loss of $4.8 million ($0.03
per diluted share) for the same period of 2012, due mainly to higher commodity
prices and increased production. After-tax earnings for the nine month period
ending September 30, 2013 were $91.4 million ($0.49 per diluted share) compared
to a loss of $0.8 million ($0.00 per diluted share) in 2012. The significant
increase is attributable to increased commodity prices and production as well as
the gain realized on the sale of a non-core asset in Elmworth, Alberta, and the
gain realized on financial instruments.
CAPITAL EXPENDITURES
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------
(000s) 2013 2012 2013 2012
---------------------------------------------------------------------------
Land and seismic $ 17,566 $ 6,719 $ 34,348 $ 22,018
Drilling and completions 205,324 116,721 441,327 289,506
Facilities 132,097 43,333 263,800 131,489
Property acquisitions 108,763 5,867 144,746 6,841
Property dispositions (100) (65) (78,045) (12,633)
Other 4,611 2,702 11,299 8,311
---------------------------------------------------------------------------
Total cash capital
expenditures $ 468,261 $ 175,277 $ 817,475 $ 445,532
---------------------------------------------------------------------------
During the third quarter of 2013 the Company invested $468.3 million of cash
consideration compared to $175.3 million for the same period of 2012.
Expenditures on exploration and production were $355.0 million compared to
$166.8 million for the same quarter of 2012, which is consistent with the
Company's aggressive growth strategy. During the nine-month period ended
September 30, 2013, the Company invested $817.5 million cash consideration
compared to $445.5 million for the same period of 2012. The growth in facilities
expenditures includes Phase 1 of the Spirit River gas facility expansion
(completed in June 2013), the NEBC gas facility (completed in July 2013), as
well as costs related to the expansion of the Wild River and Banshee gas
facilities, both scheduled to be completed in late 2013. The Company also
continued to add to its overall asset base through strategic property
acquisitions during the third quarter of 2013.
The following table summarizes the drill, complete and tie-in activities for the
period:
Three Months Ended
September 30, 2013
------------------------
Gross Net
------------------------------------
Drilled 44 38.51
Completed 31 28.98
Tied-in 9 8.17
------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
On March 12, 2013, the Company issued 5.78 million common shares at a price of
$34.25 per share and 0.835 million flow-through common shares at a price of
$42.15 per share, for total gross proceeds of $233.2 million. The proceeds were
used to temporarily reduce bank debt and to fund the Company's 2013 exploration
and development program.
On October 8, 2013, the Company issued 3.495 million common shares at a price of
$41.75 per share and 0.925 million flow-through common shares at a price of
$51.60 per share, for total gross proceeds of $193.6 million. The proceeds were
used to temporarily reduce bank debt and will be used to fund the Company's
remaining 2013 and 2014 exploration and development programs.
The Company has a covenant-based bank credit facility in place with a syndicate
of bankers, the details of which are described in note 9 of the Company's
consolidated financial statements for the year ended December 31, 2012. In
October 2013, the facility was increased to $900 million from $750 million,
under the same terms and covenants, with an initial maturity of June 2016.
As at September 30, 2013, the Company had negative working capital of $204.5
million, after adjusting for the fair value of financial instruments (the
unadjusted working capital deficiency was $206.3 million) (December 31, 2012 -
$103.7 million and $98.9 million, respectively). Management believes the Company
has sufficient liquidity and capital resources to fund the remainder of its 2013
and its 2014 exploration and development programs through expected cash flow
from operations and its unutilized bank credit facility. As at September 30,
2013, the Company's bank debt balance was $484.8 million (December 31, 2012 -
$360.6 million), and net debt was $689.4 million (December 31, 2012 - $464.3
million). On October 8, 2013, the net proceeds of the financing were received
effectively reducing net debt by $185.6 million.
SHARES OUTSTANDING
As at November 13, 2013, the Company has 189,571,687 common shares outstanding
and 14,003,828 stock options granted and outstanding.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
In the normal course of business, the Company is obligated to make future
payments. These obligations represent contracts and other commitments that are
known and non-cancellable.
greater
Payments Due by Year than 5
(000s) 1 Year 2-3 Years 4-5 Years Years Total
----------------------------------------------------------------------------
Operating leases $ 2,365 $ 8,572 $ 10,164 $ 7,402 $ 28,503
Flow-through
obligations - 7,862 - - 7,862
Firm transportation
and processing
agreements 47,411 104,376 91,184 240,033 483,004
Bank debt(1) - 526,618 - - 526,618
----------------------------------------------------------------------------
$ 49,776 $ 647,428 $ 101,348 $ 247,435 $1,045,987
----------------------------------------------------------------------------
(1) Includes interest expense at an annual rate of 2.87% being the rate
applicable to outstanding bank debt at September 30, 2013.
OFF BALANCE SHEET ARRANGEMENTS
The Company has certain lease arrangements, all of which are reflected in the
commitments and contractual obligations table, which were entered into in the
normal course of operations. All leases have been treated as operating leases
whereby the lease payments are included in operating expenses or general and
administrative expenses depending on the nature of the lease.
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, 2012.
As at September 30, 2013, 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. Such financial derivative 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 nine months of 2013 are detailed in
note 3 of the Company's interim condensed consolidated financial statements for
the three and nine months ended September 30, 2013.
The following table provides a summary of the unrealized gains and losses on
financial instruments for the three and nine months ended September 30, 2013 and
2012:
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------
(000s) 2013 2012 2013 2012
---------------------------------------------------------------------------
Unrealized gain (loss) on
financial instruments $ (4,701) $ (3,551) $ (5,199) $ 1,426
Unrealized (loss) on
investments held for
trading - - - (103)
---------------------------------------------------------------------------
Total $ (4,701) $ (3,551) $ (5,199) $ 1,323
---------------------------------------------------------------------------
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. Physical contracts entered into
since December 31, 2012 to September 30, 2013 have been disclosed in note 3 of
the Company's interim condensed consolidated financial statements for the three
and nine months ended September 30, 2013.
Financial derivative and physical delivery contracts entered into subsequent to
September 30, 2013 are detailed in note 3 of the Company's interim condensed
consolidated financial statements for the three and nine months ended September
30, 2013.
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, 2012.
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"), as defined by National Instrument 52-109 Certification, 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"), as defined by National Instrument 52-109, 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 July 1, 2013 and ending on September 30, 2013
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.
ADOPTION OF NEW ACCOUNTING STANDARDS
On January 1, 2013, the Company adopted new standards with respect to
consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests
in other entities (IFRS 12), fair value measurements (IFRS 13) and amendments to
financial instrument disclosures (IFRS 7). The adoption of these standards had
no impact on the amounts recorded in the interim condensed consolidated
financial statements or on the comparative periods.
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.
NON-GAAP FINANCIAL MEASURES
This MD&A or documents referred to in this MD&A make reference to the terms
"funds from operations", "net debt", "operating netback", "working capital
(adjusted for the fair value of financial instruments and future taxes)",
"EBITDA", "senior debt", "total debt", and "total capitalization" which are not
recognized measures under GAAP, and do not have a standardized meaning
prescribed by GAAP. Accordingly, the Company's use of these terms may not be
comparable to similarly defined measures presented by other companies.
Management uses the terms "funds from operations", "net debt", "operating
netback", and "working capital (adjusted for the fair value of financial
instruments)", for its own performance measures and to provide shareholders and
potential investors with a measurement of the Company's efficiency and its
ability to generate the cash necessary to fund a portion of its future growth
expenditures or to repay debt. Investors are cautioned that the non-GAAP
measures should not be construed as an alternative to net income determined in
accordance with GAAP as an indication of the Company's performance. The terms
"EBITDA", "senior debt", "total debt", and "total capitalization" are not used
by management in measuring performance but are used in the financial covenants
under the Company's credit facility. Under the Company's credit facility
"EBITDA" means generally net income or loss, excluding extraordinary items, plus
interest expense and income taxes and adjusted for non-cash items and gains or
losses on dispositions, "senior debt" means generally the indebtedness,
liabilities and obligations of the Company to the lenders under the credit
facility and certain other secured indebtedness, liabilities and obligations of
the Company ("bank debt"), "total debt" means generally bank debt plus any other
indebtedness of the Company, and "total capitalization" means generally the sum
of the Company's shareholders' equity and all other indebtedness of the Company
including bank debt, all determined on a consolidated basis in accordance with
GAAP.
Cash Flow
A summary of the reconciliation of cash flow from operating activities (per the
statements of cash flow) to cash flow is set forth below:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------
(000s) 2013 2012 2013 2012
----------------------------------------------------------------------------
Cash flow from operating
activities (per GAAP) $ 128,192 $ 66,713 $ 350,387 $ 168,806
Change in non-cash operating
working capital (7,632) (3,198) 15,642 17,666
----------------------------------------------------------------------------
Cash flow $ 120,560 $ 63,515 $ 366,029 $ 186,472
----------------------------------------------------------------------------
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 Nine Months Ended
September 30, September 30,
--------------------------------------------
($/boe) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue, excluding processing
income $ 27.58 $ 23.04 $ 28.57 $ 23.01
Royalties (2.61) (1.72) (2.27) (1.46)
Transportation costs (2.01) (1.97) (2.00) (1.87)
Operating expenses (4.36) (3.66) (4.31) (4.56)
----------------------------------------------------------------------------
Operating netback(1) $ 18.59 $ 15.68 $ 19.99 $ 15.12
----------------------------------------------------------------------------
(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:
As at As at
September 30, December 31,
(000s) 2013 2012
---------------------------------------------------------------------------
Working capital (deficit) $ (206,250) $ (98,913)
Fair value of financial instruments -
short-term (asset) liability 1,743 (4,814)
---------------------------------------------------------------------------
Working capital (deficit) (adjusted for
the fair value of financial instruments) $ (204,507) $ (103,727)
---------------------------------------------------------------------------
Net Debt
A summary of the reconciliation of net debt is set forth below:
As at As at
September 30, December 31,
(000s) 2013 2012
----------------------------------------------------------------------------
Bank debt $ (484,848) $ (360,573)
Working capital (deficit) (206,250) (98,913)
Fair value of financial instruments -
short-term (asset) liability 1,743 (4,814)
----------------------------------------------------------------------------
Net debt $ (689,355) $ (464,300)
----------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
2013
------------------------------------
($000s, unless otherwise
noted) Q3 Q2 Q1
----------------------------------------------------------------
PRODUCTION
Natural gas (mcf) 36,486,443 34,477,391 33,055,857
Oil and NGL(bbls) 735,727 640,001 667,907
Oil equivalent (boe) 6,816,800 6,386,233 6,177,216
Natural gas (mcf/d) 396,592 378,872 367,287
Oil and NGL (bbls/d) 7,997 7,033 7,421
Oil equivalent (boe/d) 74,096 70,178 68,636
----------------------------------------------------------------
FINANCIAL
Revenue, net of royalties 167,138 180,505 161,124
Cash flow from operating
activities 128,192 128,432 93,763
Cash flow (1) 120,560 128,870 116,599
Per diluted share 0.64 0.68 0.64
Net earnings (loss) 9,163 30,004 52,184
Per basic share 0.05 0.16 0.29
Per diluted share 0.05 0.16 0.29
Total assets 4,210,171 3,811,192 3,735,641
Working capital (206,250) (50,851) (165,385)
Working capital (adjusted
for the fair value of
financial instruments) (1) (204,507) (53,676) (166,049)
Capital expenditures 468,261 158,751 190,463
Total outstanding shares
(000s) 184,621 184,175 183,408
----------------------------------------------------------------
PER UNIT
Natural gas ($/mcf) 3.30 3.92 3.50
Oil and NGL ($/bbl) 91.65 87.06 88.75
Revenue ($/boe) 27.58 29.88 28.33
Operating netback ($/boe)
(1) 18.59 21.28 20.20
----------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
2012
------------------------------------------------
($000s, unless otherwise
noted) Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
PRODUCTION
Natural gas (mcf) 27,879,639 23,501,484 24,276,149 22,430,621
Oil and NGL(bbls) 618,483 515,157 596,992 515,408
Oil equivalent (boe) 5,265,090 4,432,071 4,643,016 4,253,845
Natural gas (mcf/d) 303,040 255,451 266,771 246,490
Oil and NGL (bbls/d) 6,723 5,600 6,560 5,664
Oil equivalent (boe/d) 57,230 48,175 51,022 46,746
----------------------------------------------------------------------------
FINANCIAL
Revenue, net of royalties 134,864 91,863 105,567 94,781
Cash flow from operating
activities 104,671 66,713 42,566 59,527
Cash flow (1) 93,807 63,515 61,121 61,836
Per diluted share 0.54 0.38 0.37 0.38
Net earnings (loss) 16,301 (4,770) 1,012 2,976
Per basic share 0.10 (0.03) 0.01 0.02
Per diluted share 0.09 (0.03) 0.01 0.02
Total assets 3,580,253 2,992,552 2,862,502 2,878,261
Working capital (98,913) (98,184) (15,311) (176,029)
Working capital (adjusted
for the fair value of
financial instruments) (1) (103,727) (101,577) (19,809) (175,696)
Capital expenditures 296,108 175,277 53,831 216,424
Total outstanding shares
(000s) 174,813 165,678 160,459 158,807
----------------------------------------------------------------------------
PER UNIT
Natural gas ($/mcf) 3.29 2.52 2.23 2.54
Oil and NGL ($/bbl) 83.28 83.34 77.75 91.48
Revenue ($/boe) 27.18 23.04 21.64 24.48
Operating netback ($/boe)
(1) 19.17 15.68 14.22 15.52
----------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
2011
-----------
($000s, unless otherwise
noted) Q4
---------------------------------------
PRODUCTION
Natural gas (mcf) 18,437,079
Oil and NGL(bbls) 415,074
Oil equivalent (boe) 3,487,920
Natural gas (mcf/d) 200,403
Oil and NGL (bbls/d) 4,512
Oil equivalent (boe/d) 37,912
---------------------------------------
FINANCIAL
Revenue, net of royalties 98,309
Cash flow from operating
activities 61,801
Cash flow (1) 73,311
Per diluted share 0.45
Net earnings (loss) 16,074
Per basic share 0.10
Per diluted share 0.10
Total assets 2,711,024
Working capital (146,317)
Working capital (adjusted
for the fair value of
financial instruments) (1) (146,593)
Capital expenditures 232,167
Total outstanding shares
(000s) 158,578
---------------------------------------
PER UNIT
Natural gas ($/mcf) 3.76
Oil and NGL ($/bbl) 93.05
Revenue ($/boe) 30.95
Operating netback ($/boe)
(1) 21.39
---------------------------------------
(1) See Non-GAAP 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.
Overall, the Company has had continued annual growth over the last two years
summarized in the table above. The Company's average annual production has
increased from 31,007 boe per day in 2011 to 50,804 boe per day in 2012 and
70,990 boe per day in the first nine months of 2013. The production growth can
be attributed primarily to the Company's exploration and development activities,
and from acquisitions of producing properties.
The Company's cash flows were $241.4 million in 2011, $280.3 million in 2012
and 2013 estimated cash flows (based on the first nine months annualized) are
$488.0 million, due mainly to strong growth in production levels and
strengthening commodity prices. 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. Changes in
commodity prices impact revenues and cash flows available for exploration, and
also the economics of potential capital projects as low commodity prices can
potentially reduce 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
September 30, December 31,
(000s) (unaudited) 2013 2012
----------------------------------------------------------------------------
Assets
Current assets:
Accounts receivable $ 86,298 $ 83,868
Assets held for sale - 33,007
Prepaid expenses and deposits 8,523 5,309
Fair value of financial instruments
(notes 2 and 3) - 4,814
----------------------------------------------------------------------------
Total current assets 94,821 126,998
Long-term asset 2,439 2,580
Exploration and evaluation assets (note 4) 699,744 639,933
Property, plant and equipment (note 5) 3,413,167 2,810,742
----------------------------------------------------------------------------
Total Assets $ 4,210,171 $ 3,580,253
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 299,328 $ 225,911
Fair value of financial instruments
(notes 2 and 3) 1,743 -
----------------------------------------------------------------------------
Total current liabilities 301,071 225,911
Bank debt (note 7) 484,848 360,573
Decommissioning obligations (note 6) 75,514 64,757
Long-term obligation 4,346 7,139
Fair value of financial instruments (notes
2 and 3) 654 2,012
Deferred premium on flow-through shares 1,474 8,755
Deferred taxes 230,421 176,391
Shareholders' equity:
Share capital (note 9) 2,871,793 2,599,614
Non-controlling interest (note 8) 17,396 16,298
Contributed surplus 83,423 70,923
Retained earnings 139,231 47,880
----------------------------------------------------------------------------
Total shareholders' equity 3,111,843 2,734,715
----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 4,210,171 $ 3,580,253
----------------------------------------------------------------------------
Commitments (note 12)
Subsequent events (notes 3 and 13)
See accompanying notes to the interim condensed consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------------
(000s) except per-
share amounts
(unaudited) 2013 2012 2013 2012
---------------------------------------------------------------------------
Revenue:
Oil and natural gas
sales $ 167,899 $ 99,817 $ 527,211 $ 294,914
Royalties (17,798) (7,641) (44,015) (19,511)
---------------------------------------------------------------------------
Net revenue from
oil and natural
gas sales 150,101 92,176 483,196 275,403
Realized gain on
financial
instruments 20,075 2,310 26,539 11,812
Unrealized gain
(loss) on
financial
instruments (note
3) (4,701) (3,551) (5,199) 1,323
Other income 1,663 928 4,231 3,673
---------------------------------------------------------------------------
Total net revenue 167,138 91,863 508,767 292,211
Expenses:
Operating 29,718 16,236 83,494 60,736
Transportation 13,702 8,737 38,779 24,896
General and
administration 4,666 3,498 14,823 10,544
Share-based
payments 5,441 3,575 13,513 11,091
(Gain) on
divestitures (4,736) (324) (48,146) (7,596)
Depletion,
depreciation and
amortization 96,250 58,733 259,990 176,530
---------------------------------------------------------------------------
Total expenses 145,041 90,455 362,453 276,201
---------------------------------------------------------------------------
Income from
operations 22,097 1,408 146,314 16,010
Finance expenses 3,646 3,596 11,172 8,532
---------------------------------------------------------------------------
Income (loss) before
taxes 18,451 (2,188) 135,142 7,478
Deferred taxes 8,835 2,363 42,693 7,318
---------------------------------------------------------------------------
Net income (loss)
and comprehensive
income (loss) for
the period before
non-controlling
interest 9,616 (4,551) 92,449 160
---------------------------------------------------------------------------
Net income (loss)
and comprehensive
income (loss)
attributable to:
Shareholders of the
Company 9,163 (4,770) 91,351 (782)
Non-controlling
interest (note 8) 453 219 1,098 942
---------------------------------------------------------------------------
$ 9,616 $ (4,551) $ 92,449 $ 160
---------------------------------------------------------------------------
Net income (loss)
per share
attributable to
common shareholders
(note 10)
---------------------------------------------------------------------------
Basic $ 0.05 $ (0.03) $ 0.50 $ (0.00)
---------------------------------------------------------------------------
Diluted $ 0.05 $ (0.03) $ 0.49 $ (0.00)
---------------------------------------------------------------------------
See accompanying notes to the interim condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(000s) (unaudited)
---------------------------------------------------------------------------
Contrib- Non-
Share uted Retained Controlling Total
Capital Surplus Earnings Interest Equity
---------------------------------------------------------------------------
Balance at
December 31,
2012 $ 2,599,614 $ 70,923 $ 47,880 $ 16,298 $2,734,715
Issue of
common shares
(note 9) 226,564 - - - 226,564
Share issue
costs, net of
tax (7,275) - - - (7,275)
Share-based
payments - 13,513 - - 13,513
Capitalized
share-based
payments - 13,513 - - 13,513
Options
exercised
(note 9) 52,890 (14,526) - - 38,364
Income
attributable
to common
shareholders - - 91,351 - 91,351
Income
attributable
to non-
controlling
interest - - - 1,098 1,098
---------------------------------------------------------------------------
Balance at
September 30,
2013 $ 2,871,793 $ 83,423 $ 139,231 $ 17,396 $3,111,843
---------------------------------------------------------------------------
(000s) (unaudited)
---------------------------------------------------------------------------
Contrib- Non-
Share uted Retained Controlling Total
Capital Surplus Earnings Interest Equity
---------------------------------------------------------------------------
Balance at
December 31,
2011 $ 2,140,660 $ 47,776 $ 32,361 $ 15,079 $2,235,876
Issue of
common shares 166,398 - - - 166,398
Share issue
costs, net of
tax (5,701) - - - (5,701)
Share-based
payments - 11,091 - - 11,091
Capitalized
share-based
payments - 11,091 - - 11,091
Options
exercised 15,079 (4,203) - - 10,876
Loss
attributable
to common
shareholders - - (782) - (782)
Income
attributable
to non-
controlling
interest - - - 942 942
---------------------------------------------------------------------------
Balance at
September 30,
2012 $ 2,316,436 $ 65,755 $ 31,579 $ 16,021 $2,429,791
---------------------------------------------------------------------------
See accompanying notes to the interim condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------------
(000s) (unaudited) 2013 2012 2013 2012
---------------------------------------------------------------------------
Cash provided by
(used in):
Operations:
Net income (loss) $ 9,163 $ (4,770) $ 91,351 $ (782)
Items not involving
cash:
Depletion,
depreciation and
amortization 96,250 58,733 259,990 176,530
Accretion 533 325 1,412 940
Share-based
payments 5,441 3,575 13,513 11,091
Deferred taxes 8,835 2,363 42,693 7,318
Unrealized (gain)
loss on financial
instruments (note
3) 4,701 3,551 5,199 (1,323)
Realized (gain)
loss on sale of
investments - - - (38)
(Gain) on
divestitures (4,736) (324) (48,146) (7,596)
Non-controlling
interest 453 219 1,098 942
Decommissioning
expenditures (80) (157) (1,081) (610)
Changes in non-cash
operating working
capital 7,632 3,198 (15,642) (17,666)
---------------------------------------------------------------------------
Total cash flow from
operating
activities 128,192 66,713 350,387 168,806
Financing:
Issue of common
shares 4,853 141,170 271,524 185,783
Share issue costs (249) (5,457) (9,815) (7,602)
Increase (decrease)
in bank debt 192,999 (104,788) 124,275 128,521
---------------------------------------------------------------------------
Total cash flow from
financing
activities 197,603 30,925 385,984 306,702
Investing:
Exploration and
evaluation (51,061) (25,890) (107,871) (59,921)
Property, plant and
equipment (308,537) (143,585) (642,903) (391,403)
Property
acquisitions (108,763) (5,867) (144,746) (6,841)
Proceeds from
divestitures 100 65 78,045 12,633
Proceeds from sale
of investments - - - 168
Net repayment of
long-term
obligation (733) (931) (2,596) (2,794)
Changes in non-cash
investing working
capital 143,199 78,570 83,700 (27,350)
---------------------------------------------------------------------------
Total cash flow from
investing
activities (325,795) (97,638) (736,371) (475,508)
Changes in cash - - - -
Cash, beginning of
period - - - -
---------------------------------------------------------------------------
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
As at September 30, 2013 and for the three and nine months ended September 30,
2013 and 2012
(tabular amounts in thousands of dollars, unless otherwise noted) (unaudited)
Corporate Information:
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.
These consolidated financial statements reflect only the Company's proportionate
interest in such activities.
The Company's registered office is located at Suite 2400, 525 - 8th Avenue S.W.,
Calgary, Alberta, Canada T2P 1G1.
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 consolidated financial statements for the year ended December
31, 2012.
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
consolidated financial statements for the year ended December 31, 2012, except
as detailed below.
On January 1, 2013, the Company adopted new standards with respect to
consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests
in other entities (IFRS 12), fair value measurements (IFRS 13) and amendments to
financial instrument disclosures (IFRS 7). The adoption of these standards had
no impact on the amounts recorded in the interim condensed consolidated
financial statements or on the comparative periods.
The unaudited interim condensed consolidated financial statements were
authorized for issue by the Board of Directors on November 13, 2013.
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 methods. 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 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 consistent with those discussed in
note 5 of the Company's audited consolidated financial statements for the year
ended December 31, 2012.
As at September 30, 2013, 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 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 consolidated statement of income (loss) and comprehensive
income (loss).
The Company has entered into the following financial derivative contracts from
January 1, 2013 to September 30, 2013:
(000s)
----------------------------------------------------------------------------
Fair
Type of Contract Quantity Time Period(1) Contract Price Value
----------------------------------------------------------------------------
Financial Swap 200 bbls/d April 2013 - March USD$97.87/bbl (139)
2014 average
Financial Swap 200 bbls/d July 2013 - June USD$98.00/bbl (100)
2014
Financial Swap 400 bbls/d January 2014 - USD$94.825/bbl (76)
December 2014
Financial Swap 200 bbls/d January 2014 - USD$94.75/bbl (44)
December 2014
Financial Swap 400 bbls/d October 2013 - USD$97.55/bbl (152)
December 2013
Financial Swap 5,000 mmbtu/d April 2013 - March USD$4.12/mmbtu 384
2014
Financial Costless1,100 bbls/d January 2014 - USD$80.91/bbl (1,239)
Collar December 2014 floor -
USD$97.57/bbl
ceiling average
Financial Call 200 bbls/d April 2014 - March USD$100.00/bbl (116)
Swaption 2015 average strike
(March 31, 2013
call date)
Financial Call 600 bbls/d January 2015 - USD$104.98/bbl (307)
Swaption December 2015 average strike
(December 31,
2014 call date)
----------------------------------------------------------------------------
(1)Transactions with common terms have been aggregated and presented as the
weighted average price.
There were no financial derivative contracts entered into subsequent to
September 30, 2013.
The Company has entered into two interest rate swap arrangements. The following
table outlines the realized and unrealized gains/(losses) on these interest rate
contracts recorded on the consolidated statement of income (loss) and
comprehensive income (loss) for the nine months ended September 30, 2013:
(000s)
---------------------------------------------------------------------------
Company Counter
Type Fixed Party
(Floating Interest Floating
to Rate Rate Nine Months Ended
Term Fixed) Amount (%) Index September 30, 2013
---------------------
Unrealized
Realized Gain
(Loss) (Loss)
---------------------------------------------------------------------------
May 29, Swap $150,000 1.35% Floating (145) 51
2012- Rate
May 29,
2014
May 29, Swap $150,000 1.72% Floating - (281)
2014- Rate
May 29,
2015
---------------------------------------------------------------------------
The following table provides a summary of the unrealized gains and losses on
financial instruments for the three and nine months ended September 30, 2013 and
2012:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
(000s) 2013 2012 2013 2012
----------------------------------------------------------------------------
Unrealized gain (loss) on
financial instruments $ (4,701) $ (3,551) $ (5,199) $ 1,426
Unrealized (loss) on
investments held for
trading - - - (103)
----------------------------------------------------------------------------
Total $ (4,701) $ (3,551) $ (5,199) $ 1,323
----------------------------------------------------------------------------
As at September 30, 2013, if the future strip prices for oil were $1.00/bbl
higher and prices for natural gas were $0.10/mcf higher, with all other
variables held constant, an adjustment would have been recorded to unrealized
gain (loss) on financial instruments resulting in a reduction to before-tax
earnings of $2.9 million (September 30, 2012 - $1.5 million). An equal and
opposite impact would have occurred to unrealized gain (loss) and the fair value
of the derivative contracts liability if oil prices were $1.00/bbl lower and gas
prices were $0.10/mcf lower.
Financial assets and liabilities are only offset if the Company has the current
legal right to offset and intends to settle on a net basis or settle the asset
and liability simultaneously. The Company offsets derivative contracts assets
and liabilities when the counterparty, commodity, currency and timing of
settlement are the same. The following table provides a summary of the Company's
offsetting derivative contracts positions.
September 30, 2013 December 31, 2012
--------------------------------------------------------------
Derivative Contracts Derivative Contracts
--------------------------------------------------------------
(000s) Asset Liability Net Asset Liability Net
----------------------------------------------------------------------------
Gross amount $ 4,592 $ (6,989) $(2,397) $ 7,623 $ (4,821) $ 2,802
Amount offset (4,592) 4,592 - (2,809) 2,809 -
----------------------------------------------------------------------------
Net amount $ - $ (2,397) $(2,397) $ 4,814 $ (2,012) $ 2,802
----------------------------------------------------------------------------
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 from January 1,
2013 to September 30, 2013:
----------------------------------------------------------------------------
Type of Contract Quantity Time Period(1) Contract Price
----------------------------------------------------------------------------
AECO Fixed Price 20,000 April 2013 - March 2014 CAD$3.305/gj average
gjs/d
AECO Fixed Price 35,000 April 2013 - October CAD$3.617/gj average
gjs/d 2013
AECO Fixed Price 20,000 August 2013 - October CAD$3.100/gj
gjs/d 2013
AECO Fixed Price 25,000 November 2013 - March CAD$3.839/gj average
gjs/d 2014
AECO Fixed Price 25,000 January 2014 - December CAD$3.792/gj average
gjs/d 2014
AECO Fixed Price 25,000 April 2014 - October CAD$3.466/gj average
gjs/d 2014
AECO Fixed Price 5,000 gjs/d January 2015 - December CAD$4.00/gj
2015
(Buyer) AECO/Nymex 30,000 April 2013 - October Nymex less
Differential Swap mmbtu/d 2013 USD$0.42/mmbtu
average
AECO/Nymex 10,000 November 2013 - October SoCal GDD less
Differential Swap mmbtu/d 2016 USD$0.725/mmbtu
AECO/Nymex 20,000 November 2013 - March Nymex less
Differential Swap mmbtu/d 2014 USD$0.426/mmbtu
average
AECO/Nymex 40,000 January 2014 - December Nymex less
Differential Swap mmbtu/d 2014 USD$0.493/mmbtu
average
AECO/Nymex 20,000 January 2014 - December Nymex less
Differential Swap mmbtu/d 2016 USD$0.375/mmbtu
average
AECO/Nymex 20,000 January 2015 - December Nymex less
Differential Swap mmbtu/d 2022 USD$0.486/mmbtu
average
AECO Call Option 20,000 November 2013 - October CAD $4.000/gj strike
(writer) gjs/d 2014 price
AECO Call Option 5,000 gjs/d January 2015 - December CAD$4.360/gj strike
(writer) 2015 price
AECO Call Option 8,000 gjs/d January 2016 - December CAD$5.000/gj strike
(writer) 2016 price
NYMEX Call Option 20,000 January 2017 - December USD$5.000/mmbtu
(writer) mmbtu/d 2018 strike price
AECO Call Swaption 25,000 November 2013 - October CAD$4.000/gj strike
(writer) gjs/d 2014 average
(call date October
31, 2013)
AECO Call Swaption 10,000 January 2014 - December CAD$3.751/gj strike
(writer) gjs/d 2014 average
(call date December
31, 2013)
AECO Call Swaption 15,000 April 2014 - March 2015 CAD$3.717/gj strike
(writer) gjs/d average
(call date March 31,
2014)
AECO Call Swaption 5,000 gjs/d April 2014 - March 2016 CAD$3.850/gj strike
(writer) average
(call date March 31,
2014)
AECO Call Swaption 25,000 November 2014 - October CAD$4.000/gj strike
(writer) gjs/d 2015 average
(call date October
31, 2014)
----------------------------------------------------------------------------
(1) Transactions with common terms have been aggregated and presented as the
weighted average price.
The Company has entered into the following physical contracts subsequent to
September 30, 2013:
----------------------------------------------------------------------------
Type of Contract Quantity Time Period Contract Price
----------------------------------------------------------------------------
AECO Call 15,000 January 2017 - December CAD$4.650/gj strike
Swaption gjs/d 2017 (call date December 31,
(writer)(1) 2016)
(1) This transaction replaces an AECO Call Swaption (writer) previously in
place for 15,000 gjs with a term of January 2014 - December 2014.
4. EXPLORATION AND EVALUATION ASSETS
(000s)
---------------------------------------------------------------------------
As at December 31, 2012 $ 639,933
Capital expenditures 111,709
Transfers to property, plant and equipment (note 5) (44,130)
Acquisitions 25,383
Divestitures (2,306)
Expired mineral leases (30,845)
---------------------------------------------------------------------------
As at September 30, 2013 $ 699,744
---------------------------------------------------------------------------
General and administrative expenditures for the nine months ended September 30,
2013 of $3.9 million (December 31, 2012 - $5.2 million) have been capitalized
and included as exploration and evaluation assets. Non-cash share-based payment
expenses in the amount of $3.8 million (December 31, 2012 - $5.8 million) were
also capitalized and included in exploration and evaluation assets. Expired
mineral lease expenses have been included in the "Depletion, depreciation and
amortization" line item on the consolidated statements of income (loss) and
comprehensive income (loss).
5. PROPERTY, PLANT AND EQUIPMENT
Cost
(000s)
---------------------------------------------------------------------------
As at December 31, 2012 $ 3,305,685
Capital expenditures 652,578
Transfers from exploration and evaluation (note 4) 44,130
Change in decommissioning liabilities (note 6) 10,521
Acquisitions 127,065
Divestitures (3,696)
---------------------------------------------------------------------------
As at September 30, 2013 $ 4,136,283
---------------------------------------------------------------------------
Accumulated Depletion, Depreciation and Amortization
(000s)
---------------------------------------------------------------------------
As at December 31, 2012 $ 494,943
Depletion, depreciation and amortization expense (net of
mineral lease expiries) 229,145
Divestitures (972)
---------------------------------------------------------------------------
As at September 30, 2013 $ 723,116
---------------------------------------------------------------------------
Net Book Value
(000s)
-----------------------------------------------
As at December 31, 2012 $ 2,810,742
As at September 30, 2013 $ 3,413,167
-----------------------------------------------
General and administrative expenditures for the nine months ended September 30,
2013 of $7.2 million (December 31, 2012 - $6.1 million) have been capitalized
and included as costs of oil and natural gas properties. Also included in oil
and natural gas properties is non-cash share-based payment expense of $9.7
million (December 31, 2012 - $9.1 million).
Future development costs for the nine months ended September 30, 2013 of $2,429
million (December 31, 2012 - $2,233 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
$113.3 million (December 31, 2012 - $92.7 million), with some abandonments
expected to commence in 2021. A risk-free rate of 2.89% (December 31, 2012 -
2.49%) and an inflation rate of 2.0% (December 31, 2012 - 2.0%) were used to
calculate the fair value of the decommissioning obligations.
Nine Months Ended Year Ended
September 30, December 31,
(000s) 2013 2012
---------------------------------------------------------------------------
Balance, beginning of period $ 64,757 $ 50,463
Obligation incurred 7,003 5,685
Obligation incurred on corporate
acquisitions - 4,643
Obligation incurred on property
acquisitions 6,140 4,235
Obligation divested (95) (319)
Obligation settled (1,081) (993)
Reclassification of obligation
associated with assets held for sale - (285)
Accretion expense 1,412 1,328
Change in future estimated cash outlays (2,622) -
---------------------------------------------------------------------------
Balance, end of period $ 75,514 $ 64,757
---------------------------------------------------------------------------
7. BANK DEBT
The Company has a covenant-based bank credit facility in place with a syndicate
of bankers, the details of which are described in note 9 of the Company's
consolidated financial statements for the year ended December 31, 2012. In
October 2013, the facility was increased, under the same terms and covenants, to
$900 million with an initial maturity of June 2016.
As at September 30, 2013, the Company's bank debt balance was $484.8 million
(December 31, 2012 - $360.6 million). In addition, the Company has outstanding
letters of credit of $2.1 million (December 31, 2012 - $4.4 million), which
reduce the credit available on the facility. The average effective interest rate
for the nine months ended September 30, 2013 was 3.06% (nine months ended
September 30, 2012 - 3.27%). As at September 30, 2013, the Company is in
compliance with all debt covenants.
8. NON-CONTROLLING INTEREST
The Company 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:
Nine Months Ended Year Ended
September 30, December 31,
(000s) 2013 2012
----------------------------------------------------------------------------
Balance, beginning of period $ 16,298 $ 15,079
Share of subsidiary's net income for
the period 1,098 1,219
----------------------------------------------------------------------------
Balance, end of period $ 17,396 $ 16,298
----------------------------------------------------------------------------
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
Nine Months Ended Year Ended
September 30, 2013 December 31, 2012
------------------------------------------------------------
(000s except
per-share Number of Number of
amounts) Shares Amount Shares Amount
---------------------------------------------------------------------------
Balance,
beginning of
period 174,813,059 $ 2,599,614 158,577,586 $ 2,140,660
For cash on
public
offering of
common
shares(2)(4) 5,780,000 197,965 4,639,000 134,531
For cash on
public
offering of
flow-through
common
shares(1)
(3)(4) 835,000 28,599 2,452,000 62,685
Issued on
corporate
acquisitions - - 7,401,682 244,404
For cash on
exercise of
stock options 3,193,111 38,364 1,742,791 17,712
Contributed
surplus on
exercise of
stock options - 14,526 - 6,745
Share issue
costs - (9,815) - (9,497)
Tax effect of
share issue
costs - 2,540 - 2,374
---------------------------------------------------------------------------
Balance, end of
period 184,621,170 $ 2,871,793 174,813,059 $ 2,599,614
---------------------------------------------------------------------------
(1) On April 4, 2012, the Company issued 1.4 million flow-through common
shares at $28.80 per share for total gross proceeds of $40.4 million. The
implied premium on the flow-through common shares was determined to be $8.5
million or $6.07 per share. A total of 0.15 million shares were purchased by
insiders. As at September 30, 2013, the Company had spent the full committed
amount. The expenditures were renounced to investors in February 2013 with
an effective renunciation date of December 31, 2012.
(2)On August 30, 2012, the Company issued 4.039 million common shares at a
price of $29.00 per share for total gross proceeds of $117.1 million. A
total of 39,000 shares were purchased by insiders. Subsequently, on
September 19, 2012, the Underwriters exercised their over-allotment Option
and purchased a further 0.6 million shares at a price of $29.00 per share
for total gross proceeds of $17.4 million.
(3) On November 1, 2012, the Company issued 1.05 million flow-through common
shares at $36.90 per share for total gross proceeds of $38.7 million. The
implied premium on the flow-through common shares was determined to be $7.9
million or $7.55 per share. A total of 0.05 million shares were purchased by
insiders. As at September 30, 2013, the Company had spent the full committed
amount. The expenditures were renounced to investors in February 2013, with
an effective renunciation date of December 31, 2012.
(4) On March 12, 2013, the Company issued 5.78 million common shares at a
price of $34.25 per share and 0.835 million flow-through common shares at a
price of $42.15 per share, for total gross proceeds of $233.2 million. The
implied premium on the flow-through common shares was determined to be $6.6
million or $7.90 per share. A total of 30,000 common and 85,000 flow-through
common shares were purchased by insiders. As at September 30, 2013, the
Company had spent $27.3 million on eligible expenditures and is committed to
spend the remainder of $7.9 million on qualified exploration and development
expenditures by December 31, 2014. The expenditures will be renounced to
investors with an effective renunciation date of December 31, 2013.
10. EARNINGS PER SHARE
Basic earnings-per-share was calculated as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------
2013 2012 2013 2012
---------------------------------------------------------------------------
Net earnings (loss)
for the period
(000s) $ 9,163 $ (4,770) $ 91,351 $ (782)
Weighted average
number of common
shares - basic 184,480,948 162,032,270 181,828,804 160,301,308
---------------------------------------------------------------------------
Earnings (loss) per
share - basic $ 0.05 $ (0.03) $ 0.50 $ (0.00)
---------------------------------------------------------------------------
Diluted earnings-per-share was calculated as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------
2013 2012 2013 2012
---------------------------------------------------------------------------
Net earnings
(loss)for the
period (000s) $ 9,163 $ (4,770) $ 91,351 $ (782)
Weighted average
number of common
shares - diluted 189,764,708 162,032,270 186,676,207 160,301,308
---------------------------------------------------------------------------
Earnings (loss)
per share - fully
diluted $ 0.05 $ (0.03) $ 0.49 $ (0.00)
---------------------------------------------------------------------------
There were 2,345,000 options excluded from the weighted-average share
calculation for the nine months ended September 30, 2013 because they were
anti-dilutive (September 30, 2012 - 14,134,531).
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 18,462,117 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.
Nine Months Ended September 30,
--------------------------------------------------------
2013 2012
--------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
----------------------------------------------------------------------------
Stock options
outstanding,
beginning of period 15,325,232 $ 19.87 14,213,523 $ 16.82
Granted 2,445,000 40.19 980,000 23.57
Exercised (3,193,111) 12.01 (1,058,992) 10.27
Forfeited (109,443) 24.59 - -
----------------------------------------------------------------------------
Stock options
outstanding, end of
period 14,467,678 $ 24.98 14,134,531 $ 17.78
----------------------------------------------------------------------------
The following table summarizes stock options outstanding and exercisable at
September 30, 2013:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at Period Contractual Exercise at Period Exercise
Price End Life Price End Price
----------------------------------------------------------------------------
$7.00 -
$10.00 1,732,182 0.52 $ 9.17 1,732,182 $ 9.17
$12.00 -
$18.35 3,969,124 1.53 16.56 3,969,124 16.56
$20.68 -
$29.93 3,860,706 3.14 26.85 1,514,654 27.11
$30.76 -
$41.89 4,905,666 4.25 35.91 309,000 30.83
----------------------------------------------------------------------------
14,467,678 2.76 $ 24.98 7,524,960 $ 17.57
----------------------------------------------------------------------------
The fair value of options granted during the nine month period was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions and resulting values:
September September
30, 30,
2013 2012
----------------------------------------------------------------------------
Fair value of options granted (weighted
average) $ 13.98 $ 8.11
Risk-free interest rate 2.65% 2.38%
Estimated hold period prior to exercise 4 years 4 years
Expected volatility 40% 40%
Forfeiture rate 2% 2%
Dividend per share $ 0.00 $ 0.00
----------------------------------------------------------------------------
12. COMMITMENTS
In the normal course of business, the Company is obligated to make future
payments. These obligations represent contracts and other commitments that are
known and non-cancellable.
greater
Payments Due by Year than 5
(000s) 1 Year 2-3 Years 4-5 Years Years Total
----------------------------------------------------------------------------
Operating leases $ 2,365 $ 8,572 $ 10,164 $ 7,402 $ 28,503
Flow-through
obligations - 7,862 - - 7,862
Firm transportation
and processing
agreements 47,411 104,376 91,184 240,033 483,004
Bank debt(1) - 526,618 - - 526,618
----------------------------------------------------------------------------
$49,776 $ 647,428 $ 101,348 $ 247,435 $ 1,045,987
----------------------------------------------------------------------------
(1) Includes interest expense at an annual rate of 2.87% being the rate
applicable to outstanding bank debt at September 30, 2013.
13. SUBSEQUENT EVENTS
On October 8, 2013, the Company issued 3.495 million common shares at a price of
$41.75 per share and 0.925 million flow-through common shares at a price of
$51.60 per share, for total gross proceeds of $193.6 million. The Company is
committed to spend $47.73 million on qualified exploration expenditures by
December 31, 2014. Flow-through common shares will be renounced to investors
with an effective renunciation date of December 31, 2013.
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
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
robinson@tourmalineoil.com
Tourmaline Oil Corp.
Scott Kirker
Secretary and General Counsel
(403) 767-3593
kirker@tourmalineoil.com
Tourmaline Oil Corp.
Suite 3700, 250 - 6th Avenue S.W.
Calgary, Alberta T2P 3H7
(403) 266-5992
(403) 266-5952 (FAX)
www.tourmalineoil.com
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