Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tourmaline Oil Corp (TRMLF, Financial) reported a 13% increase in second-quarter average production compared to the same period last year, reaching 562,000 boes per day.
- The company generated strong free cash flow of $434 million in Q2 2024, allowing for a 3% increase in the quarterly base dividend.
- Tourmaline Oil Corp (TRMLF) reduced its net debt by $137 million during the second quarter, aligning with its long-term net debt target.
- The company has successfully diversified its market exposure, achieving an average realized natural gas price significantly higher than the AECO 5A index price.
- Tourmaline Oil Corp (TRMLF) is advancing its North Montney development, with key facility components expected to add significant production capacity in the coming years.
Negative Points
- The company revised its full-year 2024 average production guidance down by 5,000 boes per day due to select third-quarter frac deferrals.
- Tourmaline Oil Corp (TRMLF) is operating in an extremely weak natural gas pricing environment, which could impact future profitability.
- Despite strong free cash flow, the company cannot fund all initiatives, leading to prioritization of debt reduction and dividends over other investments.
- The company faces potential challenges in maintaining production growth if natural gas prices do not improve as anticipated.
- Tourmaline Oil Corp (TRMLF) has significant exposure to AECO and Station 2, which are subject to volatile pricing conditions.
Q & A Highlights
Q: Are the lower drilling costs specific to Tourmaline, or is this a trend across the industry? Also, how do you plan to adjust growth if natural gas prices fluctuate?
A: Michael Rose, CEO, explained that Tourmaline has renegotiated and fixed lower drilling costs, which are specific to the company. They are also seeing improved drill times. Regarding growth, Tourmaline will finalize its 2025 budget in November, considering gas price trends. They are prepared to adjust production volumes based on price movements, maintaining discipline in response to market conditions.
Q: How does Tourmaline plan to allocate free cash flow as it approaches its net debt target?
A: Michael Rose, CEO, stated that free cash flow will fund dividends, debt reduction, midstream investments, exploration, and share buybacks. They are happy with the current free cash flow and have prioritized debt reduction, a base dividend increase, and a special dividend. Brian Robinson, CFO, added that they aim to reach their debt target by 2025 or early 2026, considering their significant Topaz equity position as a counterweight.
Q: With LNG Canada starting soon, how is Tourmaline managing AECO exposure and transport needs?
A: Michael Rose, CEO, noted that Tourmaline plans to increase AECO and Station 2 exposure as they execute their five-year development plan, timed with LNG Canada's start-up. They expect this to positively impact in-basin pricing and will continue to evolve transport options both south into the US and west.
Q: What is Tourmaline's outlook on the North American gas market for 2025, and how does it affect production plans?
A: Michael Rose, CEO, expressed a bullish outlook on gas, expecting 2025 to be undersupplied. Tourmaline has projects that can add volume in 2025 and 2026, but they will carefully monitor gas prices before deciding on production increases. Jamie Heard, VP of Capital Markets, highlighted the lack of productive momentum in the US, providing Tourmaline with optionality to react quickly to market changes.
Q: How is Tourmaline approaching its hedging strategy for 2025?
A: Michael Rose, CEO, stated that Tourmaline typically hedges up to 50% of total volumes but can exceed this in certain markets. They have been highly hedged in 2024 and will continue to add to hedge volumes for 2025 and 2026, focusing on strategic, site-specific hedging rather than large programmatic volumes. Brian Robinson, CFO, added that they are more open in the winter and less hedged in premium markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
