TORC Oil & Gas Ltd. Announces 2019 Capital Budget and Production Guidance; Confirms December Dividend

CALGARY, Dec. 11, 2018 /CNW/ - TORC Oil & Gas Ltd. ("TORC" or the "Company") (TSX: TOG) is pleased to announce the Company's Board of Directors has approved an initial 2019 capital budget of $180 million. TORC's strategic objectives associated with the 2019 capital budget are consistent with the Company's long term objectives of achieving disciplined per share growth in combination with maintaining financial flexibility while paying a sustainable dividend. 

TORC's 2019 capital budget exhibits a measured approach to both the domestic and global volatility in the crude oil price environment and reflects a balance between managing long term objectives, protecting the Company's strong financial position and sustaining the dividend.

TORC maintains significant financial and operational flexibility to adapt to changes in the domestic and global commodity price complex.

TORC's 2019 capital budget is specifically focused on:

• Investing in higher rate of return, lower risk light oil opportunities across the Company's extensive development drilling inventory;
• Maintaining production levels and maximizing cash flow through an efficient capital program;
• Efficiently executing a high graded development drilling program while continuing to organically expand the Company's inventory through select delineation opportunities;
• Maintaining the Company's decline profile;
• Maintaining a payout ratio of less than 100%;
• Directing the pace of the capital program to maintain spending flexibility throughout the year;
• Maintaining operational flexibility to effectively respond to a changing commodity price environment; and
• Maintaining TORC's strong financial position and flexibility to take advantage of additional growth opportunities as they arise.

TORC's capital program in 2019 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (approximately 75%), with the remainder allocated to operational and facility optimization to maximize production efficiency.  The capital program is concentrated on the Company's primary core areas in southeast Saskatchewan, focused on both conventional and unconventional opportunities, along with the Cardium play in central Alberta.

2019 BUDGET HIGHLIGHTS

SOUTHEAST SASKATCHEWAN

TORC's asset base in southeast Saskatchewan is comprised of both conventional assets and unconventional light oil resource plays.  TORC's primary focus on the conventional asset base is to maintain production and maximize free cash flow through the efficient exploitation of identified conventional light oil pools.  TORC's unconventional light oil resource plays provide current and future organic growth opportunities for the Company.

In 2019, TORC plans to drill 45 gross (33.7 net) conventional wells.  With more than 400 net undrilled conventional locations identified, the 2019 budget represents less than 9% of TORC's conventional development locations.  These locations are characterized by their lower risk nature and high rates of return driven by their lower capital costs, high netbacks and the attractive royalty regime in Saskatchewan. Southeast Saskatchewan conventional activity will comprise approximately 28% of the Company's 2019 drilling, completion and tie-in capital budget.

On the Company's unconventional asset base in southeast Saskatchewan, TORC has been active on the Torquay/Three Forks light oil resource play.  Based on the Company's results from this program, TORC will continue to allocate significant capital to this resource play with plans to drill 16 gross (12.5 net) wells during 2019.  This program represents less than 9% of the 150 net identified Torquay/Three Forks development locations on the Company's land base. The Torquay/Three Forks activity in southeast Saskatchewan will comprise approximately 29% of the 2019 drilling, completion and tie-in capital budget. 

TORC has also been active in a number of areas prospective for unconventional Midale exploitation. Given the continued success the Company has achieved in this play, the Company plans to increase capital allocated to this light oil resource play in 2019 with plans to drill 18 gross (14.9 net) wells spread across the Company's land position. This program represents less than 9% of the 175 net identified Midale development locations on the Company's land base. The Midale activity in southeast Saskatchewan will comprise approximately 23% of the 2019 drilling, completion and tie-in capital budget. 

Together, the conventional and unconventional southeast Saskatchewan capital allocation represents approximately 80% of the overall drilling, completion and tie-in capital budget during 2019.

CARDIUM

In 2019, TORC plans to drill 9 gross (8.2 net) wells across the Company's land position in the Cardium to maintain production.  With a decline profile of approximately 20%, the Cardium play continues to generate free cash flow in the current commodity price environment supporting the sustainability and repeatability of the Company's business objectives. 

TORC's development plans for the Cardium in 2019 represents approximately 20% of the Company's drilling, completion and tie-in activity.

PRODUCTION GUIDANCE

TORC anticipates that the $180 million 2019 capital budget will maintain 2018 exit production levels resulting in 2019 average and exit production of 28,000 boepd (~88% light oil & liquids) while continuing to maintain a decline profile of approximately 23%.

DIVIDEND

TORC's dividend is reviewed regularly with the Board of Directors and is an important component of TORC's overall strategy. TORC is well positioned to sustain a current dividend of $0.022 per share per month and will continue to monitor and review realized commodity prices, capital efficiencies and cash costs on a timely basis to maintain financial flexibility and long term sustainability.

TORC is pleased to confirm that the December, 2018 dividend of $0.022 per common share will be paid on January 15, 2019.

DISCIPLINED BUDGET

TORC's priorities are to act prudently to protect the financial flexibility of the Corporation while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable dividend.

TORC is committed to maintaining a disciplined approach during the current volatility in both the domestic and global oil markets.

Western Canadian crude oil has recently been trading at historically high differentials relative to global oil prices primarily due to take away capacity limitations.  Approximately 85% of TORC's crude oil is produced in southeast Saskatchewan and sold at Cromer, Manitoba which is downstream of the crude oil delivery points that have experienced apportionments in 2018.  This has resulted in TORC receiving advantaged pricing relative to western Canadian crude oil sold upstream of Cromer. 

On December 2, 2018 the Alberta government announced a mandated production curtailment to help alleviate current take away capacity issues being experienced in Alberta and to reduce storage levels to historical averages. 

The temporary production reduction applies to all operators in Alberta beginning in January, 2019 with the first 10,000 barrels per day of oil production exempt from curtailment.  TORC's oil production in the province of Alberta is under the 10,000 barrels per day and therefore the Company is exempt from reducing production.  The Company expects that the production curtailment will have a positive impact on the price differentials of western Canadian crude oil relative to global oil prices.   

The Company continues to diligently focus on capital efficiency improvements through the combination of operational improvements and capital cost reductions. TORC's $180 million 2019 capital budget is based on current capital cost realizations.

TORC continues to focus on maintaining a payout ratio of less than 100% in 2019.

The Company remains in a position to return to a budget targeting organic growth in a timely manner should there be positive developments in the commodity price environment.   

At September 30, 2018, TORC's net debt was $391 million with approximately $336 million drawn on a bank line of $500 million, positioning TORC with financial flexibility and a strong balance sheet.

OUTLOOK

TORC has built a sustainable growth platform of light oil focused assets. The stability of the high quality, low decline, conventional light oil assets in southeast Saskatchewan and the low risk Cardium development inventory in central Alberta combined with exposure to the light oil resource plays in the Torquay/Three Forks and unconventional Midale in southeast Saskatchewan, positions TORC to provide a sustainable dividend along with value creation through a disciplined long term focused growth strategy.

TORC has the following key operational and financial attributes:

High Netback Production ^(1)	2018E Average: 25,300 boepd
	2018E Exit: 28,000 boepd
	2019E Average: 28,000 boepd
	2019E Exit: 28,000 boepd
Total Proved plus Probable Reserves ^(2)	Greater than 133 mmboe (~85% light oil & liquids)
Southeast Saskatchewan Light Oil	Greater than 400 net undrilled conventional locations
Development Inventory	Greater than 150 net undrilled Torquay/Three Forks locations
	Greater than 175 net undrilled unconventional Midale locations
Cardium Light Oil Development Inventory	Greater than 290 net undrilled locations
Sustainability Assumptions ^(3)	Corporate decline ~23%
	Current Capital Efficiency ~$28,000 per boepd (IP 365)
2019 Capital Program	$180 million
Monthly Dividend	$0.022 per share
Net Debt as at Sept 30, 2018 ^(4)	$391 million; $336 million drawn
Shares Outstanding	216 million (basic)
Tax Pools	Approximately $1.9 billion

Notes:
(1)	~88% light oil & NGLs.
(2)	All reserves information in this press release are gross reserves. The reserve information in the foregoing outlook table is derived from the independent engineering report effective December 31, 2017 prepared by Sproule & Associates Limited ("Sproule") evaluating the oil, NGL and natural gas reserves attributable to all of our properties (the "TORC Reserve Report").  The reserves associated with net acquisitions completed in 2018 are based on TORC's internal evaluation prepared by a qualified reserves evaluator in accordance NI-51-101 and COGE Handbook.
(3)	Refers to full cycle capital efficiency which is the all-in corporate capital budget divided by the IP365 of the associated wells. Corporate decline refers to TORC's estimated oil and gas production decline rate in the normal life cycle of a well.
(4)	See "Non-GAAP Measures".

READER ADVISORIES

Forward Looking Statements

This press release contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws relating to the Company's plans, strategy, business model, focus, objectives and other aspects of TORC's anticipated future operations and financial, operating and drilling and development plans and results, including, expected future production, production mix, drilling inventory, net debt, free cash flow, operating netbacks, decline rate and decline profile, capital expenditure program, capital efficiencies, commodity prices, targeted growth, tax pools, operating, drilling and development plans and the timing thereof, and expected SDP participation. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding: future capital costs; the focus and allocation of TORC's 2019 capital budget; anticipated average and exit production rates, 2019 all in cash payout ratio, management's view of the characteristics and quality of the Corporation's assets and the opportunities available to the Company; TORC's dividend policy and plans; and other matters ancillary or incidental to the foregoing.

Forward-looking information typically uses words such as "anticipate", "believe", "project", "target", "guidance", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future. The forward-looking information is based on certain key expectations and assumptions made by TORC's management, including expectations concerning prevailing commodity prices, differentials, exchange rates, interest rates, applicable royalty rates and tax laws; capital efficiencies; decline rates; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and TORC's ability to access capital.

Statements relating to "reserves" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Although the Company believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because TORC can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that the Company will derive there from. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on TORC's future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect TORC's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

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

Dividends

The payment and the amount of dividends declared in any month will be subject to the discretion of the board of directors and will depend on the board of director's assessment of TORC's outlook for growth, capital expenditure requirements, cash flow, potential acquisition opportunities, debt position and other conditions that the board of directors may consider relevant at such future time. The amount of future cash dividends, if any, may also vary depending on a variety of factors, including fluctuations in commodity prices and differentials, production levels, capital expenditure requirements, debt service requirements, operating costs, royalty burdens and foreign exchange rates.

Non-GAAP Measures

This document contains the terms  "net debt" which is defined in the Company's Management's Discussion and Analysis ("the MD&A") for the three and nine months ended September 30, 2018.  Management uses this financial measure to analyze operating performance and leverage.  These measures do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and therefore may not be comparable with the calculation of similar measures for other companies. 

This press release also contains the terms "cash flow", "free cash flow" and "all in payout ratio", which do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures by other companies. TORC uses cash flow and net debt to analyze financial, operating performance, and liquidity and leverage. TORC feels these benchmarks are key measures of profitability and overall sustainability for TORC. Both of these terms are commonly used in the oil and gas industry. Cash flow and net debt are not intended to represent operating profits nor should they be viewed as an alternative to cash flow provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Cash flows are calculated as cash flows from operating activities less changes in non-cash working capital. Net debt is calculated as bank debt plus working capital deficiency or minus working capital surplus (adjusted for fair value of financial instruments and the current portion of decommissioning obligation). TORC calculates cash flow per share using the same method and shares outstanding that are used in the determination of earnings per share.  Payout ratio is a non-GAAP measure and is calculated as cash dividends plus exploration and development expenditures, divided by cash flow.  The Company considers this to be a key measure of sustainability.

Oil and Gas Disclosures

Our oil and gas reserves statement for the year ended December 31, 2017, which includes complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, is contained within our Annual Information Form which is available on our SEDAR profile at www.sedar.com. The recovery and reserve estimates contained herein are estimates only and there is no guarantee that the estimated reserves will be recovered. 

Management uses oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare TORC's operations over time.  Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this press release, should not be relied upon for investment or other purposes.

The term "BOE" or barrels of oil equivalent may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.

This press release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the reserves evaluation prepared by Sproule as of December 31, 2017 and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates prepared by a qualified reserves evaluator based on TORC's prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves. Of the 1015 net drilling locations identified herein, 275 are proved locations, 119 are probable locations and 621 are unbooked locations. Of the 400 net conventional drilling locations identified herein, 153 are proved locations, 52 are probable locations and 195 are unbooked locations. Of the 150 net Torquay/Three Forks drilling locations identified herein, 28 are proved locations, 23 are probable locations and 99 are unbooked locations. Of the 175 net unconventional Midale drilling locations identified herein, 30 are proved locations, 10 are probable locations and 135 are unbooked locations. Of the 290 net Cardium drilling locations identified herein, 64 are proved locations, 34 are probable locations and 192 are unbooked locations. Unbooked locations have been identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that TORC will drill all unbooked drilling locations and, if drilled, there is no certainty that such locations will result in additional oil and gas reserves or production. The drilling locations on which we actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by drilling existing wells in relative close proximity to such unbooked drilling locations, some of other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and, if drilled, there is more uncertainty that such wells will result in additional oil and gas reserves or production.

SOURCE TORC Oil & Gas Ltd.

Brett Herman, President and Chief Executive Officer, TORC Oil & Gas Ltd., Telephone: [phone], Facsimile: [phone]; Jason J. Zabinsky, Vice President, Finance and Chief Financial Officer, TORC Oil & Gas Ltd., Telephone: [phone], Facsimile: [phone]

Related Links

www.torcoil.com