Tourmaline Oil Corp.

Scott Kirker - Secretary and General Counsel Mike Rose - Chairman of the Board, President, Chief Executive Officer Brian Robinson - Chief Financial Officer, Vice President - Finance, Director

Robert Bellinski - Morningstar Travis Wood - TD Securities

Thank you, Mary, and welcome everyone to our discussion of Tourmaline's second quarter results. My name is Scott Kirker and I am the General Counsel at Tourmaline.

Before we get started, I would refer you to the advisory on forward-looking statements contained in the news release as well as the advisories contained in the Tourmaline annual information form available on SEDAR. I would like to draw your attention in particular to the material factors and assumptions in those advisories.

I am here with Mike Rose, our President and Chief Executive Officer and with Brian Robinson, our Vice President of Finance and Chief Financial Officer. Mike will start by speaking to some of the highlights and after his remarks, both Mike and Brian will be available for questions.

Go ahead, Mike.

Good morning, everybody. We are pleased with Tourmaline's six-month financial performance.

First half 2014 cash flow has almost doubled year-over-year and we are on track for full-year cash flow in excess of $1 dollars. First half earnings of $156 million, we are up 90% year-over-year and they underscore the underlying profitability of our EP business.

Q2 production of approximately 110,000 BOEs a today was up 57% year-over-year and we have increased our 2014 exit production target to between 150,000 and 155,000 BOEs a day and our Deep Basin well results year-to-date have more than doubled the forecast rate in our economic template and with several new discoveries and high rate wells throughout the EP portfolio, that we will talk about. The company is forecasting 2014 full-year cash flow of $1.05 billion and growing that in 2015 to just under $1.5 billion.

Looking at production, our strong production growth continues. Second quarter 2014 production averaged just under 110,000 BOEs a day.

That was up 57% year-over-year and 7% quarter-over-quarter which is the highest growth of the larger intermediates that we have seen so far. And in addition, second quarter was reduced by approximately 3,000 BOEs a day due to work on the TransCanada mainline system and ongoing compressor issues on the alliances system in BC.

We remain on track to meet or exceed the full-year production guidance of 120,000 BOEs a day and that's due to the significant volumes that will be coming on-stream during the second half. We have five facility projects that are being built in, in the second half and they are all being constructed now and they all are on schedule.

So Sundown BC is expected to come on-stream about mid-August. That will add 50 million a day net.

The Musreau and Doe plant expansions are on schedule to startup October 1. That's 100 million a day net addition from the two expansions.

And our Spirit River gas plant is on schedule for an October 15 startup. That will add about 6,000 BOEs a day and that's about a 50/50 oil gas split.

We also have a fifth project we accelerated, our plant expansion at Wild River from Q2 of 2015 to December of this year and that's in concert with the expanded ongoing drilling program. That expanded drilling program will also add incremental volumes to what I was just talking about for exit 2014 and in particular 2015.

The 20 rig drilling program that we are operating is expected to yield about 285 horizontal wells over the next 18 months spread amongst the three EP complexes. And that's about 25 additional horizontals for exit 2014 and about 80 additional horizontals by year-end 2015.

We are now forecasting an increased exit production volume of 150,00 to 155,000 BOEs a day and that's up substantially from what's in the five-year outlook. Over the next 18 months, that expanded drilling program is expected to yield 150 horizontal wells in the Deep Basin, 75 Montney horizontals in BC and 60 Charlie Lake horizontals on the Peace River High.

And where required, we have expanded or moved ahead our facility expansions in the two-year development plans to accommodate the increased production volumes coming from the drilling program. Looking at the Deep Basin, we got started earlier than planned.

Breakup ended a little more quickly than expected. So we have over 20 horizontal wells already drilled and rig released post breakup.

And as mentioned, the production results in the Deep Basin continue to exceed the production and economic template that we use. Of the now 32 wells with over 30 days of production to-date, the average 30 day IP rate is 10.8 million a day which is well ahead of the forecast rate of 5 million a day that we use.

And those result results don't include some of the strongest wells we have drilled and brought on-stream post breakup and they are detailed in the release. In addition to the base horizontal program in the Deep Basin that targets the Wilrich, the Notikewin and the Falher, we have some really exciting wells targeting other horizons.

And in the Deep Basin that includes several horizontals pursuing Montney gas condensate. One of those is drilled already.

10 to 12 horizontals targeting different Cretaceous horizons and four to five vertical wells targeting new play concepts in the Alberta Deep Basin and we have already cased three of those and will production test those over the next four to six weeks. We expect to reach the 0.5 BCF a day gas production milestone from the Deep Basin late this year and 2014 year-to-date OpEx in the Deep Basin is $4.45 per BOE and we expect that to drop over the next two to thee quarters as we bring significant volumes on-stream through the expanded plants.

Moving to our North East BC Montney gas condensate play. Current production is approximately 35,000 BOEs a day.

So we are one of the top five or six Montney producers in all of Canada and with the startup of the Sundown facility in mid-August and completion of the Doe plant expansion in late-September, we expect production volumes from our gas condensate complex in BC to reach their 45,000 to 47,500 BOE a day level. So significant growth by the end of the year.

We have already drilled in North East BC 107 Montney horizontals and due to new discoveries and incremental land deals, we have expanded our Montney horizontal inventory to 1,100 locations. We expect with three drilling rigs working in BC that we will yield 75 to 80 horizontals over the next 18 months.

And we will also get 15 more delineation locations into that condensate rich lowermost turbidite horizon that we made the discovery in December of 2013. And there we are seeing condensate yield at the wellhead of 92 to 100 barrels per million.

We continue to add attractive new lands in our BC Montney complex in several areas, leading to the aforementioned drilling inventory expansion. Our year-to-date 2014 OpEx in the BC Montney complex is approximately $3.67 per BOE and it also will trend down with the Sundown facility coming on-stream and the aforementioned Doe plant expansion.

Moving to our Peace River High Charlie Lake oil complex. Current production is approximately 12,000 BOEs a day.

That will move up by about 5,000 BOEs a day with the startup of our Spirit River 3-10 gas plant and will be on track for a 2014 exit of between 18,000 and 20,000 BOEs a day. We have now drilled 82 Charlie Lake horizontal oil wells and no dry holes in the overall regional complex and with three rigs expect to add approximately 45 new horizontals per year.

We will also drill and complete seven additional concurrently stimulated well pairs by the end of this year and additional 10 pairs in 2015 and we believe these concurrent pairs will lead to a step change in horizontal well performance and we will quantify that going forward with a larger statistical base from the expanded drilling program and the longer production performance histories from the pairs themselves. We have a comprehensive infrastructure plan for our regional Charlie Lake play in 2014 and 2015 that will allow us to grow production volumes, improve our production on times and reduce operating costs going forward.

The first and most important component of that infrastructure plan is the sour gas injection plant at Spirit River and as I mentioned that's on schedule for a mid-October startup. And second component and also important is our battery at Mulligan on the northern portion of the trend and the first 8,000 barrels per day phase of that battery is expected to be operational by Spring break-up 2015.

And right now, Mulligan is producing through higher cost temporary facilities. We expect to drop OpEx in the Charlie Lake complex by $4 to $5 per barrel over the next several quarters and that will drive overall corporate OpEx down to the $4.25 to $4.50 per BOE level.

And I think that's all I was going to say for now. So we are more than happy to answer any questions you might have.

Mary, you want to explain the process?

Good morning, everyone. Assuming you did not have those five facility additions that you listed in the release, I am wondering how much could you grow production over the next two quarters with your existing infrastructure?

And what I am trying to get at here is, just how critical is the on time startup of those facilities to hitting your 120,000 BOE per day guidance for this year?

If we didn't have those five facility projects, the room that we have in existing facilities and pushing them as hard as we can is between 60 and 70 million per day between BC, Montney and the gas condensate in the Deep Basin. So that's kind of a little built-in production hedge, if you like.

So it's in addition to the 43,000 BOEs a day that we will bring on-stream through those five facility projects.

That's perfect. Thank you.

You bet.

Good morning, guys. Two quick questions for you.

And the first that really simply, just what are you running for a corporate decline rate today, as we come out of the second quarter? And then how are you looking at the rest of the year in terms of the production through Q3, Q4 to hit those exit rates versus how you were thinking about it back in April with some of the Q3 and Q4 guidance numbers?

That's all. Thank you.

Well, I think the majority of that 43,000 BOEs a day through the five facilities, well four them were on-stream really for all of Q4 and then the Wild River plant is really a minor contribution to the Q4 average. So we are expecting that Q4 production, obviously from 110,000, and you can do the math.

It's going to be very strong and that's what drives, and that's why we are very confident we are going to hit the 120,000. And the previous question, also outlined, we have incremental volumes that we can bring on-stream outside of those five facility projects just really jamming up existing infrastructure as these wells and pads are brought on-stream, particularly in the Deep Basin.

As far as corporate decline rate, Brian, we are using?

For 2014, we are using 36% and then by 2018, it is 40%.

Okay.

And that's all detailed in that five-year outlook. I think you can see that in the package, the one we have carrying for three or four years.

Those decline rates actually haven't changed. If anything, we are experiencing less decline than what is modeled in that five-year outlook.

So it's probably harsher than reality.

Okay, and maybe just one question on the fly. With the Q2 numbers guided 115,000 to 120,000 and then the off production backed out from TCPL issues, is the other volumes for Q2, is that related to just on time in terms of getting wells tied in to that facility?

Yes. That's exactly right.

Yes. That's our own schedule, wells coming on a couple weeks late in some of our own internal downtime.

Okay. Thank you.

That's all for me.

You bet.

Thanks, everyone, for attending and we will speak to you next quarter.