Tourmaline Oil Corp.

Scott Kirker - Secretary and General Counsel Mike Rose - CEO Brian Robinson - CFO

Fai Lee - Odlum Brown Travis Wood - TD Securities

Thank you, Mary and welcome everyone to our discussion of Tourmaline's 2015 Q2 results. My name is Scott Kirker and I am the Secretary and General Counsel for Tourmaline.

Before we get started, I 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 our website and on SEDAR. I’d like to draw your attention in particular to the material factors and assumptions in those advisories.

I’m 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.

So go ahead, Mike.

Good morning, everybody. Thanks for dialing in and we’re pleased to update our second quarter results with highlights.

We were able to achieve substantial year-over-year production growth. Tourmaline had very strong cash flows in the second quarter.

We've made great progress on the cost reduction front, both year-over-year and quarter-over-quarter and we're proud of our ability to continue to generate earnings in this difficult commodity price environment. Looking at the financial results specifically, second quarter cash flow for 2015 was $203 million.

Our second quarter pre-tax earnings were just under $36 million and that reflects the underlying profitability of the company's low-cost natural gas business. Our after-tax earnings were reduced by approximately $30 million due to an increase in the deferred tax provision related to the recent Alberta government 20% corporate tax increase.

Looking at costs and the cost equation, our second quarter OpEx was $4.10 per BOE and that's down 22% year-over-year and 13% quarter-over-quarter. We’re currently forecasting full-year 2015 OpEx of $4.35 per BOE and there may be an opportunity to do a little better than that.

We continue to reduce our G&A. Our second-quarter all-in cash costs were down to $7.35 per BOE and that's down 9% from just the first quarter of this year.

And important to note that our all-in interest rate on all of our current corporate debt averages 2.72% and that's one of the lowest in the overall North American energy sector. Looking at production, second quarter production was up 31% year-over-year.

We’d previously announced in June that our second quarter was going to be reduced by unplanned firm service restrictions and maintenance outages on both the TransCanada and Spectra transportation systems. These outages lasted longer than originally projected.

In aggregate, our second quarter production was reduced by 8000 BOEs per day due to these interruptions. Otherwise, we’d have had a big production beat [ph] for Q2 as well.

Going forward, the outlook is a little brighter as substantially fewer outages are currently planned by the transportation providers during the second half of 2015, as they work their way through these maintenance issues. And then onto what we can control, our second half 2015 production is anticipated to ramp up in all three of our core complexes.

We’ll bring the 25,000 BOEs per day that we currently have behind pipeline stream and in addition to that, we’ll tie in approximately 110 new wells during the second half. Major facility start-ups in the second half associated with that production ramp are the Mulligan oil battery, which is already on.

It was commissioned in late July and our new Edson gas plant in October, which is currently under construction and on schedule. We expect to reach our 164,500 BOE per day production target during the second half of this month and then continue to rapidly accelerate production through to year-end, exiting at 200,000 BOEs per day or greater.

And based on the expanded EP program, we increased our 2000 -- production guidance back in June to 215,000 BOEs per day. Looking at the EP capital program specifically, in the second quarter, we essentially had a cash flow budget.

We consolidated assets in all three core operating complexes, spending just under $90 million and land on these property acquisitions. To some extent, taking advantage of this difficult overall price environment for industry and this consolidation activity has already added over 350 sections of land and 700 top tier new drilling locations in previously delineated reservoir sweet spots spread across all three core complexes.

Our full-year EP capital spending is $1.4 billion. We took it up $50 million and that reflects the full impact of the increased second half drilling program of 18 rigs.

We expect to drill 120 new wells during the second half of the year. Drilling and completion costs are now consistently 25% to 30% lower than what we observed in the corresponding period in 2014.

So it's the right time to drill incremental wells. Of note, our 2015 facility expenditures are currently estimated at approximately $310 million and that’s down from $790 million in 2014, which will be a big win for our ever improving capital efficiencies.

The vast majority of our infrastructure buildout in all three core areas is now complete, the basic skeleton to service the entire large future drilling inventory is in place and our full-year 2015 EP capital program of $1.4 billion is still $200 million less than what we had originally planned for 2015 which was $1.6 billion. During the second quarter, Tourmaline reduced net debt by $108 million or 7.7% quarter-over-quarter.

Our 2015 exit net debt is estimated at $1.4 billion, which represents a debt to trailing cash flow of 1.4 times. And we've maintained a very strong balance sheet with debt to cash flow at 1.5 times or less throughout our entire 6.5 year history.

Contingent upon commodity prices, our preliminary 2016 CapEx is actually less than anticipated 2016 cash flow. Moving to the EP activities and program, we’re currently operating 18 drilling rigs with 11 active in the Alberta Deep Basin, three in our BC Montney complex and four on our Peace River High horizontal Charlie Lake oil and gas play.

Looking at the Alberta Deep Basin, the 2015 program is all about large multiwell pads, primarily in the Wilrich and the Notikewin, which will drive steadily improving capital efficiencies. We continue to outperform our 30-day IP targets of 5 million a day by a factor of almost 2 to 1.

We’re very excited about the results and upside in the greater Brazeau area, as multiple new wells and results to come forth prior to year end. Our new gas plant at Edson, which will operate at 50 to 55 million per day is actually the only new deep basin facility we’re building in 2015 and when on stream, it will bring our total owned and operated processing capacity in the deep basin alone to 600 million cubic feet per day.

And especially encouraging, our 2000 -- our second quarter ‘15 OpEx in the deep basin was down to $3.25 per BOE. Moving to our Montney complex, it is currently at full capacity and the transportation interruptions are over.

The next new facility projects, one at Doe and one at Sundown in 2016 in aggregate will add 100 million a day of new production with liquids on top of that during 2016 and we expect those facilities will be full upon start-up. We now have 16 wells into our lower Montney turbidite play.

Results are remarkably consistent and as we disclosed previously, full development of the lower Montney turbidite could add up to between 75 and 100 million cubic feet per day of incremental gas production and 7,500 to 10,000 barrels per day of incremental condensate volumes above and beyond what we have got in the current five-year outlook. And our new Doe plant for Q1, 2016 will include enhanced liquid processing capabilities and that's designed to optimize our liquid recoveries from the lower Montney turbidite.

And finally, on the Peace River high, our Charlie Lake play, we’re currently operating four drilling rigs. We expect to drill and complete and tie in an incremental 40 wells during the second half of this year.

Our company owned and operated battery at Mulligan, which is capable of processing 24,000 barrels per day of fluid was finished commissioning on July 28 and we expect production from the complex to grow by approximately 7,500 BOEs per day during the second half of this year. We’re also testing several large scope really exciting new opportunities with that second-half drilling program in addition to the main focus, which is the upper Charlie Lake and all of these opportunities, if successful, can access the existing infrastructure that we've already built.

And finally, our 12 megawatt gas-fired electrical generation project at Spirit River 3-10 plant site will be fully operational and connected to the grid by December of this year, which we see as a way of the future for electricity in the province and we’re expecting a nice revenue boost from this project in 2016. So that's kind of the end of the comments and we’re more than willing to answer any questions that you may have.

Hi. It’s Fai Lee here.

In terms of your 2016 cash flow forecast, it’s predicated on a higher commodity price complex and I’m just wondering, can you give us a sense of the sensitivity on your production outlook if commodity prices kind of stay where they’re at for -- similar to 2015 levels?

No, it's Brian Robinson, the CFO, responding. In 2016, every $0.10 of AECO translates into a cash flow movement of about $28 million.

Okay. And in terms of the production though, is that based on the 215 [ph] BOEs per day or will that come off a bit?

Well, the production guidance is 215,000 BOEs per day and then that's the cash flow sensitivity on every dime of AECO gas price change.

Okay, so you don't anticipate production levels to change very much at current pricing then?

Well, we're assuming the commodity prices we have in the forecast and so we're assuming that's what they are going to be for now and so production guidance will remain unchanged. Obviously every quarter, we look at the broad commodity price environment and make decisions on capital spending and we always plan to keep debt to cash flow under 1.5 times.

Okay. So in terms of the commodity, if it comes off to like 325 [ph], you've given me a sensitivity for the $28 million, but there is a risk that production could come in a bit lower if you change your budget?

Right now, there is no change to anything.

Okay. No.

But there is that risk, so I guess I'm assuming right, but you haven't set the budget for 2016 yet?

Yeah. We have.

Yeah, it's in the press release.

So that's your official budget.

Yeah.

Alright. Okay.

And the other question is in terms of the production forecast going out beyond that to 2019, getting up to about 270,000 BOEs, is the current third-party pipeline infrastructure in place or is it on the way or can you give some sense of -- you have to lock in [indiscernible] what's the situation there?

When you look at our five-year development outlook, we layer in firm service in concert with the plant expansions that are embedded in that growth profile and right now, they are layered in through 2018 to match the production that we’re estimating for the next three years. So we’re in really good shape on that front.

Okay, great. Thank you.

Thanks.

Good morning, guys. Wondering if you can share with us the -- of the 25,000 a day that you have behind pipe, can you break that down between the three core areas and then if it is possible, the 110 or so wells that you have to tie in going forward.

Do you have a sense of where the majority of those are in terms of whether it’s the deep basin or through Peace River?

Of the 25,000 BOEs a day behind pipe to come on stream, the vast majority of it right now is in the deep basin with a little bit in BC and a little bit on the Peace River High. As far as where the production grows from the 110 wells, we foresee about 180 million cubic feet per day coming on stream, again primarily in the deep basin.

The largest growth areas will be the new Edson plant, which we’ll be able to run at 60 million a day and the greater Wild River, Berlin, Smoky-Horse complex between 50 and 60 million a day. [indiscernible] we are expecting about 20 million cubic feet per day and similar volume at Brazeau.

Okay, perfect. Thank you.

That’s all.

Okay. Thanks, Travis.

Thanks, Mary. Thanks everyone for dialing in.

We will talk to you in the next quarter.