Tourmaline Oil Corp.

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

Fai Lee - Odlum Brown

Thank you, Melanie. Welcome everyone to our discussion of Tourmaline's 2015 Q3 results.

My name is Scott Kirker; I'm the Secretary and General Counsel of Tourmaline. Before we get started, I'd 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'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. Go ahead, Mike.

Thanks, Scott. Thanks, everybody for dialing in.

We're pleased to review our Q3 results and provide capital and EP outlook. First off, some of the highlights.

We had earnings of $28.5 million in Q3 and we're very pleased that we had earnings; we think we're one of the very few E&Ps in North America that actually posted earnings in Q3. Our third quarter production of just over 150,000 BOEs a day was up 39% from the equivalent quarter in 2014 and up 5% over the previous quarter, the second quarter of 2015.

A major highlight is the Q4 production growth. so our current production right now is between 179,000 and 182,500 BOEs per day and that's up 20% over Q3 of the prior quarter.

And that we are going to achieve our exit guidance a little bit early, and that will happen during the second half of November. Nine months operating costs were for $4.43 per BOE and those are down 15% year-over-year.

Our third quarter cash flow was just under $200 million, at $197.1 million and that was actually down marginally from the previous quarter as the effects of our strong production growth were offset by continued weakness in commodity prices. And our overall very strong cost performance continued in the third quarter.

Looking at capital spending in the second half of 2015 and through the first half of 2016, we expect a full year EP capital spending program in 2015 of $1.375 billion and that's actually down from prior estimates. We had a very busy third quarter as planned, we utilized the additional funds that we raised in June to drill incremental wells during the third quarter, we increased our rig fleet post breakup to 19 rigs in order to do that and we drilled a total of 68 wells during the third quarter.

And the incremental drilling program was designed to follow-up a number of first half 2015 EP successes, play such as the lower Montney turbidite in Northeast PC to provide the necessary production volumes to achieve our target except production level of between 190,000 and 200,000 BOEs a day. And really just to drill incremental wells during a period of significantly lower capital costs, and we accomplished all three of those objectives and right now we're in the process of ramping the rig fleet back down to approximately 14 rigs.

And recall that at mid-year of 2015, the 2016 natural gas price stripped, certainly looked stronger than then it does now. And really that's the other reason for the ramp down in the drilling activity for the time being, a little cautious.

So we'll drill a little bit less in Q4, we're estimating 40 wells prior to year-end and we'll complete about the both 26 of those. The majority of the Edson gas plant was constructed during Q3 and that will start up in the second half of November.

So we'll realize the benefit of that in this quarter. So total third quarter EP capital spending was $422 million and Q4 EP capital spending has been reduced to $250 million and that allows us to come in under our original 2015 CapEx guidance.

Of note, Q4 capital spending is less than anticipated Q4 cash flow, essentially we've moved to the cash flow or better capital budgets scenario one quarter early. Our plan is to execute the previously released 2016 base case EP capital program of $1.1 billion in full-year 2016.

And that will yield a full-year average production level of 200,000 BOEs a day. First half 2016 capital spending will be $450 million and that will be split roughly $300 million in Q1 and $150 million in Q2, and note that that's well less than first half 2016 anticipated cash flow of $565 million.

That base case 2016 program includes only two facility projects, the Brazeau gas plant in the Deep Basin in the first half of 2016 and the dual BC plant which is scheduled in the second half of 2016. During the first quarter, we're estimating we'll drill approximately 70 wells.

We can slow the drilling down because we have a significant amount of plate volumes accumulated through our continued well performance in all three of our core complexes. That will provide more than sufficient volumes to meet or exceed our base case production estimates.

We'll continue to monitor commodity prices and adjust capital spending accordingly in order to maintain a prospective debt-to-cash flow ratio of approximately 1.5X or less. Completion of the infrastructure skeleton in all three core complexes, really during the past two years 2014 and 2015 has resulted in go-forward infrastructure spending of less than 20% of the total EP capital program for both 2016 and 2017.

And that will drive continually improving capital efficiencies. And it also gives us a significant amount of capital flexibility.

Our exit 2015 processing capacity for this year will be approximately 210,000 to 220,000 BOEs a day, and that provides considerable flexibility around new project timing in 2016 and 2017. So really the message is lots of flexibility and options around the size of the capital program and none of them will affect the base case production target.

Looking at our cost structure, Q3 OpEx of $4.43 a BOE was down 15% year-over-year. And we're definitely on-track to achieve our full-year OpEx target of $4.35 a BOE.

The Peace River high OpEx was $16 per barrel, recall that that's our one oily asset and it's not yet at our target level of $11 per BOE, it will get there in Q4 when we realize the impact of the cost savings of the Mulligan battery which was constructed during Q2 and Q3, started up during Q3 and the full benefit will be realized in Q4. We're way ahead in -- from an OpEx perspective in the other two core complexes.

We set a record for us in the Deep Basin with OpEx of $3.50 per BOE in Q3 and we've actually got our Northeast PC mining complex operating cost down to $3.25 per BOE. And we'll continue to work away and driving down operating costs further than that in 2016.

We had record low G&A cost in the third quarter at $0.56 a BOE, now that combined with our all-in debt servicing cost of 2.69% and lower third quarter transportation costs resulted in all-in cash costs of $7.74 per BOE during the first nine months and there among the lowest reported. We've also managed our staff growth conservatively since we started the company seven years ago despite closing in on 200,000 BOEs a day, we only have 180 employees.

And therefore, there is no need or we have no plans to reduce officer or field staff levels. Moving to some of the EP highlights, as mentioned we'll get our 2015 exit guidance a little early during the second half of this month, that's the low end of the range.

And then we'll continue to grow volumes through December as we have a number of tie-ins throughout the EP portfolio. Base case production in that budget scenario is 200,000 BOEs a day and that represents 26% growth over the 2015 average production level.

So we can spend lots and still grow. We're actually a very large liquids producer as well, so we're estimating we'll exit this year with total liquids production of approximately 30,000 barrels per day, 65% of that is light oil and condensate.

Our northeast PC might need lower turbidite, play continues to get better and that was one of the focus areas of the expanded Q3 drilling program. We now have 17 horizontals into that liquid-rich new turbidite horizon in Sunrise Dawson.

For the four most recently completed horizontals well head condensate production rates range between 590 barrels and 1050 barrels per day and that's actually just at the well head, and plenty of gas with that liquid which is an important component of the reservoir mechanics. So the accompanying gas rates were between $4.9 million and $7.7 million per day with pressures ranging between 4 MPa and 11.2 MPa that was side-gate production test.

And really this horizon is in the sweet spot of reservoir pressure, associated gas rate and liquids content. We've got 220 future locations in the lower Montney turbidite and we see this play driving significant condensate production growth for the company overall over the next several years.

In the Deep Basin, our well performance continues to improve with corresponding drilling and completion caught down approximately 20% year-over-year. The 41 wells drilled in the Deep Basin and completed since spring break up of this year, our 30-day IP rate is $11.1 million and that's more than double the rate we use in our production and economic forecasting.

One of the highlights was the second Notikewin well in our greater Brazeau play area tested over 30 million a day, significant amount of condensate and very high flowing pressures. And expect more results from that greater Brazeau area over the next several months.

And of note, a significant production ramp up on our Peace River high Charlie Lake oil and gas complex. So far we're up 23% in Q4 versus the third quarter average.

So we're excited about that. And that's really the run-through the highlights and Brian and I are more than willing to answer any questions that you might have.

Melanie, we'll turn it back over to you.

Hi, thanks. I'm just wondering about the upside case scenario guidance for 2016.

In terms of achieving the target production in the capital program, it doesn't mean credit assumption in terms of timing if we think gas prices increase next year. What's our timing that you're assuming?

Sure. For now given where gas prices are, we're on the base case 200,000 BOE a day guidance.

We'll be able to have a good look at that during Q2 when we slowdown and so that really would be when we -- if we transition, if natural gas prices improve which we're still quite optimistic about. We would transition to the upside case we're coming out of breakup in 2016.

Okay, great.

Thanks, Melanie and thanks, everyone for attending our conference call. We'll talk to you again next quarter.