CALGARY, AB, July 29, 2020 /CNW/ - TORC Oil & Gas
Ltd. ("TORC" or the "Company") (TSX: TOG) is pleased to announce
its financial and operating results for the three and six months
ended June 30, 2020. The
associated management's discussion and analysis ("MD&A") and
unaudited interim financial statements as at and for the three and
six months ended June 30, 2020 can be
found at www.sedar.com and www.torcoil.com.
Highlights
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Three months
ended
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Six months
ended
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(in thousands,
except per share data)
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June
30 2020
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March
31 2020
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June
30 2019
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June
30 2020
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June
30 2019
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Financial
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Adjusted funds flow,
including
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transaction related
costs (1)
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$5,694
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$47,146
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$81,125
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$52,840
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$157,192
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Per share
basic
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$0.03
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$0.21
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$0.37
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$0.24
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$0.72
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Per share
diluted
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$0.03
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$0.21
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$0.37
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$0.23
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$0.71
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Adjusted funds flow,
excluding
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transaction related
costs (1), (2)
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$5,704
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$47,166
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$81,125
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$52,870
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$157,192
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Per share
basic
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$0.03
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$0.21
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$0.37
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$0.24
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$0.72
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Per share
diluted
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$0.03
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$0.21
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$0.37
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$0.23
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$0.71
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Net cash from
operating activities
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$619
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$57,955
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$100,765
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$58,574
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$154,695
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Net income
(loss)
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($41,023)
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($879,895)
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$11,464
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($920,918)
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$17,799
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Per share
basic
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($0.18)
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($3.96)
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$0.05
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($4.15)
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$0.08
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Per share
diluted
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($0.18)
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($3.96)
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$0.05
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($4.15)
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$0.08
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Exploration and
development
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Expenditures
(1)
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$1,601
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$64,700
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$34,854
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$66,302
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$88,962
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Property acquisitions,
net of
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Dispositions
(1)
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$1,083
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$3,891
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$688
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$4,974
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$834
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Net debt
(1)
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$382,115
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$382,696
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$363,895
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$382,115
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$363,895
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Cash dividends
declared (3)
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$1,112
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$12,222
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$10,930
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$13,334
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$20,691
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Dividends declared per
common share
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$0.005
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$0.055
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$0.072
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$0.060
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$0.138
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Common
shares
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Shares outstanding,
end of period
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222,445
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222,315
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218,912
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222,445
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218,912
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Weighted average
shares (basic)
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222,372
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222,146
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218,279
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222,157
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217,713
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Weighted average
shares (diluted)
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225,054
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227,093
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221,752
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226,877
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221,195
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Operations
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Production
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Crude oil (Bbls per
day)
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21,039
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23,672
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23,534
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22,356
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23,617
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NGL (Bbls per
day)
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1,316
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1,582
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1,559
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1,449
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1,509
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Natural gas (Mcf per
day)
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15,301
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19,568
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19,397
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17,434
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19,023
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Barrels of oil
equivalent (Boepd, 6:1)
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24,905
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28,515
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28,326
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26,711
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28,297
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Average realized
price
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Crude oil ($ per
Bbl)
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$23.33
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$47.87
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$70.03
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$36.33
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$67.44
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NGL ($ per
Bbl)
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$4.24
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$9.66
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$12.28
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$7.20
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$16.14
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Natural gas ($ per
Mcf)
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$1.72
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$1.60
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$0.67
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$1.65
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$1.41
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Barrels of oil
equivalent
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($ per Boe,
6:1)
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$20.99
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$41.37
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$59.32
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$31.87
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$58.10
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Operating netback per
Boe (6:1)
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Operating netback
(1)
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$4.55
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$20.75
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$34.35
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$13.20
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$33.51
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Operating netback
(prior to hedging) (1)
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$3.24
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$20.00
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$34.35
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$12.19
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$33.51
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Adjusted funds flow
netback per Boe (6:1)
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Including transaction
related costs (1)
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$2.51
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$18.17
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$31.47
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$10.87
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$30.69
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Excluding transaction
related costs (1)
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$2.52
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$18.18
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$31.47
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$10.88
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$30.69
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Wells
drilled:
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Gross
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-
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33
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13
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33
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47
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Net
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-
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28.2
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9.8
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28.2
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37.7
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Success (%)
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-
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100
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100
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100
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100
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(1)
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Management uses
these non-GAAP financial measures to analyze operating performance,
leverage and
investing activity. These measures do not have a standardized
meaning under GAAP and therefore may
not be comparable with the calculation of similar measures for
other companies. See Non-GAAP
Measurements within this document for additional
information.
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(2)
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For ease of
readability, in this press release, adjusted funds flow, excluding
transaction related costs will
be referred to as "cash flow".
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(3)
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Cash dividends
declared are net of the share dividend program participation.
On May 5, 2020, TORC
announced the temporary suspension of its monthly
dividend.
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PRESIDENT'S MESSAGE
During the first quarter, the World Health Organization declared
COVID-19 to be a global pandemic. TORC's top priority remains
the health and safety of the Company's employees, contractors,
partners, service providers and the communities in which we
operate. Accordingly, throughout the first and second
quarters, the Company implemented measures to protect the
well-being of all stakeholders and follow guidance of public health
officials, while maintaining safe operations and business
continuity.
To combat the spread of COVID-19, global responses to the
pandemic caused a significant decline in economic activity,
resulting in a substantial decrease in global crude oil demand and
unprecedented volatility to oil prices. With the continued
volatility in commodity prices and TORC's focus on efficient
operations, the Company identified and implemented various measures
to preserve shareholder value, and maintain financial flexibility
and a strong position.
TORC's proactive responses to these events demonstrated the
focus on the long-term objectives of delivering disciplined growth
while displaying the resilience and flexibility of the Company's
business strategy and asset base. Under some very difficult
circumstances over the past several months, TORC's employees,
consultants and contract operators performed exceptionally to
protect all stakeholders' interests.
The Company's key achievements in the second quarter of 2020
included the following:
- Proactively responded to coinciding events of the global
pandemic and rapid decline in commodity prices:
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- Significantly reduced the 2020 capital program;
- Suspension of the dividend;
- Identified and implemented various cost cutting measures in
operating and general and administrative costs, including
company-wide compensation and Director fee reductions;
- Shut-in production to preserve value for a stronger commodity
price environment;
- Due to voluntary shut-in volumes, quarterly production averaged
24,905 boepd, from 28,515 boepd in the first quarter of 2020 and
28,326 boepd in the second quarter of 2019;
- Generated cash flow of $5.7
million relative to $47.2
million in the first quarter of 2020 and $81.1 million in the second quarter of 2019;
- Generated cash flow per share of $0.03 as compared to $0.21 in the first quarter of 2020 and
$0.37 in the second quarter of
2019;
- Achieved a payout ratio of 67% in the second quarter despite
significant commodity price volatility;
- Exited the second quarter with net debt of approximately
$382.1 million with $367.2 million drawn on the Company's credit
facility; and
- Received formal lender commitments from all syndicate members
confirming the Company's credit facility at $425 million providing ample liquidity to
continue to execute TORC's business strategy going forward.
OPERATIONAL UPDATE
As a result of voluntarily shutting in production volumes,
TORC's second quarter production averaged 24,905 boepd.
TORC spent a total of $1.6 million
of exploration and development capital in the second quarter
bringing total spending for the first six months of 2020 to
$66 million.
TORC's production base continued with strong performance
resulting from the Company's successful first quarter drilling
program and the long history of managing the production decline
profile.
SOUTHEAST SASKATCHEWAN
TORC's second quarter capital expenditures on the southeast
Saskatchewan's conventional assets
were focused on well optimizations and maintenance capital.
TORC has identified more than 400 net conventional light oil
drilling locations in southeast Saskatchewan, providing multiple years of high
quality drilling inventory.
As planned, TORC did not drill wells in the Torquay/Three Forks resource play during the
second quarter of 2020. TORC maintains an inventory of 5 (4.0
net) drilled but uncompleted wells associated with the Company's
first quarter drilling program. Additionally, TORC has
identified over 150 net development locations in the Torquay/Three Forks play providing multiple
years of drilling inventory.
On the unconventional Midale
light oil resource play in southeast Saskatchewan, TORC did not drill wells during
the second quarter following successfully drilling a total of 6
(5.7 net) wells in the first quarter. TORC has identified 175
net future unconventional Midale
drilling locations on the Company's land base to add value in
future years.
CARDIUM
As budgeted, no Cardium wells were drilled in the second
quarter. During the first quarter, TORC drilled 3 (3.0 net)
Cardium development wells.
Also in the second quarter, the Company continued to consolidate
land in the operating area of Kaybob with a small strategic working
interest tuck-in acquisition. TORC has identified more than
290 net Cardium drilling locations for future
development.
CAPITAL PROGRAM
In the first quarter of 2020, TORC's capital spending was
$65 million. On March 16, 2020, the Company announced the
undertaking of a thorough review of the remaining 2020 capital
program due to the ongoing uncertainty related to the significant
decline in economic activity resulting from COVID-19 and the
resulting volatility in global oil prices. The Company
elected to significantly reduce total 2020 capital spending to
$75 million from the original budget
of $190 million. During the
first six months of 2020, the Company has spent $66 million.
TORC now expects to spend $80
million in 2020 with the incremental $5 million to be spent primarily on optimizations
and asset maintenance programs.
TORC's 2020 $80 million capital
budget exhibits a measured approach to the current uncertainty in
world oil prices and reflects a balance between managing long-term
growth and protecting the Company's strong financial position.
REINSTATED PRODUCTION GUIDANCE
TORC anticipates that the revised $80
million 2020 capital budget will result in 2020 exit
production of 25,000 boepd (83% light oil; 5% NGLs). Based on
this production profile and the Company's long term focus on
production decline management, TORC expects that the Company's
production decline will decrease to approximately 20% by year-end
2020.
Based on current commodity prices and budgeted costs, the
Company expects to achieve free cash flow above the current capital
program during the remainder of 2020. The free cash flow will
continue to position the Company to reduce debt and take advantage
of opportunities to enhance the growth, sustainability and
repeatability of the Company's business model.
TORC's asset base provides flexibility in volatile commodity
price environments due to the following key characteristics:
greater than 90% operated capital program to dictate capital
spending, low decline rate, year-round access, low capital costs
per well, no drilling commitments, limited take-or-pay contracts,
and no land expiry concerns.
DIVIDEND
TORC's dividend is reviewed regularly with the Board of
Directors and is an important component of TORC's overall long-term
strategy. With the crude oil market experiencing a
significant and rapid decline in world prices resulting from severe
dynamics coinciding with significant impacts to both supply and
demand uncertainty, TORC elected to temporarily suspend the monthly
dividend during the second quarter.
TORC will continue to assess the free cash flow profile and
dividend policy of the Company following an increase in economic
activity and stability of oil market dynamics.
CREDIT FACILITY
TORC's credit facility was confirmed at $425 million, with the borrowing base
determination dates under the credit agreement amended to May and
November, annually. The Company's net debt position at the
end of the second quarter was $382.1
million with $367.2 million
drawn on the credit facility providing TORC with significant
liquidity to execute on the Company's business
plan.
OUTLOOK
TORC has developed significant trust and credibility as a
corporate citizen, which provides a solid foundation for the
long-term success of the business. Sustainability of the
business includes focusing on overall social responsibility to
support strong values and relationships in the workplace, and
communities where TORC operates.
The stability of the high quality, low decline, light oil assets
in southeast Saskatchewan and the
low risk Cardium development inventory in central Alberta, combined with exposure to
unconventional light oil resource plays in southeast Saskatchewan, positions TORC to provide value
creation through a disciplined long term focused growth
strategy.
TORC has the following key operational and financial
attributes:
Production
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2020E Exit: 25,000
boepd (83% light oil 5% NGLs)
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Total Proved plus
Probable Reserves (1)
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Greater than 139
mmboe (78% light oil; 6% NGLs)
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Southeast
Saskatchewan Light Oil Development Inventory
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Greater than 400 net
undrilled conventional locations
Greater than 150 net
undrilled Torquay/Three Forks locations
Greater than 175 net
undrilled unconventional Midale locations
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Cardium Light Oil
Development Inventory
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Greater than 290 net
undrilled locations
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2020 Capital
Program
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$80
million
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Monthly
Dividend
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Suspended
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Net Debt as at June
30, 2020 (2)
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$382 million; $367
million drawn on a bank line of $425 million
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Shares
Outstanding
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222 million
(basic)
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Tax Pools
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Approximately $1.8
billion
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Notes:
- All reserves information in this press release are gross
reserves. The reserve information for TORC in the foregoing table
is derived from the independent engineering report effective
December 31, 2019 prepared by Sproule
& Associates Limited ("Sproule") evaluating the oil, NGL and
natural gas reserves attributable to all of our properties (the
"TORC Reserve Report").
- See "Non-GAAP Measures".
An updated corporate presentation can be found at
www.torcoil.com.
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 and potential production
curtailment, production mix, reserves, drilling inventory, net
debt, cash flow and free cash flow, financial flexibility and
liquidity, capital costs, operating netbacks, operational
efficiencies, decline rate and decline profile, product
mix, capital expenditure program, capital efficiencies,
commodity prices, royalties, tax pools and future growth. In
addition, and without limiting the generality of the foregoing,
this press release contains forward–looking
information regarding: the focus and allocation of TORC's 2019
capital budget, anticipated average and exit production rates,
available free cash flow, management's view of the characteristics
and quality of the Company's assets and the opportunities available
to the Company, COVID-19 response plans, future capital
efficiencies and operating costs, expectations regarding the
renewal of TORC's credit facility. 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 the impact (and the
duration thereof) that the COVID-19 pandemic will have on the
demand for crude oil, NGLs and natural gas, our supply chain,
including our ability to obtain the equipment and services we
require, and our operations, prevailing commodity prices, 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, funds from
operations, 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
Measurements
This press release includes non-GAAP measures commonly used
in the oil and natural gas industry. These non-GAAP measures do not
have a standardized meaning prescribed by International Financial
Reporting Standards ("IFRS", or alternatively, "GAAP") and
therefore may not be comparable with the calculation of similar
measures by other companies. For details, descriptions and
reconciliations of these non-GAAP measurements, see the Company's
Management's Discussion and Analysis for the three months ended
March 31, 2020.
"Adjusted funds flow, including transaction related
costs" represents cash flow from operating activities
prior to changes in non-cash operating working capital and
settlement of decommissioning obligations. "Adjusted funds flow,
excluding transaction related costs" represents cash flow from
operating activities prior to changes in non-cash operating working
capital, settlement of decommissioning obligations and transaction
related costs. Management considers these measures to be useful as
they assist in the determination of the Company's ability to
generate liquidity necessary to finance capital expenditures,
settlement of decommissioning obligations and funding of its
dividend. Transaction related costs are incurred during asset
and/or corporate acquisitions and are typically not considered a
cost incurred in the normal course of business. As a result,
excluding transaction related costs from adjusted funds flow
further assists in the determination of the Company's ability to
generate liquidity in the normal course of business.
For ease of readability, in this press release, "adjusted funds
flow, excluding transaction related costs" is also referred to as
"cash flow". TORC calculates cash flow per share using the same
method and shares outstanding that are used in the determination of
earnings per share.
"Net debt" is calculated as current assets
(excluding financial derivative assets) less: i) current
liabilities (excluding financial derivative liabilities) and ii)
bank debt. Management considers this measure to be useful in
determining the Company's leverage.
"Operating netback" or "netback"
represents revenue and realized gain or loss on financial
derivatives, less royalties, operating expenses and transportation
expenses and has been presented on a per Boe basis. Management
believes that in addition to net income, operating netback is a
useful measure as it assists in the determination of the Company's
operating performance and profitability.
"Exploration and development
expenditures" represents expenditures on
property, plant and equipment ("PP&E") excluding: acquisitions,
non-cash PP&E additions and capitalized general and
administrative expenses. See Capital Expenditures in the MD&A
for further details.
"Property acquisitions, net of
dispositions" represents additions to
PP&E related to the Company's asset and/or corporate
acquisition and disposition activity.
"Free cash flow" represents
adjusted funds flow, excluding transaction related costs, less i)
exploration and development expenditures", and ii) cash dividends
paid. Management considers this measure to be useful in
determining its ability to finance capital expenditures and fund
its dividend.
"Payout ratio" represents cash
dividends paid, plus exploration and development expenditures,
divided by adjusted funds flow, excluding transaction related
costs. The Company considers this to be a key measure of
sustainability.
Oil and Gas Disclosures
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, 2019 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, 357
are proved locations, 133 are probable locations and 525 are
unbooked locations. Of the 400 net conventional drilling locations
identified herein, 161 are proved locations, 56 are probable
locations and 183 are unbooked locations. Of the 150 net
Torquay/Three Forks drilling
locations identified herein, 51 are proved locations, 27 are
probable locations and 72 are unbooked locations. Of the 175 net
unconventional Midale drilling
locations identified herein, 78 are proved locations, 17 are
probable locations and 80 are unbooked locations. Of the 290 net
Cardium drilling locations identified herein, 68 are proved
locations, 33 are probable locations and 189 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.
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.