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Tourmaline Readies Montney Natural Gas Growth to Fetch Premium Prices from WCSB to Gulf Coast
Calgary-based Tourmaline Oil Corp. is continuing to build its portfolio of natural gas and oil assets as it prospects for markets across the North American continent, from the Western Canadian Sedimentary Basin (WCSB) to the South Texas coast.
CEO Michael Rose led a conference call to discuss the exploration and production (E&P) company’s second quarter results. He also shared how the independent’s growth is tied in part to not only liquefied natural gas (LNG), but also California markets, where it can fetch premium prices. Tourmaline reports in Canadian dollars (C$1.00 = US 78 cents).
Quarterly output averaged 503,000 boe/d in 2Q2022, a 23% increase year/year, with more output expected in the third quarter following the ice breakup, Rose noted.
“The modest E&P activity increased post-breakup will lead to higher 4Q2022 production forecast, now 520,000-525,000 boe/d,” up from 510,000 boe/d in the initial plan.
Full-year average production is forecast at 507,000 boe/d, which would be 19% higher than 2021 levels.
LNG Canada, Gulf Coast Exports
For its natural gas, “Tourmaline currently has 620 MMcf/d accessing the U.S. market through long-term firm transport agreements, and this volume will grow to 905 MMcf/d by exit 2023,” the CEO said.
“We are among the most diversified of all North American large gas producers from a market access standpoint, and we continue to explore opportunities to expand this export capability.”
In addition to agreements to supply the Shell plc-led LNG Canada export project, Tourmaline has a 140 MMcf/d LNG deal with Cheniere Energy Inc. that begins Jan. 1. Tourmaline last year established the Gulf Coast LNG long-term netback supply agreement with Cheniere for delivery to the Houston company’s Corpus Christi export terminal in South Texas.
The Cheniere deal, said Rose, provides exposure to Japan Korea Marker (JKM) pricing over 15 years. “The JKM strip was US$31.88/MMBtu as of July 19,” Rose noted. Meanwhile, realized natural gas liquids (NGL) prices averaged US$51.83/bbl in 2Q2022, up 99% from 2Q2021. Tourmaline is the largest NGL producer in Canada.
“Looking at our longer-term E&P strategy…it incorporates the current 12-13 drilling rig fleet that we have in our employ through the second half of 2022 and through the balance of the plan,” the CEO said. “We thought it was prudent to retain the drilling and completion services that we’d already secured on a go-forward basis.”
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The growth incorporates the first phase of the gassy Conroy North Montney Shale project, which is expected to ramp up in 2026. The second phase would begin in 2028.
“The project has been segmented into two 50,000 boe/d phases,” Rose said. “The timing roughly approximates the sequencing of LNG Canada commissioning, which the company views as positive for long-term natural gas pricing in the WCSB…Phase 2 could be accelerated contingent upon commodity prices and Basin egress considerations.”
The first phase by 2026 would add 228 MMcf/d of gas and 12,000 b/d of condensate and NGL.
The growth would coincide “with incremental basin egress,” Rose said, “consistent with our long-term balanced basin supply narrative through expansions” on TC Energy Inc.’s Gas Transmission Northwest system and the Cheniere LNG agreement.
“We have 300 MMcf/d of incremental basin egress commencing in 2023, so it more than offsets any of the growth that we’ll see in 2023 and 2024. And of note, these gas volumes will access the two destinations with the sustained premium gas price, international LNG and California.”
Rose also disclosed that Tourmaline has secured a binding agreement to acquire private Calgary producer Rising Star Resources Ltd. for C$194.3 million, with closing expected in August. Rising Star assets are within Tourmaline’s Peace River High Charlie Lake oilsands complex, with current production of 5,700 boe/d.
Net earnings in 2Q2022 totaled nearly $823 million ($2.40/share), nearly double the $421 million ($1.40) for the same period a year earlier.
Gordon Jaremko contributed to this story.
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