Good morning, ladies and gentlemen, and welcome to the Tourmaline Q1 2022 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 5th, 2022. I would now like to turn the conference over to Mr. Scott Kirker. Please go ahead.
Thank you, operator, and welcome everyone to our discussion of Tourmaline's results for the three months ended March 31st, 2022 and 2021. My name is Scott Kirker, and I'm the Chief Legal Officer for Tourmaline. Before we get started, I refer you to the advisories on forward-looking statements contained in the news release, as well as the advisories contained in the Tourmaline Annual Information Form and our MD&A available on SEDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories. I'm here with Mike Rose, Tourmaline's President and Chief Executive Officer; Brian Robinson, Vice President of Finance and Chief Financial Officer; and Jamie Heard, our Manager of Capital Markets. We will start by speaking to some of the highlights of the last quarter and our year so far. After Mike's remarks, we will be available for questions. Go ahead, Mike.
Thanks, Scott, and thanks everybody for dialing in. We're pleased to review our Q1 2022 results. Firstly, a few of the highlights. Record quarterly cash flow of CAD 1.076 billion and record quarterly free cash flow of CAD 618 million or CAD 1.82 per diluted share. That enabled us to declare a special dividend of CAD 1.50 per common share. That'll be paid May nineteenth of this year. Our trailing 12 months of distributed dividends now total CAD 4.21 per share, inclusive of this special dividend, and that's an implied 7% trailing yield at this point. Our full year 2022 free cash flow forecast has increased to CAD 3.9 billion, which will allow us to pay quarterly special dividends through the balance of 2022.
Our Gulf Coast Cheniere LNG arrangement on 140 million per day begins January 1, 2023. For reference, as of April 21, the JKM strip price was over $25 per MMBtu. At March 31, 2022, net debt was CAD 769 million or 0.15x 2022 full year forecast for debt to cash flow, and that's well below the low end of the target range. Briefly on production. First quarter production of a little over 507,000 BOEs per day was within our guidance range of 500,000-510,000 BOEs per day and above full year average guidance of 500,000 BOEs per day.
We exited the first quarter at average production levels of between 515,000 and 520,000 BOE per day, ahead of expectation, and that was driven by higher activity levels during Q1 and strong well performance across all three operating complexes. So far, our record daily production rate achieved is a little over 526,000 BOE per day, which is actually ahead of the current 2023 average production guidance we provide of 515,000 BOE per day. We expect Q2 average production of between 500 and 505, because we'll reinject into storage in Dawn and in California. We have some of our own facility turnarounds, and there's also third-party pipeline maintenance that typically happens in Q2.
Looking at our financial results, as mentioned, first quarter cash flow was a record CAD 1.08 billion. Our full year 2022 cash flow is now CAD 5.22 billion. That's 15.34 per diluted share, and it's actually up 29% from our previous forecast back in March. Full year free cash flow CAD 3.92 billion, and that's CAD 11.53 per diluted share. As mentioned, we achieved the long-term net debt target actually in Q4 of 2021, and we have committed to return the majority of free cash flow to shareholders through these base dividend increases, special dividends, and share buybacks. A component of free cash flow will also be used for asset acquisition opportunities within our three operating complexes and select margin-improving infrastructure investments.
Given that record free cash flow outlook for the year, we're pleased to announce quarterly special dividends for the remaining three quarters of 2022. The magnitude of the special dividends in the third and fourth quarters will be a function of commodity prices and resultant available free cash flow. Also note that additional sustainable base dividend increases are planned for 2022. Touching on capital spending and the financial outlook, first quarter 2022 EP capital spending was CAD 442 million. Total CapEx in the quarter, including acquisitions, was CAD 479 million. Note that acquisitions of property and land are funded by annual free cash flow and are actually not included in the base EP budget that we put in the five-year plan.
We operated a larger proportion of the drilling rig fleet and completion spreads through March compared to previous years. You know, that was in part because of continued strong commodity prices and also access was really good. This will allow for stronger Q2 production volumes than what you would see in our typical annual production profile. That incremental March activity added approximately CAD 20 million to Q1. Full year 2022 E&P capital spending has been increased to CAD 1.225 billion. That's up from CAD 1.125 billion. The increase includes an incremental CAD 75 million provision for inflation, and that equates to 6.7% full year cost inflation on top of other provisions that we had in the budget already.
Also, CAD 25 million allocated to following up the multiple successful new zone, new pool exploration discoveries we've made, and we're quite excited by that. First quarter 2022 exit net debt, as mentioned, was CAD 769 million, well below the long-term bottom end of the net debt target range of CAD 1 billion. Briefly on marketing. We have 625 million per day accessing U.S. markets through long-term firm transport agreements, and this volume will grow to 905 million per day by exit 2023. Importantly, of course, our 140 million per day Gulf Coast LNG deal commences January 1, 2023 or eight months from now.
Approximately 60% of the current lower price hedges that we assumed through the acquisition of Jupiter, Modern and Black Swan will systematically roll off. These production volumes will benefit from the much higher current strip pricing for winter 2022-2023. Notably, realized NGL prices averaged CAD 44.82 per barrel in Q1 of 2022, and that's up 63% year-over-year. We do expect further strengthening of realized NGL prices through the balance of the year. Recall that Tourmaline is the largest NGL producer in Canada. On E&P, 84.7 new net wells were brought on production during the first quarter of 2022.
We anticipate a further 44 wells coming on stream during the second quarter, and that in part is related to the increased activity in March of this year. We did achieve new record horizontal well lengths with associated record low drilling times in all three E&P complexes. A couple of the pacesetters include at Progress, a Lower Charlie Lake horizontal 3,509 meters long that we drilled from surface to TD with the assembly in the ground in 11.7 days. In the Greater Aitken area, we drilled just over 2,000-meter Montney horizontal from surface to TD, again, with the assembly in the ground in under five days. Think about that, 4.9 days was the total.
These continually improving drill times really help reduce the impact of ongoing inflationary pressures. Some detail on our North Montney development. We continue to plan for what we call Conroy, which is our North Montney development. Notably, this expected 100,000 BOE per day liquid rich gas project actually represents one of the largest single conventional developments upcoming in the Western Canadian Sedimentary Basin over the next few years. We are gonna continue to grow Tourmaline in a meaningful way. Current timing for full project startup is 2025, 2026, and that coincides with the startup of LNG Canada, which we expect to be structurally positive for Western Canadian gas supply, demand dynamics and of course, natural gas pricing.
So far that full development, including production, cash flow and capital spending, is not in the existing five-year plan that we just published, a revised one. We've drilled so far over the past 9-12 months, 12 delineation pads, on the new Laprise, Conroy, Aitken lands, and that's to define liquid content, well performance profiles and capital costs in advance of the full development. The results, we're pleased to say, have been very strong. As part of our long-term associated Conroy facilities plan, we acquired the remaining 50% non-op interest in the two Aitken area gas plants that came in the Black Swan acquisition from AltaGas for CAD 224 million, and that closed during Q2.
The plants, including the deep cut expansion, have a combined processing capacity of 290 million per day and both are operating at full capacity. Annual OpEx savings resulting from this transaction are estimated at about CAD 27 million per year. On environmental performance improvement, after achieving our net 25% methane emission reduction target three years ahead of schedule, we're currently establishing new rigorous targets to further reduce those emissions. Technology initiatives currently being developed include continued pneumatic pump retrofits, installation of solar electric pumps, conversion of separators to full solar electric, and the pursuit of zero emission well site technology.
We have successfully transitioned all of our drilling rigs under contract from diesel to natural gas, achieving both a material emissions reduction and a net cost savings. We also continue to evolve several CCUS initiatives within all three operating complexes and plan to implement these potentially material emission reduction opportunities at a selection of our gas plants in the 2025- 2030 timeframe. Tourmaline will begin providing low emission Canadian natural gas to Europe and Asia in 2023 via our Gulf Coast LNG pathway, and we'll continue to explore opportunities to expand this business segment. We believe that a growing Canadian LNG business providing ever lower emission Canadian natural gas to the developing world is one of the best things our country can actually do for the global atmosphere. It's an enormous sustainable win for the entire Canadian economy.
It's an environmental win, an economic win, and an energy security win. Kind of a hat trick for Canada as we go through the playoffs here. That's it, and happy to answer questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear three tone prompts acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press the star followed by the number two. One moment for your first question. Your first question comes from Patrick O'Rourke, ATB Markets. Please go ahead.
Oh, hey, guys. Good morning. Thank you for taking my question and congratulations on the very impressive special dividend there. Just wondering, you know, maybe this is small ball here, but in terms of the AltaGas working interest acquisition there, to my recollection, your preexisting working interests or operating interests in that plant had not been dropped down into your sort of infrastructure structure that you have here. You know, you're well through your net debt target. You've got a very, you know, very good looking free cash flow profile going forward. Are you still looking to sort of monetize into your royalty vehicle some of these facility working interests?
It's something we always keep in mind, but, you know, nothing imminent at this point. It was important for us to consolidate to 100% in the North Montney facilities, you know, prior to embarking on a significant build out over the next few years.
Okay. Just a second question, very briefly here. You know, I think that you guys have been on record saying that you've sort of acquired a lot of the core properties that you were looking to for your medium and longer term strategy. Obviously, the cash taxability horizon is creeping up on you very fast with where strip prices have gone here. I'm just wondering how sort of tax pools can come into play in any sort of incremental, M&A going forward here for Tourmaline.
It's probably a season. I mean, certainly if you go back over the last sort of 30 months, the acquisitions that we did do greatly enhanced our tax pools. The tax basis on those businesses was higher than the actual flowing barrels and so on. We're happy about that, and that has been an aid for us in pushing the tax horizon out. We started the year here with above CAD 9 billion in tax pool, and of course, our most favorable one tapering out first here in 2022. The tax horizon will get pushed out a bit, as Mike mentioned, with the investments that we're planning on our Conroy North Montney development.
To be sure, there is gonna be cash taxes here, and we're gonna be fully taxable in the later years in that plan that we've laid out for you.
Okay. Thank you.
Thank you.
Your next question comes from Fai Lee, Odlum Brown. Please go ahead.
Okay, great. Thank you. I'm just wondering if you can help me. I just wanna understand this Cheniere LNG deal, make sure I understand it correctly. You basically will ship the gas to the Gulf Coast. I think the toll you talked about was $0.86. I'm assuming there's some processing fee that Cheniere will collect for processing and converting it to LNG. When you transfer it to Asia, there may be some cost to that. Let's say if I assume that cost to get to the Gulf Coast, liquefy and ship to Asia is about $7. If the pricing stays at $26, would you collect the $19 less your OpEx cost and the net back? Is that the way to think about it?
That's roughly the way to think about it. The $7 view, that might be a little aggressive, but yes, it's in U.S. dollars that would be our net back. You know, to put it another way, this is maybe 6% of our gas, but it is gonna amount to, you know, roughly 13%-15% of our revenue. It's a very material cash flow impact in 2023. Over the last six months, you've seen the forward years, so 2024, 2025, 2026 on JKM pricing also greatly improve, all of which are now well over $10. It's gonna be definitely a very valuable contract, particularly in the near term.
Sorry, when you say $7 is aggressive, like too low or too high?
It's probably a little high.
Little high. Okay. All right. Maybe six or something. The dynamic has obviously changed since you put the deal in place last year. It looks like European pricing might be a little bit better and maybe a little cheaper to ship there. Can you switch over or is the deal kinda locked to JKM?
It is a JKM index deal. In the long term, the floating arc between TTF and JKM should actually be relatively tight. It'll be the shipping arc between the two jurisdictions. So while this year definitely has featured some real tightness as Europe has rapidly transitioned to LNG imports, over the longer term, we think those two markets will hold hands very nicely. We see the JKM market as an indicative market for basically all LNG floating prices.
Okay. Sorry, the last question from me is, in your five-year plan, you know, this $26 strip pricing, is that built into your five-year plan right now for next year?
Yeah.
Or-
It is. It's the exact strip that JKM has, so it is exactly what is in there. Yeah. The five-year plan is run on an April fourteenth strip. At that time, 2023 was $23, and the backwardation was roughly $3 a year. I think the last year is in the low teens.
Okay, great. Thank you.
Your next question comes from Aaron Bilkoski, TD. Please go ahead.
Hi. Good morning. I guess my question's around the use of free cash flow. When you talk about the majority of free cash flow going to shareholders, if I assume that means either 50% or even more than 50%, you'll be building net cash and getting further and further away from that CAD 1 billion permanent debt target. I guess my question is, are you comfortable being in a net cash position for a period of time? If the answer to that is yes, what would you be waiting on before you deploy that?
We're comfortable taking debt well below the billion-dollar bottom end of our sort of long-term debt target. To some extent, you know, we can bank cash for the North Montney development, which will be a significant expenditure. You know, as we start proceeding with that, we might in effect have it pre-financed. We do allocate pools of available free cash flow for you know, ongoing asset acquisition. Obviously, that slowed down, and we backed away from certainly corporate M&A. We're always looking for midstream deals that improve the margin on every BOE we produce.
You know, even if it's just a couple bucks a BOE, when you convolve it with our 20,000+ location inventory, we think those are very good investments to make on behalf of shareholders. Brian or Jamie, anything you guys wanna add? I think to just underscore, we're definitely committed to returning the majority of free cash to shareholders this year. Per share, total free cash flow per share is CAD 12. The majority means in excess of CAD 6 to be distributed through base dividends, special dividends, and potential taxable share buybacks.
Thanks. Can I ask another one?
Yep.
To what extent have you hedged, can you hedge and are you willing to hedge JKM in 2023 and beyond?
We are starting to explore those opportunities and work on it. We haven't done a lot of that yet, but we're fully planning on doing so.
Thanks, guys.
Yep. Thanks, Aaron.
Your next question comes from Josef Schachter, Schachter Energy Research. Please go ahead.
Thanks very much. Thanks very much for taking my question, and congratulations on the results and the comments you made on the dividend and special dividend. My question is more on the S of the ESG, the societal thing. With storage being so low on both sides of the border, you know, the data from EIA last week was 17% below the five-year average and 21.4% below the prior year. Are we looking at a potential that we'll get to November when we go into withdrawal season, that we may have a shortage of supply if we have a normal or worse than normal winter? And where do you see pricing going? Are we looking at double digit?
You know, does this then become a thing where there's a bull's-eye on the industry because of the, you know, moving prices, which could be triple for winter heating in 2022-2023 versus 2021-2022?
Well, they're all good questions. I mean, obviously it's a very volatile environment. I'd say supply and demand are, you know, relatively in balance. You know, we do expect storage injections to pick up here both on both sides of the border. You know, I think we'll head into winter probably lower than normal, but I suspect we'll have adequate supplies. I don't think anybody wants, you know, really egregious price spikes. I know where you're going with it, and we agree with you. It's really not constructive for anybody. Yeah. Kind of on the theme of energy security, if you are an exporting jurisdiction, if Canada exports its gas, North America as a whole exports its gas, that gives you another lever to make sure you always have enough gas at home.
You can price to the point where exports are out. The scenario in which North America as a whole could run out of gas is extremely draconian, very unlikely.
Yeah. The only problem would be, of course, the price, which would be, you know, the consumers and, you know, given all the other inflationary pressures, that kind of turns the industry into a political football, which we all hope doesn't happen. That's it for me. Thanks very much. Just wanted to get your insights on that.
You betcha. Thanks.
There are no further questions at this time. Please, I'm going to turn this back over to Mr. Scott Kirker. Thank you.
Thanks, everyone, for spending some time with us. We'll talk to you next quarter.
Y ep.
Thanks.
Ladies and gentlemen, this concludes our conference call for today. We thank you for participating and ask that you please disconnect your lines.