Good day, ladies and gentlemen, and welcome to the Tourmaline's Q3 2022 Results Conference Call. At this time, all lines are in a 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, November 3rd, 2022. I would now like to turn the conference over to Scott Kirker. Please go ahead.
Thanks, Michelle, and welcome everyone to our discussion of Tourmaline's results as at September 30, 2022, and for the three and nine months ended September 30 in 2022 and 2021. My name is Scott Kirker, and I am Tourmaline's Chief Legal Officer. 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 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 in the last quarter and our year so far, and after Mike's remarks, we will be open for questions. Go ahead, Mike.
Great. Thanks, Scott, and good morning, everybody. We're pleased to review our Q3 results with you. A few of the highlights. Third quarter 2022 after-tax cash flow was CAD 1.05 billion or CAD 3.07 per diluted share. That's up 38% over the corresponding period in 2021. Third quarter free cash flow was CAD 568 million or CAD 1.66 per diluted share. We will pay a special dividend of CAD 2.25 per share on November 18 to shareholders of record on November 9. Beginning in Q4 this year, we'll increase the quarterly base dividend by 11% to CAD 0.25 per share, providing for an annualized dividend of CAD 1 per share.
Including the payments of both the Q4 special dividend and the base dividend, we will pay a total of CAD 7.90 per share in dividends in 2022, resulting in approximately a 10% yield. Third Quarter 2022 E&P capital spending was CAD 469 million, and that's within previously disclosed guidance. Third Quarter 2022 net earnings were CAD 2.01 billion. Our net debt at September 30 was CAD 565 million, and that's well below our long-term debt target range of CAD 1 billion-CAD 1.2 billion. At current strip pricing, full-year 2022 cash flow will be CAD 4.76 billion. That's what's anticipated, and that's 13.90 per diluted share. Looking at production.
Q3 2022 production was 482,000 BOE/d, and that's within the guidance range of 480,000 BOE/d-485,000 BOE/d. We are executing the Q4 2022 production ramp with anticipated November average production between 520,000 BOE/d and 530,000 BOE/d and anticipated December average production between 530,000 BOE/d and 540,000 BOE/d. Our 2023 average production guidance remains at 545,000 BOE/d, consisting of 2.5 Bcf/d of natural gas and over 125,000 bpd of oil condensate and NGLs. A brief marketing update.
Average realized natural gas price in Q3 was CAD 5.37/ Mcf, as we continue to benefit from rising natural gas prices when compared to the corresponding quarter in 2021. Tourmaline currently has 754 MMcf/d accessing U.S. markets through long-term firm transport agreements. That increases to 854 MMcf/d in Q2 of 2023 and then to 926 MMcf/d in 2024. We are among the most diversified of all North American large gas producers from a market access standpoint.
Right now, we have an average of 711 MMcf/d hedged for 2023 at a weighted average fixed price of CAD 5.77 per Mcf Canadian and an average of 110 MMcf/d hedged at a basis to NYMEX of $0.12 per Mcf. An average 754 MMcf/d of unhedged volumes exposed to export markets in 2023, and those markets include Dawn, Iroquois, Empress, Chicago, Ventura, Sumas, US Gulf Coast, JKM, Malin, and PG&E. We are pursuing multiple additional market diversification opportunities for both natural gas and our natural gas liquids. Looking at CapEx and the financial outlook. Forecast full year 2022 EP capital spending remains at CAD 1.5 billion, and full year 2023 EP capital spending remains at CAD 1.6 billion.
We expect 2023 cash flow of CAD 5.4 billion and free cash flow of CAD 3.7 billion at strip pricing as of October 14, 2022. The current seven-year EP growth plan is expected to deliver an estimated free cash flow at strip of CAD 19.4 billion on total CapEx of CAD 13.4 billion during the period. Commencing in Q4 2022, we will increase the base dividend by 11% to CAD 0.25 per share, the quarterly base dividend. As mentioned, we have elected to declare and pay a special dividend in Q4 of CAD 2.25 per share. We continue to focus on returning the majority of free cash flow to shareholders through base dividend increases, special dividends, and share buybacks.
The magnitude of the special dividends will be a function of commodity prices and available quarterly free cash flow. The company now anticipates returning greater than 75% of free cash flow to shareholders in calendar 2022, achieving a year-end net debt to cash flow ratio of approximately 0.1x , which positions us to return between 50% and 90% of free cash flow in calendar 2023, while also growing production by approximately 7%. A component of free cash flow will also be used for modest incremental EP investments. Those include new pool, new zone exploration opportunities, asset acquisitions within existing core complexes, and select margin improving infrastructure investments. Tourmaline completed the previously announced Rising Star Resources Limited acquisition during the third quarter of 2022. A brief EP update. We're currently operating 13 rigs across the three EP complexes.
We drilled 86 net wells and completed 75 net wells during the third quarter, and we are the most active driller in Canada on a meters drilled basis. We expect to tie in and bring on production a total of 75 net wells in November and December, and we'll carry approximately 24 DUCs over into early 2023. The distribution of rigs is eigth rigs in the Deep Basin, four, we continue to operate in our BC Montney complex, and then we have one rig working on the Peace River High. Importantly, continuous improvement in new technology applications and our related drilling methodologies has resulted in a 37% improvement in meters drilled per day between April 2020 and July of this year in our BC Montney complex.
The Q4 2022 and 2023 EP programs include multiple new zone and new pool exploration tests across all three operated complexes as we expand the highly successful and somewhat unique exploration efforts. Lots more to follow from this program over the next quarters. Looking at our environmental performance improvement, we've had a great year on that front, and we continue to invest significant capital in these efforts. We actually are investing profits and Free Cash Flow in our environmental performance improvement initiatives, and we are reducing emissions right now. Some of the highlights over the past 12 months. We achieved our net 25% methane reduction target three years earlier than targeted.
Our Emission Testing Center, or as we call it, the ETC, the first of its kind in the world at the West Wolf Gas Plant, is fully operational, and we continue to grow the scope of methane emission reduction technology investigations at the site. We received preliminary platinum ratings from the Project Canary or TrustWell assessment on a series of our operated Northeast BC assets, and our score ranks in the top 10% in North America. All of our contracted drilling rig fleet is displacing diesel with nat gas or running fully electric, and we were operating three Cat Tier 4 DGB natural gas-powered frac spreads in Western Canada, so the most of any operator in July of 2022.
Tourmaline's invested over CAD 25 million during the past five years in water recycling and water management facilities as part of an ongoing effort to ultimately eliminate fresh water in our well stimulation activities. Tourmaline is also a major participant in the Natural Gas Innovation Fund or NGIF. That's a collaborative effort to produce lower emission nat gas across the whole spectrum of operations. The company is sponsoring emerging clean tech companies in the areas of diesel displacement, methane emission monitoring and reduction, waste heat recovery, carbon capture, and water recycling technologies. That's all we were gonna say as far as formal remarks, so happy to move to the Q&A portion.
Michelle, if you wanna give them the instructions on that.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. First question comes from Donald Textor of DFT Energy. Please go ahead.
Yeah. Morning, Mike. How are you?
Good, Don. How are you?
Mike, I know you're not a direct participant in the LNG Canada project, but could you just make some maybe some observations on how that project's going and how you see that affecting BC gas prices out there in 2025 and 2026?
Sure. I mean, as far as the actual true project update, I mean, best to check with TransCanada and LNG Canada. You know, what we've observed is that both the Coastal GasLink pipeline and the Kitimat liquefaction facilities are more than 50% completed. The companies that operate those projects are both saying that they're gonna be completed and on stream in 2025. We think that's very important for Canada as we actually get a new pipeline built and, you know, we will see if that project gets upsized.
We believe that, when you start moving, even if it's just 2 Bcf and not 4 Bcf a day west, that's gonna be structurally positive for both, Station 2 gas prices in BC and AECO prices in Alberta, as you'll take a basin that's, you know, roughly in balance from supply-demand standpoint, Western Canadian Sedimentary Basin, and pull, you know, between 10% and 15% of the gas away to a new destination on the West Coast. We see that as very positive for pricing, and that's why we time our North Montney development that we call Conroy in that 2025 to 2027 time period. We think that's the appropriate time to bring new gas supply into the market.
All right. Is the Chinese company and Petronas and some of the others all covered on their gas, do you think, in terms of?
Well, I think, you know.
Tying up supply?
Probably best you check with them. You know, our estimates, you know, indicate that of the 2 Bcf that are required, probably 1.4 Bcf of it exists now.
Okay. Thanks, Mike.
You bet.
Thank you. The next question comes from Fai Lee of Odlum Brown. Please go ahead.
Hi, Mike. It's Fai here. I'm just wondering if you can comment a bit, maybe just give some color on, I guess the inflationary pressures that you could be facing as we head into 2023, and the steps that you're taking to mitigate the potential cost inflation.
Sure.
Okay.
We, with our Q2 release in late July, included an inflation contingency for the balance of 2022 and 2023, and that was 18% increase in CapEx over 2021 levels. We think we've got an appropriate contingency from that standpoint. You know, what do we do to mitigate inflationary pressures? I think being you know the largest operator you know does you know allow us to access premium equipment and crews which typically perform better. That helps. We plan far in advance, like two to three years ahead, so you know we can avoid some of the pinch points on tubulars with steel pricing by ordering in advance.
I mean, it's not like we're not facing any inflationary pressures, but I think we do a good job mitigating it from that standpoint. Then from a, you know, drilling and completion methodology standpoint, we think we're very strong in that area as an operator and continue to seek ways to drop times on fracking and drilling. I did outline one highlight on just how much we've dropped our Montney drilling times over the past couple years. That's a nice kind of hedge against inflationary pressures.
I guess related to that question, can you just maybe comment on your confidence? I know that you did reflect some. You know, you point out inflation, cost inflation next year in your budget, but I'm just wondering what's your confidence level around that budget. You know, if it ends up being, you know, potentially higher than what you're forecasting, where do you think the risk is around that?
Well, we're pretty confident in the number we put out there, Fai. It's, you know, it's a significant increase. You know, obviously we continue to monitor all of the cost inputs and, you know, if it's not enough, then we'll make the appropriate adjustments. As it stands now, we're very confident in what we've put out there.
Okay. Thanks. Thanks for your time.
You bet. Thank you.
Thank you. The next question comes from Jeremy McCrea from Raymond James. Please go ahead.
Hey. Hi, guys. I just wanted to know if you can comment a bit more on the M&A market. You know, you guys have been pretty aggressive in the past, and I'm just wondering if the outlook today is as aggressive, what you think of valuations here now, and if there's really as much opportunity as there once was in the past.
Well, there's still lots of opportunities out there. They're more expensive than they were in second half 2020 and first half 2021, which is why, you know, we've backed off a little bit. It doesn't mean we stop looking, and, you know, we know a number of opportunities that could materialize over the next couple years. We have pretty rigorous screening criteria. The free cash flow yield from M&A needs to be, you know, better than what we can deliver with our base E&P plan that we lay out seven-year outlook and, you know, the acquisitions that we've completed to date meet that screening criteria. You know, we continue to look and be creative and, you know, it's another part of the business that we're excited about.
Okay. Just quickly, just as a quick one more, your tax outlook here, you know, keeps kind of creeping up for, you know, 2023, 2024. Is there anything or mitigation things that you're looking at to reduce that going forward?
We're always looking at ways that we can optimize our tax position. That's an ongoing process. We're certainly aware that the tax horizon's moved in. We've got a good provision for it in 2023 and 2024, and we'll just continue working on it. There's nothing specific that we're ready to speak to right now, and we're certainly gonna always be totally compliant with the rules, and we'll pay our cash taxes as we enjoy these higher product prices.
Okay. Thanks, Scott.
Thank you.
Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Michael Harvey of RBC Capital Markets. Please go ahead.
Yeah, sure. Good morning. Just had a question on that 50%-90% range for next year. Pretty wide range, both percentage-wise and also just the gross dollar value. Maybe you could just comment on some of the drivers which would put you kinda towards the high end of that range or the lower, or is it all just kinda M&A driven?
Hi, Mike. The range gives Tourmaline, you know, plenty of flexibility on both opportunities that we might move forward on and also flexibility given potential volatility in commodity prices. In general, if commodity prices are pushed downward, expect us near the higher end of that range. If commodity prices push upward, we would navigate towards the lower end of that range. At the 90% level today on strip, we're able to maintain the return to shareholders we're delivering to you today in each subsequent quarter. What we're seeing today is we have the ability to continue to push the base dividend and incrementally grow it over time and also deliver these special dividends within this range, without any, you know, fluctuation downwards or upwards.
As you look forward to the, you know, now seven-year plan, the E&P plan, we're able to deliver base and special dividends on strip each year of that plan. I think you can kinda use these ranges as a forward guide beyond 2023 as well.
Okay. If commodity prices go up, you'll pay out less, and then presumably more cash will go to, I guess, debt repayment or other things. Is that the right way to think about it?
Yeah. In general, the quantum would be similar. It's the percentage payout that would be a bit less. Exactly, you could store more cash on the balance sheet, and you could also allocate more cash to some of these other investment opportunities you've been highlighting in the release.
Gotcha. Thanks, guys.
Thanks, Mike.
Thank you. The next question comes from Peter Cooke, Logan Capital. Please go ahead.
Hey, Mike, just a question on the LNG. It's a little confusing on your change in the accounting on what you're doing there. Could you just re-review that just a tiny bit as to what that was all about?
It's gonna be handled as an embedded derivative rather than a physical contract going forward. It's just on the one LNG contract on our delivery to the Gulf Coast on 140 MMcf/d .
It has no impact on our cash flows, our capital spending, our cash taxes, other cash costs or our production levels at all.
Right.
The numbers in the statements on the P&L side are all unrealized. We haven't started delivering to that contract at all yet.
Well, you'll be delivering that come January 1, pretty much. Is that?
Yep.
Yes.
That's the plan.
As scheduled, and it's a 15-year term, and we continue to view it as a key component of an extension of our market diversification strategy. There's only a few producers that are doing what we're doing, which is gathering the benefit from these Asian natural gas prices, and that's what we've captured there.
I guess the question is, does the U.S. have the capability to ship it, to manufacture it at this point?
Well, it's a growing business worldwide, so, I mean, the outlook for LNG, we think is, you know, very robust.
Right. Okay, thanks.
You betcha. Good talking to you.
Yeah. Great quarter.
Thank you.
Thanks.
Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. There are no further questions at this time. Please continue.
Thanks, everyone, for dialing in. We'll talk to you next quarter.
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.