Good morning, ladies and gentlemen, and welcome to the Tourmaline Quarter 2 Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, July 29, 2021. I would like to turn the conference over to Scott Kirker.
Please go ahead.
Thank you, operator, and welcome everyone to our discussion of Tourmaline Oil Corp. Results for the 3 6 months ended June 30, 2021 2020. My name is Scott Kirkland, and I'm the General Counsel of 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 and A available on SEDAR and on our website. I also draw your attention to the material factors and assumptions in those advisories.
I am
here with Mike Rose, Tourmaline's President and Chief Executive Officer Brian Robinson, Vice President of Finance and Chief Financial Officer and Jamie Hurd, Tourmaline's Senior Capital Markets Analyst. 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 open for questions. Go ahead, Mike.
Thanks, Scott, and thanks everybody for dialing in. And we're pleased to review our Q2 results and answer questions that shareholders may have. Starting out with the highlights, Q2 2021 cash flow was $1.89 per diluted share. We have record free cash flow of $343,900,000 on production of 410,339 BOEs per day, which exceeded the high end of Production expectations despite challenging operating conditions with June's heatwave. The updated 5 year plan at Current strip pricing delivers $1,800,000,000 of free cash flow in 2022 $7,000,000,000 over the full 5 year duration of the plan.
We received a credit rating upgrade from BBB to BBB High in July of 'twenty one by DBRS Morningstar. We now expect to achieve our year end 2021 net debt target of approximately $1,000,000,000 or 0.4 times debt Cash flow and less than 1x annual free cash flow prior to year end. With incremental volumes on the GTN Malin PG and E Systems and the company's recently announced Gulf Coast LNG Pathway in 2023. Tourmaline will have 905,000,000 a day exposed to Our largest export market, PG and E California is currently trading at $5.50 per MMBtu in U. S.
Dollars. Looking at production in a little more detail, As mentioned, Q2 'twenty one average production was a little over 410,000 BOEs per day and a little over 400 and 14,000 BOEs per day prior to storage injections into our storage reservoirs in California and Dawn. So that's a 37% increase over the prior year Q2 2020. We anticipate 3rd quarter average production will range We expect to reach the 500,000 BOE per day production project and the ongoing La Crease development program. 2021 average production for the year It remains estimated at 430,000 to 445,000 boes per day.
Looking at our very strong financial results, 2nd quarter 'twenty one cash flow was $570,000,000 compared to $225,000,000 or $0.83 per diluted Share in Q2 2020. 2nd quarter 'twenty one after tax net earnings were very strong at 4.28 per 1,000,000 $420,000,000 or $1.40 per diluted share and that compares to $20,000,000 or $0.07 per diluted share in the Q2 of 2020. We delivered free cash flow of $344,000,000 on EP capital spending of $216,000,000 in the 2nd quarter. Full year 'twenty one cash flow of $2,780,000,000 is now expected with estimated free cash flow for 2021 of $1,470,000,000 We received the credit rating upgrade in July of this year The credit rating upgrade is expected to result in lower effective interest rates on company debt, which already are extremely low and in the top tier at 1.7 7.2% for the 2nd quarter. Revisiting the capital program and the financial outlook, Q2 'twenty one E and P capital spending was on target at $216,000,000 Full year 2021 EP capital spending remains at $1,270,000,000 Net debt at June 30 this year was $1,700,000,000 which excludes the 2 Northeast BC transactions with Topaz, which yield $390,000,000 in cash, both of which will close in the Q3 of 'twenty one.
Exit Q3 'twenty one expected net debt is approximately $1,400,000,000 including the impact of all acquisitions completed to date in 2021. We now expect to achieve the year end 2021 net debt target of approximately $1,000,000,000 As at July 15, 2021 Tourmaline's Topaz equity ownership was valued at 9 $34,000,000 which essentially offsets the estimated 21 year end net debt. As mentioned, the updated 5 year plan and current strip pricing now delivers $1,800,000,000 of free cash flow in 'twenty two and $7,000,000,000 over the full 5 year duration of the plan. Looking in a little bit more detail at the growing free cash flow outlook and our Our consistent 2021 narrative has been that our top two priorities Our modest sustainable dividend increases and continued debt reduction to our long term debt target of 0.5 times debt to cash flow. So far in 'twenty one, we've used free cash flow for 2 dividend increases and we now expect to hit that long term debt target during Q4 of this year.
As we look out to 2022 and the full 5 year plan, the vast majority of the free cash flow will be returned to shareholders. We'll provide more detail on the mix of the return opportunities over the upcoming 2 to 3 months, including continued Sustainable based dividend increases, special dividends and share buybacks where appropriate. We see special dividends matching Well, the periods of elevated commodity prices and the excess free cash flow generated during those periods. Recall that our annual EP program generates 3% to 5% annual growth and the only significant facility project of size in the current 5 year plan is the Gundy Phase 2 expansion and it will actually be done by the end of this year. The balance of the program in the out years It's thus very capital efficient and will continue to generate significant free cash flow.
The next large facility project is the Conroy North Montney development, which we've matched up to the LNG Canada startup when we expect very strong Western Canadian gas pricing. That timeframe is 'twenty fivetwenty six. Hence, this project is not in the current 5 year plan. It could be as large as $800,000,000 per day. It will be a very strong utilization of free cash flow in the 'twenty six, 27 timeframe.
We also have an initiative to capture more margin in our liquids business and are currently evaluating strong return project To that end, in this new business segment, these projects will compete for a portion of the free cash flow in the 2024, 2025 timeframe. A brief marketing update. The average realized natural gas price in Q2 2021 was 3.25 per Mcf as we benefited from rising commodity prices, select hedging and our broad natural gas market The Accelerated Gundy Phase 2 expansion project is expected to be on stream in January 2022 so as to We made that acceleration decision a couple of months ago as we were ahead of schedule on the facility prebuilt. The PG and E California market continues to be very strong An average Q2 benchmark price of $4 per MMDtu U. S.
And strip pricing at July 23, 'twenty one of $5.48 per 1,000,000 BTUs for the remainder of 2021. NGL price realizations in Q2 2021 were up 130% over Q2 2020. We are Canada's largest NGL producer averaging 55,500 barrels per day during the Q2 and the NGL pricing outlook continues to improve. Briefly some comments on the EP program. We drilled 114 net wells in the first half and we expect to drill approximately 250 net wells for full year 2021, completing approximately 220 of these by the end of this year.
We are currently operating 12 drilling And we'll add an additional rig on the former Black Swan lands in September as originally planned. We expect to bring approximately 140 net wells on stream through the balance of this year. Improved drilling time and cost performance For D and C operations has largely offset modest inflationary cost pressures that we are all observing. Drilling times have been materially reduced in all three core complexes through the application of multiple evolving technologies that we continue to trial. Recent horizontals in the La Prez, BC Montney area are now being drilled to TD in 5 days.
Overall, the second half 21 EP Capital Program is being executed slightly ahead of schedule. Moving to our environmental performance Improvement initiatives, we intend to invest $20,000,000 to $40,000,000 per year in these initiatives, primarily in the areas of diesel displacement For EP Drilling and Completion Operations, Methane Emission Reduction and Ultimate Elimination Projects, Gas Plant Emission Reduction and associated waste heat recovery installation and our multiple water management projects. The majority of these environment related capital investments do indeed generate a modest positive return. We estimate that environmental Initiatives to date have reduced our annual emissions by approximately 250,000 tonnes per year so far, a meaningful accomplishment. We have now installed over 200 0 emission electric chemical injection pumps, providing an estimated GHG reduction of 40,000 tonnes of CO2 equivalent per year.
The first hybrid gas Tier 4 frac unit has been delivered And finally, the engineering design has been Technologies to be put in place during the next 2 to 5 years. We're not waiting for 2,050. And that's the end of the formal comments. So We've got several of us here to answer any questions shareholders might have.
Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Fei Li from Oldham Brown.
Hi, it's Fai here. Mike, I'm just wondering about this Gulf Coast LNG pathway. I just want to confirm if the Are the volumes moving on the TC Pipe Line Alberta Express AXP project? Is that how the volumes are going to the Gulf Coast?
Well, that is yes, but there is really 4 pipeline segments to get it there, all TransCanada operated if you go all the way back To the NGTL system.
Okay. And the total tolls
are $0.86
Right. And is there potential room for expanding those volumes that you've In the future or is it kind of what you kind of the agreement you've reached is kind of sort of the maximum
I think we've taken up all the available space in that pipeline system.
Okay. Yes, that's what I wanted to get. That's what it looked like. Okay, Great. And in terms of returning cash to shareholders with the free cash flow, In terms of share buybacks, I'm just wondering, I know you heard some more detail there, but do you have any initial spots on how you're going to handle share buybacks, if you have some criteria in mind or How about going to be handled relative to preference versus a special dividend?
Well, it will be in the mix of return to shareholder Opportunities, we just renewed our NCIB as you probably saw when we announced the closing of The Black Swan transaction.
Right. But do you have a Like, is there some criteria to say, okay, we'll do a share buyback under these conditions or are you just going to try and come up with some sort of mix between the 2?
Well, we're finalizing what the mix between all the various return opportunities are. I mean, obviously, and our Actions have demonstrated that we like sustainable base dividend increases and in Times and periods of significantly more free cash flow than model, we like the special dividend as well. Okay.
All right. Thank you.
Your Your next question comes from Sean Macpherson from Industrial Alliance.
Good morning, guys. Quick question.
Yes, we can't hear you very well.
Well, sorry about that. How about now?
That's a little better.
Okay. Earlier this month, you guys announced a focus on cutting costs With each dollar supposed to add like $190,000,000 in free cash flow, any idea How many dollars in costs you might be able to cut?
Well, I mean our goal internally is to Initially trying to shave a dollar off over the next or a dollar of improved margin over the next 12 to 18 months. So we're working away on it and we've actually made good headway already.
Awesome. Thank you.
Your next question comes from Josef Schlatter from Schlatter Energy Research.
Good morning, Mike. It's Joseph Schachter. Two questions for me. First one on the technology side. We're seeing more comments in the states about intelligent fracking systems.
Are you using that in Canada? And are you finding that the well productivity using these new frac and is the DGB Unit capable of doing that, the new unit that's coming on, as you mentioned, in the next short while?
That technology specifically is not something we're trialing right now, but we're always evolving and improving Our frac technology and performance and simultaneously trying to deliver better well performance for less dollars. So it's never complete. It's always improving.
Okay. So real time fracturing is not really something that's Really shown up that much yet in terms of improvement in the well performance?
Yes, that specific technology we're not using, but I mean we are certainly using real time frac technology as we stimulate these wells.
Okay, super. Second question for me on the M and A side. Is there much more available in your 2 core areas that you're looking at? And or do you have really the footprint you want? And the additional part then is, are you looking to build a 3rd core area and would that be again in Natural gas and NGLs or would you be looking at a core area in let's say conventional of the oil business?
We've largely acquired the targets that we wanted in the Alberta Deep Basin and the BC Montney which are our 2 Large gas complexes, it doesn't preclude us from doing small and I mean small Both on asset transactions within either of those areas, but we have nothing close on that front anyway. We have a 3rd core area and that's our Peace River High, Chardy Lake Montney and it's about 60% oil, 40% gas and it Generates this year about $100,000,000 of free cash flow on a $70,000,000 capital investment. So we really like that area even though it's significantly smaller Then our 2 large gas complexes and as far as establishing a 4th core area, we have So much inventory, so many projects and so much production in the 3 complexes we have already that we have decades of Drilling and EP Development to put in place. And so I think we're very happy with what we have Under Tourmaline supervision right now.
Your next question comes from Dan Lloyd from Forge First.
Good morning, guys. Hi. Just curious if you can give some color or maybe the Tourmaline perspective on the BC Government Blueberry River First Nation judgment and then kind of a follow-up, I guess, if you could maybe speak to ideally the strength of your relationship with The Blueberry River First Nation?
We've been working in that North Montney area In and around the BRFN for over 5 years and I think we've established a good Working relationship and we continue at our full operational pace in that sub area within our overall BC Montney complex. And then all I would say on the government Was that I believe they chose not to appeal the BC Supreme Court decision and I think that ruling came out yesterday.
There are no further questions at this time. Please proceed.
Thanks everyone for dialing in. We'll talk to you next quarter.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.