Good morning, ladies and gentlemen, and welcome to the Tourmaline Oil Corporation's Q3 2026 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 an Operator. This call is being recorded on Thursday, November 5, 2026. 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 financial and operating results as at September 30, 2026, and the three and nine months ended September 30, 2026 and 2025. My name is Scott Kirker, and I am the Chief Legal Officer here at Tourmaline Oil. 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 am here with Mike Rose, Tourmaline's President, Chief Executive Officer, and Jamie Heard, Tourmaline's Chief Financial Officer. We will start with Mike speaking to some of the highlights of the last quarter and year so far, and after his remarks, we will be open for questions. Go ahead, Mike.
Thanks, Scott, and welcome everybody, and thanks for dialing in. Pleased to go through Tourmaline's third quarter results and answer questions. Some of the highlights, the company has commenced the planned Q4 production ramp-up. Current production is averaging 630,000-635,000 boe/d, and with that, we will grow towards an increased 2026 exit volume of approximately 670,000 boe/d. The Aitken c-38-C deep cut processing gas facility expansion has been completed on schedule, and startup operations for the new facility are underway, and we expect to be moving sales gas in the second half of the month. This is the first major new facility in the multi-year Northeast BC infrastructure build-out to be completed.
Company is planning a CAD 2.6 billion 2027 E&P capital spending program, which at current strip pricing generates free cash flow of CAD 1.8 billion in 2027, and that is actually up 71% from where free cash flow expectations were in July of this year. Strong Q3 2026 net earnings of CAD 641.5 million, and in our continuing effort to crystallize unrealized shareholder value, we have formed Emerald Energy Technologies to surface significant value from the company's multi-year environmental performance improvement, or EPI, investments that we have been making for close to a decade. Looking at production, Q3 2026 average production was 593,700 boe/d, which was slightly below the guidance range of 595,000-605,000, and that was by choice due to deferrals and storage injections undertaken to allow more production to reach stronger pricing in Q4 of this year and Q1 2027.
The company increased our frack activity in August and September, but chose not to bring the majority of these wells on production until actually this quarter, which will be stronger pricing than Q3. A total of approximately 80 new wells are expected to be brought on production during this quarter. Looking at financial results and budget, Q3 2026 cash flow was CAD 788 million, or CAD 2.02 per fully diluted share, which was at expectation. Net debt as of September 30th was CAD 1.54 billion, and that is below our long-term net debt target of CAD 1.75 billion. Third quarter OpEx was a little ahead of target or better at CAD 4.48 per boe, and that is down 7% from Q3 of 2025 and 2% from the previous quarter. Moving to marketing, our average realized natural gas price in Q3 was CAD 3.41 per MCF Canadian.
That is significantly above the AECO 5A benchmark price, which was a weak CAD 1.59 per MCF Canadian. We have an average of 887 million cubic feet per day of natural gas hedged for the remainder of this year at a weighted average fixed price of CAD 5.07 per MCF Canadian. We have 105 million a day floating with premium TTF and JKM markets for the balance of this year, and that grows to 137 million cubic feet per day in 2027. As many of you probably have noticed, JKM is currently trading at CAD 46.50 per MCF Canadian, sorry, for the balance of this year and a little under CAD 37 for 2027. TTF is also extremely strong, and winter in Europe is starting out cold or below normal, which will probably increase TTF further, but we will see.
In our Western U.S. markets, we have 173 million cubic feet per day hedged at a weighted average price of CAD 6.19 per MCF Canadian for the balance of this year, and around the same volume, 176 million cubic feet per day, at a price of CAD 5.54 in 2027. On shareholder returns, we will continue to pursue the full range of shareholder returns that complement the growth of the business, which is provided primarily by the Northeast BC Montney infrastructure build-out, which is well underway. Part of that, as announced on September 22nd of this year, we increased the quarterly base dividend by 5%. We will utilize the majority of the proceeds from the Topaz Energy secondary share offering to repurchase more Tourmaline shares, which we view as undervalued.
We already purchased 1.3 million Tourmaline shares between September 23rd and October 9th, when we entered our pre-Q3 blackout, at an average price of CAD 61.88 per share. Additional share repurchases will be made during this quarter. Emerald, in the continuing effort to crystallize unrealized shareholder value, Tourmaline has formed Emerald. It is a clean technology business which will have three initial principal business segments: power generation and transmission, compressed natural gas, or CNG, and related low-emission fuels, and innovative resource technologies, including CCUS and water management. All of these businesses have been grown and de-risked within Tourmaline over the past several years. Emerald intends to pursue a private equity financing, which will in part fund Emerald's purchase of Tourmaline's water recycling facilities, our interest in the existing CNG fueling network, and power assets that are already in the Tourmaline portfolio, and that will be in 2027.
In addition, Tourmaline Oil, Emerald, and Stream Data Centers are working exclusively on our Malachite One powered land solution and data center campus. Extensive public consultation and engagement continues, and data center site preparation is anticipated to commence later in this quarter. Emerald will be a unique offering in the space and is expected to generate significant revenue and cash flow from the assets being acquired from Tourmaline Oil initially, and to have sufficient size to pursue select consolidation opportunities in all of the business segments. On the E&P front, very strong new well performance in both gas complexes has continued in 2026. The Northeast BC Montney well performance is up 17% in total wellhead production and 22% in raw gas production thus far in 2026 over the previous five-year average, and that is based on 47 wells that have reached IP90s. We only use IP90s in this data analysis.
Alberta Deep Basin similarly is up 7% in total wellhead production in 2026 over the previous five-year average. This outperformance across both complexes is driving the Q4 production ramp and increased exit volume. As mentioned, a big highlight, the Aitken c-38-C deep cut processing facility is done, and as mentioned, startup operations are underway. Also, the new Groundbirch-Monias deep cut plant remains right on schedule for a Q4 2027 startup, and we are working on that already. I think that is it for prepared comments, and we are here to answer your questions.
Thank you so much. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to remove your hand from the queue, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Just a moment for your first question. Your first question comes from Patrick O'Rourke with ATB Capital Markets. Please go ahead.
Hey, guys, and thank you for the update this morning. I guess my first question is just with respect to the Malachite project. You talked to beginning to clear the site in the fourth quarter here. In terms of sort of regulatory hurdles and milestones to sort of full construction and bringing the project online, where do you sit on that, and what does the timeframe overall look like for this project?
I'll start, and Jamie might want to jump in. The power gen piece we currently expect to occur in two phases. A smaller rental-based power startup, which will start consuming Tourmaline gas and generating electricity early in 2028. Following that, we'll install the larger generators and ramp to the full gigawatt by the 2029, realistically, timeframe.
In terms of permits and approvals, we continue to progress them on all fronts, and we're in good shape to be standing up power on this land in the back half of next year and definitely generating a lot of power in 2028.
Okay, great. To the extent that you are forecasting free cash or incremental free cash flow in 2027, I know that it's been a policy to wait until it shows up in the bank before returning it to investors. Thinking about any sort of incremental value extraction to Tourmaline through Emerald, how do you think about the allocation of that free cash flow back to the shareholders today, given the options of special dividends and now being a little bit more active or being active on the NCIB?
Yeah, thanks, Patrick. You're right. We will look to see this free cash flow hit our accounts and then look to allocate it, and we'll make those allocation decisions over time. As we see the market today, I think we favor the NCIB, and we already have a running start with the proceeds from our secondary offering. We'll be planning to repurchase more shares here in the month of November and into December. We do see incremental and growing free cash flow in the fourth quarter and a lot in the first quarter. Will be very interesting to see how this winter shapes up in Europe. We have a lot of exposure and sensitivity to TTF prices in these markets. It could be a large free cash flow event for us this specific winter, which would open up other opportunities for cash flow returns to shareholders.
Okay. Thank you very much.
Your next question comes from Jack Cavanagh with Goldman Sachs. Please go ahead.
Yeah, good morning, team. Thanks for taking my question. Just kind of wanted to ask on Emerald, what made now the right time to spin out this business, seeing as you've been funding it and de-risking it within Tourmaline for the last seven years? And then also just kind of what growth tailwinds are you seeing for the business, and how would that accrue back to Tourmaline shareholders?
Yeah, you bet. We've been kind of nurturing several business lines within Tourmaline in parallel to kind of our core E&P business for almost a decade. They're now at the size and scale that we can bring this whole portfolio to market, where it will be better appreciated and get its differentiated cost of capital. It's kind of time. We've been planning it, actually, for a very long time. And there'll be very strong cash flow from those base businesses right out of the chute, which is a bit unusual for companies in this space. And then, at this point, the data center power gen piece is left as upside for Emerald, but Emerald will be really a key part of the strategy for Tourmaline to realize the value uplift from participating in the data center power build-out without direct project capital investment.
The capital will accrue to Emerald, as will the upside and the cash flow, which is very significant on the power gen side. That drives the timing because the whole data center power piece is moving very quickly up here and accelerating.
Got it. I appreciate that. Just on the increased 2027 free cash flow estimate, just wondering if you could kind of bridge that between improved commodity price assumptions, the mega deduction impacts, and other factors at play.
It would be about two-thirds to three-quarters commodity price improvement, and then we are assuming the mega deduction takes place in 2027. Today, that would be quantified in the CAD 200 million-CAD 300 million range for 2027. Happy to go offline with you on modeling impacts 2028 there forward. We are steadily also locking in this commodity price uplift with hedging. I think you will see increased hedging levels for TTF and JKM. We still have a CAD 50 million per dollar sensitivity on those international prices, but increasingly over time this winter, we are going to look to solidify this big win in this winter and then return it back to shareholders.
Got it. Makes a lot of sense. Thanks, guys.
Thanks.
As a reminder, if you would like to ask a question, please press star one. Your next question comes from Nathan Ritchie with Schachter Energy Report. Please go ahead.
Hi, guys. You have been doing a great job, obviously, of managing this pricing environment, whether it is through storage or DUCs or marketing into other stronger markets. When it comes to production, how much tolerance do you have there to potentially increase or decrease as forecasts change, either positively or negatively, for the natural gas price?
We do not plan to take it much above where the current budget is. What we have unfortunately gotten used to over the last four years is taking it down when local AECO Station two prices are weak. We know our breakevens. I mean, the Deep Basin is around CAD 2, and BC Montney is around CAD 1.40. We will continue to look hard at where those prices are and how they unfold during 2027. We also have maintained a pause between Montney build-out phase I and phase II in the plan. In 2028, we are not building facilities, and it will allow more free cash flow to accrue really for shareholder returns in that timeframe.
Nathan, you did mention storage, and this is an area where Tourmaline Oil is expanding its efforts. Today, we have 10 billion cubic feet of storage, and next year, we will expand that to 14 billion cubic feet, the majority of that now residing in the province of Alberta. That gives us the opportunity to sell less gas in the markets if there is an outage or curtailment. Then when winter does arrive and we get those nice cold winter storms that firm up local prices, we will be able to sell back into that market. You are going to see Tourmaline Oil's seasonality shape increase in the years ahead.
In fact, this fourth quarter versus third quarter production shape will be the most dramatic Tourmaline production swing in our corporate history, as we bring on not only stored gas, but all of the drilled and complete wells and activity that we had been nurturing along this summer, but not bringing to market. Selling in the winter is going to be a cash flow benefit for Tourmaline, and between storage and activity, you're going to see us manage both of those levers.
Yeah. Yeah, great answers. Thanks, guys.
Thank you.
There are no further questions at this time. I would like to turn the call back over to Mr. Scott Kirker. Oh, a question has just come in. Pardon me. Your next question comes from Fai Lee with Odlum Brown. Please go ahead.
Sorry, I thought I-
Your line is open.
Just wondering how you are coming to that conclusion. The share price has been at this level for a little while, and not disagreeing with that, but just wondering how you kind of are looking at that in terms of doing the share buyback now.
Yeah, Fai, thanks for your question. This is something that I think we have been working on through much of this year and talking to shareholders over the last several years. Tourmaline Oil's share price has traded in a range of similar prices for the last several years, and yet we have been installing and improving our asset base in BC, and generally making our cost structure better and making our business better. Also around us, the value of resources improving, and so we also are aware that the value of the resources we own in BC are improving. This year especially, we have seen a very, very constructive market backdrop improve, where we are anticipating additional LNG, oil sands development that is going to consume natural gas, and data center development. Now we have two data centers FID'd. Our own, we hope to FID later in 2027.
With all this demand on the come, it feels to us that our shares should be worth more in short order in the next two to three years here. We think the gas market is wearing this El Niño winter, which is a bit of a wall of worry the whole market has to climb in the months ahead. We have been given an opportunity here with our secondary offering, and now the big, big win TTF and JKM prices have offered to acquire shares at what we believe is well below fair value through the next several quarters. Then we are going to have those compounding benefits as the value of the resource we own and the business that we have been nurturing along and then installing with the infrastructure over top of our BC asset base is going to shine through in 2028 and 2029.
Okay. No, great. That is really helpful. Just a follow-up on the JKM hedging. We have seen a lot of volatility with whether people think the war is going to end in Iran or not, and the price has been bouncing around. I am just wondering, is there anything stopping you from completely hedging out your JKM at this point, or do you want to just keep some exposure? I am just wondering about the hedging aspect of JKM.
Yeah, more the latter, Fai. You should always keep some exposure, and we never hedge 100% in any of our markets in the diversification portfolio.
Okay. But there are no limits if you wanted to change your mind, you could do it today. Is that right?
Yeah. Correct.
Okay. Thank you.
Excellent. There are no further questions at this time. I would like to turn the call back over to Mr. Scott Kirker.
Thanks, Marissa. Thanks, everybody, for listening in, and we'll look forward to speaking with you via the next quarter.
We thank you so much for your participation. You may now disconnect.