TORC Oil & Gas Ltd. Announces First Quarter 2014 Financial & Operational Results, Expanded Three Forks/Torquay Budget and Increase to 2014 Guidance

CALGARY, May 14, 2014 /CNW/ - TORC Oil & Gas Ltd. ("TORC" or the "Company") (TSX: TOG) is pleased to announce its financial and operating results for the three month period ended March 31, 2014.  The associated Management's Discussion and Analysis ("MD&A") and unaudited interim financial statements as at and for the quarter ended March 31, 2014 can be found at www.sedar.com and www.torcoil.com.

PRESIDENT'S MESSAGE

TORC has consistently focused on building a sustainable growth platform and the first quarter of 2014 represented the start of another exciting year for TORC on the execution of this disciplined strategy.  TORC continued strong operational momentum in the first quarter of 2014, with a very active and successful drilling program in both the Cardium and in southeast Saskatchewan. 

The Company's key achievements in the first quarter of 2014 included the following:

• Achieved record quarterly production of 10,529 boepd in the first quarter of 2014, up from 10,166 in the fourth quarter of 2013 and 4,240 boepd in the first quarter of 2013;
  
  
• Generated cash flow of $47.2 million, up from $40.8 million in the fourth quarter of 2013 and $15.3 million in the first quarter of 2013;
  
  
• Cash flow per share increased to $0.52 per share in the first quarter of 2014 as compared to $0.45 in the fourth quarter of 2013 and $0.40 per share in the first quarter of 2013;
  
  
• Drilled 13 (8.5 net) wells in the first quarter of 2014 with 100% success;
  
  
• At quarter end, the Company was drawn $95 million on an available $350 million credit facility, with net debt of approximately $145 million;
  
  
• Net debt to annualized first quarter cash flow was less than 0.8 times;
  
  
• Paid dividends of $0.135 per share to shareholders in the first quarter of 2014;
  
  
• Subsequent to the end of the first quarter, entered into multiple on strategy asset acquisitions in TORC's core Cardium and southeast Saskatchewan areas adding high netback production, high quality development drilling locations and adding reserves, production and cash flow per share without straining the Company's balance sheet;
  
  
• Pro forma the subsequent acquisitions, TORC estimates net debt to be approximately $200 million;
  
  
• Subsequent to quarter end, the Company's bank facility was increased to $375 million;
  
  
• Subsequent to quarter end, the Company expanded its 2014 capital allocation to the emerging Three Forks/Torquay light oil resource play in southeast Saskatchewan; and
  
  
• With continued operational outperformance and subsequent tuck-in acquisition activity, the Company is pleased to increase its 2014 average production forecast to more than 11,000 boepd (~85% light oil and liquids) from the previous 10,300 boepd estimate and 2014 exit production forecast to more than 11,300 boepd (~85% light oil and liquids) from the previous guidance of 10,550 boepd.

OPERATIONAL UPDATE

TORC's first quarter production averaged 10,529 boepd, achieving a record production level for the Company and continuing the trend of consecutive quarterly production growth since TORC went public in 2012.  Strong well performance from new wells drilled and existing low decline production across all of TORC's core areas contributed to this solid production achievement.

TORC spent $38 million on capital activities in the first quarter including drilling 13 (8.5 net) wells with 100% success.

CARDIUM

In the first quarter, TORC drilled 9 (6.5 net) Cardium development wells achieving a 100% success rate.  With a very active first quarter program, TORC realized cost efficiencies through the continuous nature of the development program.  In addition, TORC continues to evolve its completion methodology with the goal of improving frac coverage and ultimately achieving improved production profiles.  Specifically, TORC completed the majority of the first quarter Cardium program using slick water fracs with 25 stage intervals, placing 20 tons of sand per interval from our previous completion technique of 20 intervals by 25 tons per interval. TORC believes this revised completion method will result in better frac coverage and ultimately superior long term production performance of the wells.

TORC's budget in the Cardium for 2014 includes the drilling of 29 gross (17.9 net) wells across the Company's land position.  The Company has identified more than 275 net undrilled locations on over 90 net light oil development sections.  The 2014 budget of 17.9 net wells represents less than 10% of this high quality development inventory.

MONARCH

TORC has identified an area in the heart of the Monarch play which is expected to be the focus of the Company's development efforts.  TORC plans to drill three development wells focused on the initial 20 net section development area in 2014 with the first well to be spud in May.

In the fourth quarter of 2013, TORC drilled and completed a delineation well (4-20) located approximately three miles northwest of TORC's 16-2 discovery well.  Also in the fourth quarter of 2013, TORC drilled its first development well (14-1) directly offsetting the Company's 16-2 discovery well.  The 14-1 well was completed and brought on production in the first quarter of 2014.  Both the 4-20 step out well and the 14-1 development well were completed with increased frac intervals and increased tonnage relative to earlier completions.  The 4-20 step out well has now been on production for greater than 90 days with an IP 90 production rate of 427 bbls per day of light oil.  Total production over this 90 day period was 38,400 bbls of oil, 22 percent greater than the 16-2 discovery well over the same time period.  The 14-1 well has also demonstrated encouraging initial production rates in excess of the 16-2 discovery well since being brought on production at the end of the first quarter.

The goal of the 2014 capital program is to demonstrate repeatability and continued optimization in this initial 20 net section development area.  TORC estimates that the initial development focus area contains more than 75 net potential development locations.  In aggregate, TORC has exposure to over 150 net sections of land at Monarch.  The initial development area represents less than 15% of TORC's landholdings in the area.

SOUTHEAST SASKATCHEWAN

TORC drilled 4 (2.0 net) southeast Saskatchewan wells in the first quarter of 2014 with a 100% success rate.

In 2014, TORC's budget includes the drilling of approximately 14 net conventional wells in southeast Saskatchewan. This represents approximately 10% of the Company's currently identified conventional development drilling inventory of over 150 net locations. These wells are characterized by their lower risk nature and high rates of return driven by their lower capital costs, high netbacks and the favorable royalty regime in Saskatchewan.

Activity in the Three Forks/Torquay geological zone continued to increase significantly in southeast Saskatchewan during the first quarter of 2014 including drilling and land acquisition activity adjacent to TORC's acreage.  TORC drilled an exploration well (0.5 net) into the Three Forks /Torquay play in the fourth quarter of 2013.  The well was placed on production at the end of December and produced intermittently in the first quarter of 2014 with an IP 90 production rate of 101 bbls of oil per day.  Based on initial results combined with encouraging competitor results, TORC has elected to expand its capital program in this emerging light oil resource play in 2014 to continue to derisk the Company's land position.  TORC is budgeting to drill 3.5 net delineation wells across its 70 net sections of prospective acreage during the remainder of 2014.

ACQUISITIONS

Subsequent to the end of the first quarter of 2014, TORC entered into multiple on strategy tuck-in asset acquisitions in the Company's core Cardium areas and in its conventional light oil properties in southeast Saskatchewan.  These acquisitions represent both increases in working interests and acquisitions of properties adjacent to the Company's current operations resulting in increased efficiencies.  On a combined basis, TORC acquired production greater than 800 boepd (75% light oil and liquids) and proven plus probable reserves of over 4 mmboe (internally estimated by a qualified reserves engineer in accordance with NI 51-101 and the COGE Handbook) for a total combined purchase price of approximately $70 million translating into metrics of $87,500 per boepd, $17.50 on a proven plus probable basis, less than 5 times cash flow and a recycle ratio greater than 2.4 times assuming C$90 Edmonton light oil pricing.  As the Company is not increasing its core capital expenditure program in 2014, TORC is currently budgeting over $7 million of free cash flow from the acquired assets for the remainder of the year.  The asset acquisitions are all being funded through existing credit facilities and the Company currently estimates pro forma net debt to be approximately $200 million.

REVISED BUDGET

With stronger than forecast production volumes and higher than forecast commodity prices, TORC's free cash flow has exceeded our initial budget.  This additional free cash flow has permitted TORC to increase our 2014 capital expenditures above the $125 million core capital budget.  Specifically, the Company will continue to further advance the emerging Three Forks/Torquay light oil resource play in southeast Saskatchewan by increasing our capital budget by $10 million of delineation capital in 2014.  These delineation wells will be exploratory in nature, focused on the continued de-risking of this light oil resource play.  Due to the exploratory nature of this program, TORC has not budgeted for any production volumes associated with the additional delineation capital.

The capital budget increase for 2014 and the core operating area tuck-in acquisitions will be accomplished without raising equity or stressing the Company's balance sheet with pro forma debt to run rate cash flow of approximately one times.

INCREASED PRODUCTION GUIDANCE

With continued outperformance in all operating areas along with the on strategy tuck-in acquisitions, TORC is increasing its 2014 average production forecast to more than 11,000 boepd (~85% light oil and liquids) from the previous 10,300 boepd estimate and 2014 exit production forecast to more than 11,300 boepd (~85% light oil and liquids) from the previous 10,550 boepd estimate.  This production increase represents a 7% production per share increase over TORC's previous exit guidance while maintaining a corporate production decline profile of 25%.

DIVIDENDS

TORC paid dividends totaling $0.135 per share in the first quarter of 2014. The Board of Directors has confirmed a dividend of $0.045 per common share to be paid on June 16, 2014 to common shareholders of record on May 31, 2014.

TORC's shareholders may receive dividend payments in the form of cash or may elect to receive dividend payments in the form of common shares through the Company's Stock Dividend Plan ("SDP").  Participation in the SDP is optional.  Shareholders, wherever resident, are encouraged to consult their own tax advisors regarding the tax consequences to them of receiving cash or stock dividends.

During the first quarter of 2014 TORC paid dividends of $12.4 million, of which $4.0 million was issued under the SDP.

OUTLOOK

TORC has built a sustainable growth platform of light oil focused assets. The stability of the high quality, low decline, light oil assets in southeast Saskatchewan, combined with the low risk Cardium development inventory in central Alberta and exposure to the emerging light oil resource play at Monarch in southern Alberta and to the Three Forks/Torquay play in southeast Saskatchewan, positions TORC for value creation through a disciplined growth strategy and a sustainable dividend.

Based on average production of 11,000 boepd, C$90 Edmonton light oil and C$4.00 per mcf AECO pricing, 2014 cash flow is now estimated at approximately $180 million.  With a $125 million core development capital program, a $10 million delineation capital program plus a $38 million cash dividend, TORC's cash requirement to achieve its production forecast plus fund its dividend is approximately $173 million in 2014.

At current commodity prices and pro forma production, run rate cash flow is in excess of $200 million.  With current net debt pro forma the subsequent acquisitions of approximately $200 million on a bank line of $375 million, TORC maintains significant financial flexibility and a debt to cash flow ratio of approximately one times.

To provide additional certainty around its guidance, TORC has undertaken an active commodity hedging program to further protect our core capital spending requirements and dividend policy and currently has an average of 4,500 boepd hedged for the remainder of 2014.

TORC has the following key operational and financial attributes:

TORC Oil & Gas Ltd. is a Calgary based company active in the acquisition, exploration, development and production of crude oil and natural gas in Western Canada.

SOURCE TORC Oil & Gas Ltd.

Brett Herman
President and Chief Executive Officer
TORC Oil & Gas Ltd.
Telephone: (403) 930-4120
Facsimile: (403) 930-4159

Jason J. Zabinsky
Vice President, Finance and Chief Financial Officer
TORC Oil & Gas Ltd.
Telephone: (403) 930-4120
Facsimile: (403) 930-4159