Tourmaline Oil (TSE:TOU) reported second-quarter cash flow of C$786 million and free cash flow of C$192 million, while outlining a one-year pause between the first and second phases of its northeastern British Columbia infrastructure build-out.
President and Chief Executive Officer Mike Rose said the company’s decision to pause growth spending between the phases is intended to allow Tourmaline and its shareholders to capture the operational and free-cash-flow benefits of phase one before proceeding with phase two. The company will continue planning the second phase but does not expect significant capital commitments or orders for long-lead equipment until mid-2027.
Production and capital plans
Second-quarter average production was 594,000 barrels of oil equivalent per day, slightly below Tourmaline’s guidance range of 595,000 to 605,000 BOE per day. Rose said the lower output was intentional, reflecting increased natural gas storage injections, activity deferrals amid low natural gas prices, and price-related shut-ins.
Storage injections at Dimsdale, Alberta; Dawn, Ontario; and Wild Goose, California averaged 8,900 BOE per day during the quarter. Tourmaline expects to withdraw most of those volumes during the fourth quarter, with some potentially carried into the first quarter of 2027.
The company maintained its full-year production forecast of 620,000 to 640,000 BOE per day and continues to target an exit rate of 660,000 BOE per day in 2026. Tourmaline had 67 wells ready for hydraulic fracturing and another 21 wells ready to be brought online after deferring activity from the second quarter.
Tourmaline maintained its 2026 E&P capital budget of C$2.55 billion, following a C$350 million reduction announced in March. At current strip pricing, the company estimates 2026 free cash flow of C$880 million.
Infrastructure, costs and well performance
Rose said the first phase of the northeastern B.C. infrastructure project remains on schedule and on budget. Five of six regional connector pipelines have been completed, while the Aitken plant expansion is expected to begin operating in the fourth quarter. The company also cited progress on the Highway condensate hub, Birch facility and South Montney electrification project.
Across both phases, the project is expected to add 1.1 billion cubic feet per day of natural gas capacity and more than 50,000 barrels per day of condensate and natural gas liquids capacity. Once completed, the project is expected to generate more than C$400 million of structural annual cash flow compared with the cost structure in the first half of 2025, according to Rose.
Second-quarter operating expenses were C$4.59 per BOE, down 10% from the year-earlier period and 3% from the first quarter. Tourmaline expects full-year operating costs of C$4.50 to C$4.60 per BOE and retained its target of reducing combined operating and transportation costs by C$1.50 per BOE by 2031 relative to first-half 2025 levels.
The company said well performance continued to exceed historical averages. First-half performance in the Northeast B.C. Montney complex was 28% above the preceding five-year average, based on 25 wells reaching 90-day initial production. Alberta Deep Basin performance was 14% above its prior five-year average, based on 30 wells.
Marketing and acquisitions
Tourmaline’s average realized natural gas price was C$3.12 per thousand cubic feet in the second quarter. Rose said the company continues to benefit from a diversified marketing portfolio, hedging program and contracts tied to international LNG pricing.
The company has entered a long-term agreement with AltaGas to increase propane and butane exports through the Ridley Island Energy Export Facility, or REEF. The agreement is expected to increase Tourmaline’s exposure to premium LPG export markets by about 55%.
The additional LPG volumes will be supplied through a planned rail-loading terminal adjacent to Tourmaline’s Groundbirch-Monias deep-cut plant. Rose said the facility is intended to improve margins by enabling direct rail shipments to the West Coast.
During the quarter, Tourmaline acquired Aduro Resources in the South Montney complex for total consideration of C$100 million, including C$50 million in cash, assumed net debt and about 1.5 million Topaz Energy Corp. common shares. The acquisition added 174 net Tier 1 Montney locations adjacent to the Groundbirch-Monias plant under construction.
The company also sold gross overriding royalty interests on the acquired Aduro lands and certain Alberta Deep Basin lands to Topaz for C$38.7 million in cash proceeds.
Leadership transition and shareholder returns
Chief Financial Officer Brian Robinson will retire from the CFO role effective Nov. 1, while remaining on Tourmaline’s board of directors. Jamie Heard, currently vice president of capital markets, will succeed Robinson as CFO.
Tourmaline’s net debt stood at C$1.5 billion as of June 30, below its long-term debt target of C$1.75 billion. Rose said the company would prioritize a base-dividend increase when it has sufficient sustained free cash flow to support one, while continuing to evaluate the full range of shareholder-return alternatives.
The board intends to declare a quarterly dividend of C$0.50 per share in early September, payable Sept. 29 to shareholders of record as of Sept. 15.
About Tourmaline Oil (TSE:TOU)
Tourmaline is Canada’s largest and most active natural gas producer dedicated to producing the lowest-development-cost natural gas in North America. We are an investment grade exploration and production company providing strong and predictable operating and financial performance through the development of our three core areas in the Western Canadian Sedimentary Basin. With our existing large reserve base, decades-long drilling inventory, relentless focus on execution, cost management, safety and environmental performance improvement, we are excited to provide shareholders an excellent return on capital and an attractive source of income through our base dividend and surplus free cash flow distribution strategies.
