Tourmaline Oil Corp. Announces Record Year End 2012 Financial Results

Tourmaline Oil Corp. Announces Record Year End 2012 Financial Results 
CALGARY, ALBERTA -- (Marketwire) -- 03/19/13 -- Tourmaline Oil Corp.
(TSX:TOU) ("Tourmaline" or the "Company") achieved exceptional growth
in reserves (69%), production (64%) and cash flow(1) (16%) in 2012
while delivering strong profitability in a year of significantly
lower natural gas prices. The Company posted strong after-tax
earnings of $15.5 million for the 2012 fiscal year. 
Highlights 


 
--  2012 average production of 50,804 boepd represented a 64% increase over
    the 2011 average production of 31,007 boepd. 
--  Total proved plus probable (2P) reserve additions of 186.6 mmboe in
    2012, representing 69% growth over 2011 total 2P reserves before 2012
    production (54% per share). Similarly, proved reserves grew by 80% in
    2012 over 2011 (63% per share). 
--  After-tax earnings of $15.5 million in 2012 despite an average realized
    natural gas price in 2012 of $2.67/mcf. 
--  Record annual cash flow of $280.3 million representing 16% growth over
    2011 cash flow of $241.4 million. 
--  2012 operating expenses of $4.43/boe - a 21% decrease over 2011
    operating expenses of $5.58/boe. Fourth quarter 2012 operating expenses
    were $4.10/boe. 
--  Completed a $233.2 million equity financing on March 12, 2013. 
--  Completed the sale of the non-producing Elmworth property on March 12,
    2013, for net proceeds of $77.5 million. 
--  Year-end 2012 2P reserve value of $4.3 billion (10% discount, before
    tax), representing 61% growth over year-end 2011 2P reserve value,
    despite a difficult gas price environment during the year and lower
    overall natural gas prices utilized in the 2012 independent reserve
    report. (Net Present Value increase in 2012 of $1.65 billion.) 
--  2012 2P finding, development and acquisition costs (FD&A) of $10.35/boe
    including future development capital (FDC) and $5.80/boe excluding FDC -
    down from $13.34/boe in 2011 (including changes in FDC). 2012 total
    Proved FD&A costs were $14.06/boe (including FDC), down from $19.71/boe
    in 2011. 
--  Total year-end 2012 2P reserves of 438 mmboe after only four full years
    of operation. 
--  Drilled 76 gross wells in 2012, with a 100% success rate. 
 
(1) Cash flow is define
d as cash provided by operations before changes in   
    non-cash operating working capital. See "Non-GAAP Financial Measures" in
    the attached Management's Discussion and Analysis.                      

 
Production Update  
Full year 2013 average production guidance was increased from 75,000
boepd to 80,000 boepd, on February 20, 2013. This will represent 57%
growth over 2012 average production of 50,804 boepd. The Company
expects to reach the 80,000 boepd level in early June when the new
Doe gas plant is currently scheduled for start-up.  
The new gas processing facility at Doe BC will bring approximately
10,000 - 11,000 boepd of shut-in Triassic Montney production
on-stream. The gas handling facility expansion at Spirit River
Alberta will bring approximately 2,000 boepd of currently shut-in
Charlie Lake light oil and gas production on-stream in June. An
additional 2,500-3,000 boepd of shut-in Charlie Lake production will
come on-stream in late September through ongoing complementary
pipeline/debottlenecking projects.  
EP Update  
The Company plans to continue operating 11 drilling rigs after
break-up, with 2 rigs in NEBC pursuing the Triassic Montney, 2 at
Spirit River pursuing the light oil charged Triassic Charlie Lake
formation, and 7 in the Alberta Deep Basin pursuing Lower Cretaceous
horizontal, liquid rich gas targets.  
A total of 70 Deep Basin wells (60 horizontal and 10 vertical), 25
NEBC Montney horizontals and 25 Charlie Lake horizontals are expected
for full year 2013.  
Major 2013 facility projects include the ongoing Q2 gas facility
projects at Doe BC and Spirit River Alberta and two, 50 mmcfpd gas
facility expansions in the Alberta Deep Basin during the second half
of 2013. Full year 2013 EP capital spending of $740.0 million is
anticipated. 
Liquids Production, Marketing and Transportation   
Tourmaline is targeting the 15,000 bpd total liquid production level
in Q4 2013, 70% of which is condensate and light oil. 
In March of 2013, Tourmaline entered into certain short-and-long-term
contracts to ensure stability of market price and access for the
Company's significant hydrocarbon liquids assets. These agreements
include a 130 mmcfpd deep cut gas processing arrangement commencing
in 2015, an associated liquids transportation agreement and a 9,000
bopd NGL product fractionation sale agreement.   
The Company has a series of additional initiatives in place to manage
the capture, transportation, storage, fractionation and the marketing
of these liquids, both in the short and long-term.  
In addition to participation in a third party deep cut plant, the
Company is planning at least one owned-and-operated deep cut facility
in the 2015 time frame. 
Financial Update  
Tourmaline is currently expecting 2013 cash flow of approximately
$651.8 million based on production of 80,000 boepd and an AECO
natural gas price of $3.66/mcf, representing 133% growth over 2012
cash flow.  
Year-end 2012 net debt(2) was $464.3 million. During the first
quarter of 2013 a $233.2 million equity financing closed on March 12,
and the planned Elmworth disposition was completed. Net proceeds from
the Elmworth disposition were $77.5 million; in addition $155 million
of future capital will be removed from the 2P FDC account. Based on
the $740.0 million capital program, the net proceeds from the equity
financing and property disposition completed in March and the
Company's anticipated 2013 cash flow described above, the Company is
forecasting 2013 exit net debt of $309.4 million, as the Company
continues to strive to maintain a debt to cash flow ratio of 1.0
times or less.  
Tourmaline's unit cash cost(3) structure continued to improve during
2012 as full-year 2012 royalties fell to $1.63/boe - a 22%
improvement; transportation costs fell to $1.87/boe - a 10%
improvement; operating expenses were $4.43/boe - a 21% reduction;
general and administrative costs dropped by 23% to $0.79/boe; and
interest and financing charges increased to $0.70/boe - a change of
27%.  
Tourmaline's total unit cash costs of $9.42/boe dropped by 17%
compared to 2011, providing amongst the lowest absolute cost
structures in the industry. Similarly, Depletion, Depreciation and
Amortization ("DD&A") charges continued their steady trend downward
for the third consecutive fiscal year to $13.04/boe - a 7%
improvement over 2011. 


 
(2) Net debt is defined as long-term debt plus working capital (adjusted for
    the fair value of financial instruments). See "Non-GAAP Financial       
    Measures" in the attached Management's Discussion and Analysis.         
                                                                            
(3) Unit cash costs is defined as the sum of royalties, operating and       
    transportation expenses, general and administrative costs and finance   
    expenses divided by total production (Boe) for the period. Unit cash    
    costs is a non-GAAP financial measure, which does not have any          
    standardized meaning prescribed by GAAP. Management believes that unit  
    cash costs is a useful supplemental measure in assessing the Company's  
    performance as it provides, among others, a measure of the Company's    
    cash margin per boe produced. Read
ers are cautioned, however, that this 
    measure should not be construed as an alternative to conventional       
    measures determined in accordance with GAAP as an indication of         
    Tourmaline's performance. Tourmaline's method of calculating this       
    measure may differ from other companies and accordingly, it may not be  
    comparable to similar measures used by other companies.                 
                                                                            
CORPORATE SUMMARY - DECEMBER 31, 2012                                       
                                                                            
                                           Three Months Ended December 31,  
                                        ------------------------------------
                                                2012        2011    Change  
----------------------------------------------------------------------------
OPERATIONS                                                                  
                                                                            
Production                                                                  
 Natural gas (mcf/d)                         303,040     200,403        51% 
 Crude oil and NGL (bbls/d)                    6,723       4,512        49% 
 Oil equivalent (Boe/d)                       57,230      37,912        51% 
                                                                            
Product prices(1)                                                           
 Natural gas ($/mcf)                          $ 3.29      $ 3.76       (13)%
 Crude oil and NGL ($/bbl)                   $ 83.28     $ 93.05       (10)%
                                                                            
Operating expenses ($/Boe)                    $ 4.10      $ 5.17       (21)%
                                                                            
Transportation costs ($/Boe)                  $ 1.86      $ 2.24       (17)%
                                                                            
Operating netback(4) ($/Boe)                 $ 19.17     $ 21.39       (10)%
                                                                            
Cash general and administrative expenses                                    
 ($/Boe)(2)                                   $ 0.77      $ 0.82        (6)%
                                                                            
                                                                            
FINANCIAL ($000, EXCEPT PER SHARE)                                          
                                                                            
Revenue                                      143,117     107,944        33% 
Royalties                                     10,793       7,510        44% 
                                                                            
Cash flow(4)                                  93,807      73,311        28% 
Cash flow per share(4)                        $ 0.54      $ 0.45        20% 
                                                                            
Net earnings                                  16,301      16,074         1% 
Net earnings per share                        $ 0.09      $ 0.10       (10)%
                                                                            
Capital expenditures                         296,108     232,167        28% 
                                                                            
Weighted average shares outstanding                                         
 (diluted)                                                                  
                                                                            
Net debt(4)                                                                 
                                                                            
                                                                            
PROVED + PROBABLE RESERVES(3)                                               
                                                                            
Natural gas (bcf)                                                           
Crude oil (mbbls)                                                           
Natural gas liquids (mbbls)                                                 
                                                                            
Mboe                                                                        
                                                                            
 
                                                                            
CORPORATE SUMMARY - DECEMBER 31, 2012                                       
                                                                            
                                          Twelve Months Ended December 31,  
                                        ------------------------------------
                                               2012        2011     Change  
----------------------------------------------------------------------------
OPERATIONS                                                                  
                                                                            
Production                                                                  
 Natural gas (mcf/d)                        268,000     165,966         61% 
 Crude oil and NGL (bbls/d)                   6,137       3,346         83% 
 Oil equivalent (Boe/d)                      50,804      31,007         64% 
                                                                            
Product prices(1)                                                           
 Natural gas ($/mcf)                         $ 2.67      $ 4.17        (36)%
 Crude oil and NGL ($/bbl)                  $ 83.71     $ 90.24         (7)%
                                                                            
Operating expenses ($/Boe)                   $ 4.43      $ 5.58        (21)%
                                                                            
Transportation costs ($/Boe)                 $ 1.87      $ 2.06        (10)%
                                                                            
Operating netback(4) ($/Boe)                $ 16.27     $ 22.35        (27)%
                                                                            
Cash general and administrative expenses                                    
 ($/Boe)(2)                                  $ 0.79      $ 1.02        (23)%
                                                                            
                                                                            
FINANCIAL ($000, EXCEPT PER SHARE)                                          
                                                                            
Revenue                                     449,843     362,992         24% 
Royalties                                    30,304      23,553         29% 
                                                                            
Cash flow(4)                                280,279     241,352         16% 
Cash flow per share(4)                       $ 1.68      $ 1.58          6% 
                                                                            
Net earnings                                 15,519      42,681        (64)%
Net earnings per share                       $ 0.09      $ 0.28        (68)%
                                                                            
Capital expenditures                        741,640     828,956        (11)%
                                                                            
Weighted average shares outstanding                                         
 (diluted)                              167,028,522 152,315,296         10% 
                                                                            
Net debt(4)                                (464,300)   (228,342)       103% 
                                                                            
                                                                            
PROVED + PROBABLE RESERVES(3)                                               
                                                                            
Natural gas (bcf)                           2,319.8     1,415.9         64% 
Crude oil (mbbls)                            13,653      10,931         25% 
Natural gas liquids (mbbls)                  37,583      22,876         64% 
                                        ------------------------------------
Mboe                                        437,869     269,797         62% 
                                                                            
(1) Product prices include realized gains and losses on financial instrument
    contracts.                                                              
(2) Excluding interest and financing charges.                               
(3) Reserves are "Company gross reserves", which are defined as the working 
    interest share of reserves prior to the deduction of interest owned by  
    others (burdens). Royalty interest reserves are not included in Company 
    gross reserves.                                                         
(4) See "Non-GAAP" Financial Measures" in the attached Management's         
    Discussion and Analysis.                                                

 
Conference Call Tomorrow at 7:00 a.m. MT (9:00 a.m. ET) 
Tourmaline will host a conference call tomorrow, March 20, 2013
starting at 7:00 a.m. MT (9:00 a.m. ET). To participate, please dial
1-866-226-1792 (toll-free in North America), or local dial-in
416-340-2216, a few minutes prior to the conference call.   
The conference call ID number is 4159296. 
Reader Advisories 
Currency  
All amounts in this news release are stated in Canadian dollars
unless otherwise specified. 
Reserves Data  
The reserves data set forth above is based upon the reports of GLJ
Petroleum Consultants Ltd. ("GLJ") and Deloitte, each dated effective
December 31, 2012, which have been consolidated into one report by
GLJ and adjusted to apply certain of GLJ's assumptions and
methodologies and pricing and cost assumptions. The complete GLJ
January 1, 2013 price forecast used in the reserve evaluations is
available on its website at www.gljpc.com.  
There are numerous uncertainties inherent in estimating quantities of
crude oil, natural gas and NGL reserves and the future cash flows
attributed to such reserves. The reserve and associated cash flow
information set forth above are estimates only. The Company's actual
production, revenues, taxes and development and operating
expenditures with respect to its reserves will vary from estimates
thereof and such variations could be material.  
All evaluations and reviews of future net revenue are stated prior to
any provisions for interest costs or general and administrative costs
and after the deduction of estimated future capital expenditures for
wells to which reserves have been assigned. The after-tax net present
value of the Company's oil and gas properties reflects the tax burden
on the properties on a stand-alone basis and utilizes the Company's
tax pools. It does not consider the corporate tax situation, or tax
planning. It does not provide an estimate of the after-tax value of
the Company, which may be significantly different. The Company's
financial statements and the management's discussion and analysis
should be consulted for information at the level of the Company.  
The estimated values of future net revenue disclosed in this news
release do not represent fair market value. There is no assurance
that the forecast prices and cost assumptions used in the reserve
evaluations will be attained and variances could be material.  
The reserve data provided in this news release presents only a
portion of the disclosure required under National Instrument 51-101.
All of the required information will be contained in the Company's
Annual Information Form for the year ended December 31, 2012, which
will be filed on SEDAR (accessible at www.sedar.com) on or before
March 30, 2013.  
Per share reserve information is based on the total common shares
outstanding, after accounting for outstanding Company options, at
year end 2012 and 2011, respectively.  
See also the Company's news release dated February 12, 2013 for more
information with respect to the Company's reserves data.  
F&D and FD&A Costs  
In addition to F&D, the Company uses FD&A as a measure of the
efficiency of its overall capital program including the effect of
acquisitions and dispositions. The aggregate of the exploration and
development costs incurred in the most recent financial year and the
change during that year in estimated future development costs
generally will not reflect total finding and development costs
related to reserves additions for that year. 
Financial Outlook  
Also included in this news release are estimates of Tourmaline's 2013
cash flow, which is based on, among other things, the various
assumptions as to production levels, capital expenditures, and other
assumptions disclosed in this news release and including Tourmaline's
estimated 2013 average production of 80,000 boepd and commodity price 
assumptions for natural gas (AECO - $3.66/mcf) (2013), and crude oil
(WTI (US) - $95.00/bbl) (2013) and an exchange rate assumption of
$1.00 (US/CAD) for 2013. To the extent such estimate constitutes a
financial outlook, it was approved by management and the Board of
Directors of Tourmaline on March 19, 2013 and is included to provide
readers with an understanding of Tourmaline's anticipated cash flow
based on the capital expenditure, production and other assumptions
described herein and readers are cautioned that the information may
not be appropriate for other purposes. 
General  
See also "Forward-Looking Statements", "Boe Conversions" and
"Non-GAAP Financial Measures" in the attached Management's Discussion
and Analysis. 


 
Certain Definitions:                                                        
                                                                            
bbls           barrels                                                      
boe            barrel of oil equivalent                                     
boepd          barrel of oil equivalent per day                             
bopd           barrel of oil, condensate or natural gas liquids per day     
gjsd           gigajoules per day                                           
mmboe          millions of barrels of oil equivalent                        
mbbls          thousand barrels                                             
mmcf           million cubic feet                                           
mmcfpd         million cubic feet per day                                   
mmcfpde        million cubic feet per day equivalent                        
mcfe           thousand cubic feet equivalent                               
mmbtu          million British thermal units                                
NGL            natural gas liquids                                          

 
MANAGEMENT'S DISCUSSION AND ANALYSIS 
For the years ended December 31, 2012 and December 31, 2011  
This ma
nagement's discussion and analysis ("MD&A") should be read in
conjunction with Tourmaline's consolidated financial statements and
related notes for the years ended 2012 and 2011. Both the
consolidated financial statements and the MD&A can be found at
www.sedar.com. This MD&A is dated March 19, 2013.  
The financial information contained herein has been prepared in
accordance with International Financial Reporting Standards ("IFRS")
and sometimes referred to in this MD&A as Generally Accepted
Accounting Principles ("GAAP") as issued by the International
Accounting Standards Board ("IASB"). All dollar amounts are expressed
in Canadian currency, unless otherwise noted.  
Certain financial measures referred to in this MD&A are not
prescribed by IFRS. See "Non-GAAP Financial Measures" for information
regarding the following non-GAAP financial measures used in this
MD&A: "cash flow", "operating netback", "working capital (adjusted
for the fair value of financial instruments)" and "net debt".   
Additional information relating to Tourmaline can be found at
www.sedar.com. 
Forward-Looking Statements - Certain information regarding Tourmaline
set forth in this document, including management's assessment of the
Company's future plans and operations, contains forward-looking
statements that involve substantial known and unknown risks and
uncertainties. The use of any of the words "anticipate", "continue",
"es
timate", "expect", "may", "will", "project", "should", "believe"
and similar expressions are intended to identify forward-looking
statements. Such statements represent Tourmaline's internal
projections, estimates or beliefs concerning, among other things, an
outlook on the estimated amounts and timing of capital investment,
anticipated future debt, expenses, production, cash flow and revenues
or other expectations, beliefs, plans, objectives, assumptions,
intentions or statements about future events or performance. These
statements are only predictions and actual events or results may
differ materially. Although Tourmaline believes that the expectations
reflected in the forward-looking statements are reasonable, it cannot
guarantee future results, levels of activity, performance or
achievement since such expectations are inherently subject to
significant business, economic, competitive, political and social
uncertainties and contingencies. Many factors could cause
Tourmaline's actual results to differ materially from those expressed
or implied in any forward-looking statements made by, or on behalf
of, Tourmaline.  
In particular, forward-looking statements included in this MD&A
include, but are not limited to, statements with respect to: the size
of, and future net revenues and cash flow from, crude oil, NGL
(natural gas liquids) and natural gas reserves; future prospects; the
focus of and timing of capital expenditures; expectations regarding
the ability to raise capital and to continually add to reserves
through acquisitions and development; access to debt and equity
markets; projections of market prices and costs; the performance
characteristics of the Company's crude oil, NGL and natural gas
properties; crude oil, NGL and natural gas production levels and
product mix; Tourmaline's future operating and financial results;
capital investment programs; supply and demand for crude oil, NGL and
natural gas; future royalty rates; drilling, development and
completion plans and the results therefrom; future land expiries;
dispositions and joint venture arrangements; amount of operating,
transportation and general and administrative expenses; treatment
under governmental regulatory regimes and tax laws; and estimated tax
pool balances. In addition, statements relating to "reserves" are
deemed to be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the
reserves described can be profitably produced in the future.  
These forward-looking statements are subject to numerous risks and
uncertainties, most of which are beyond the Company's control,
including the impact of general economic conditions; volatility in
market prices for crude oil, NGL and natural gas; industry
conditions; currency fluctuation; imprecision of reserve estimates;
liabilities inherent in crude oil and natural gas operations;
environmental risks; incorrect assessments of the value of
acquisitions and exploration and development programs; competition;
the lack of availability of qualified personnel or management;
changes in income tax laws or changes in tax laws and incentive
programs relating to the oil and gas industry; hazards such as fire,
explosion, blowouts, cratering, and spills, each of which could
result in substantial damage to wells, production facilities, other
property and the environment or in personal injury; stock market
volatility; ability to access sufficient capital from internal and
external sources; the receipt of applicable approvals; and the other
risks considered under "Risk Factors" in Tourmaline's most recent
annual information form available at www.sedar.com.  
With respect to forward-looking statements contained in this MD&A,
Tourmaline has made assumptions regarding: future commodity prices
and royalty regimes; availability of skilled labour; timing and
amount of capital expenditures; future exchange rates; the impact of
increasing competition; conditions in general economic and financial
markets; availability of drilling and related equipment and services;
effects of regulation by governmental agencies; and future operating
costs.  
Management has included the above summary of assumptions and risks
related to forward-looking information provided in this MD&A in order
to provide shareholders with a more complete perspective on
Tourmaline's future operations and such information may not be
appropriate for other purposes. Tourmaline's actual results,
performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking statements and,
accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what benefits that the Company will
derive therefrom. Readers are cautioned that the foregoing lists of
factors are not exhaustive.  
These forward-looking statements are made as of the date of this MD&A
and the Company disclaims any intent or obligation to update publicly
any forward-looking statements, whether as a result of new
information, future events or results or otherwise, other than as
required by applicable securities laws. 
Boe Conversions - Per barrel of oil equivalent amounts have been
calculated using a conversion rate of six thousand cubic feet of
natural gas to one barrel of oil equivalent (6:1). Barrel of oil
equivalents (Boe) may be misleading, particularly if used in
isolation. A Boe conversion ratio of 6 mcf:1 bbl is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. In addition, as the value ratio between natural gas and
crude oil based on the current prices of natural gas and crude oil is
significantly different from the energy equivalency of 6:1, utilizing
a conversion on a 6:1 basis may be misleading as an indication of
value. 


 
PRODUCTION                                                                  
                                                                            
                               Three Months Ended         Years Ended       
                                  December 31,            December 31,      
                            ----------------------- ------------------------
                                2012    2011 Change     2012    2011 Change 
----------------------------------------------------------------------------
Natural Gas (mcf/d)          303,040 200,403     51% 268,000 165,966     61%
Crude oil and NGL (bbl/d)      6,723   4,512     49%   6,137   3,346     83%
----------------------------------------------------------------------------
Oil equivalent (Boe/d)        57,230  37,912     51%  50,804  31,007     64%
----------------------------------------------------------------------------

 
Production for the fourth quarter of 2012 averaged 57,230 Boe/d, a
51% increase over the average production for the same quarter of 2011
of 37,912 Boe/d. Production was 88% natural gas weighted in the
fourth quarter of 2012, which is consistent with the fourth quarter
of 2011. For the year ended December 31, 2012, production increased
64% to 50,804 Boe/d from 31,007 Boe/d in 2011. 
The Company's significant production growth when compared to 2011 can
be primarily attributed to new wells that have been brought on-stream
in 2012, as well as property and corporate acquisitions completed
during the year.  
Production guidance for 2013 is 80,000 Boe/d, an increase from the
previous target of 75,000 Boe/d (as disclosed by press release
November 8, 2012). The production increase is a direct result of
Tourmaline's continued success in the ongoing exploration and
production program, as well as the planned commissioning of
facilities in the Doe and Sunrise areas which will allow shut-in
production to come on-stream.  


 
REVENUE                                                                     
                                                                            
                            Three Months Ended            Years Ended       
                                December 31,              December 31,      
                        ----------------------------------------------------
(000s)                       2012     2011  Change     2012     2011  Change
----------------------------------------------------------------------------
Revenue from:                                                               
Natural Gas               $91,608  $69,323     32% $261,833 $252,781      4%
Oil and NGL                51,509   38,621     33%
  188,010  110,211     71%
----------------------------------------------------------------------------
Total revenue from gas,                                                     
 oil and NGL sales       $143,117 $107,944     33% $449,843 $362,992     24%
----------------------------------------------------------------------------

 
Revenue for the three months ended December 31, 2012 increased 33% to
$143.1 million from $107.9 million for the same quarter of 2011.
Revenue for the year ended December 31, 2012 increased 24% to $449.8
million from $363.0 million in 2011. Revenue growth is consistent
with the increase in production over the same periods, partially
offset by lower realized commodity prices. Revenue includes all
natural gas, petroleum and NGL sales and realized gains on financial
instruments. 


 
TOURMALINE PRICES:                                                          
                                                                            
                            Three Months Ended           Years Ended        
                               December 31,              December 31,       
                         ---------------------------------------------------
                             2012    2011 Change       2012    2011 Change  
----------------------------------------------------------------------------
Natural Gas ($/mcf)         $3.29   $3.76    (13)%    $2.67   $4.17    (36)%
Oil and NGL ($/bbl)        $83.28  $93.05    (10)%   $83.71  $90.24     (7)%
----------------------------------------------------------------------------
Oil equivalent ($/Boe)     $27.18  $30.95    (12)%   $24.19  $32.07    (25)%
----------------------------------------------------------------------------

 
The realized average natural gas prices for the quarter and year
ended December 31, 2012 were 13% and 36%, respectively, lower than
the same periods of the prior year. Realized crude oil and NGL prices
decreased 10% and 7% for the quarter and year ended December 31,
2012, respectively, compared to the same periods of the prior year.  
The realized natural gas price for the quarter ended December 31,
2012 was $3.29/mcf, which is 3% (three months ended December 31, 2011
- 18%) higher than the AECO index price. The Company receives a
premium to the AECO index on its Alberta Deep Basin natural gas
production to reflect a higher heat content, which has remained
consistent year-over-year (December 31, 2012 - 8% and December 31,
2011 - 7%). In 2012, this premium was partially offset by losses on
commodity contracts. 
The realized natural gas price for the year ended December 31, 2012
was 10% (December 31, 2011 - 16%) higher than the AECO index as
Tourmaline realized a gain on commodity contracts in combination with
the higher heat content noted above. Realized prices exclude the
effect of unrealized gains or losses. Once these gains and losses are
realized they are included in the per unit amounts. 


 
BENCHMARK OIL AND GAS PRICES:                                               
                                                                            
                          Three Months Ended            Years Ended         
                             December 31,               December 31,        
                      ------------------------------------------------------
                           2012     2011 Change       2012     2011 Change  
----------------------------------------------------------------------------
Natural Gas                                                                 
  NYMEX Henry Hub                                                           
   (US$/mcf)              $3.54    $3.48      2%     $2.83    $4.03    (30)%
  AECO (CAD$/mcf)         $3.19    $3.19      -%     $2.38    $3.64    (35)%
Oil                                                                         
  NYMEX (US$/bbl)        $88.23   $94.06     (6)%   $94.15   $95.11     (1)%
  Edmonton Par                                                              
   (CAD$/bbl)            $84.97   $98.17    (13)%   $86.90   $95.57     (9)%
----------------------------------------------------------------------------
                                                                            
RECONCILIATION OF AECO INDEX TO TOURMALINE'S REALIZED GAS PRICES:           
                                                                            
                                Three Months Ended        Years Ended       
                                   December 31,           December 31,      
                              ----------------------------------------------
($/mcf)                         2012    2011 Change     2012   2011 Change  
----------------------------------------------------------------------------
AECO index                     $3.19   $3.19      -%   $2.42  $3.60    (33)%
Heat/quality differential       0.29    0.22     32%    0.20   0.24    (17)%
Realized gain (loss)           (0.19)   0.35   (154)%   0.05   0.33    (85)%
----------------------------------------------------------------------------
Tourmaline realized natural                                                 
 gas price                     $3.29   $3.76    (13)%  $2.67  $4.17    (36)%
----------------------------------------------------------------------------
                                                                            
CURRENCY - EXCHANGE RATES:                                                  
                                                                            
                              Three Months Ended          Years Ended       
                                 December 31,             December 31,      
                          --------------------------------------------------
                              2012    2011  Change     2012    2011  Change 
----------------------------------------------------------------------------
CAD/US$                    $1.0088 $0.9775       3% $1.0004 $1.0110     (1)%
----------------------------------------------------------------------------
                                                                            
ROYALTIES                                                                   
                                                                            
                                   Three Months Ended       Years Ended     
                                      December 31,          December 31,    
                                --------------------------------------------
(000s)                                 2012        2011      2012      2011 
----------------------------------------------------------------------------
Natural Gas                          $3,562      $2,254    $2,053    $7,134 
Oil and NGL                           7,231       5,256    28,251    16,419 
----------------------------------------------------------------------------
Total royalties                     $10,793      $7,510   $30,304   $23,553 
----------------------------------------------------------------------------
Royalties as a percentage of                                                
 revenue                                7.5%        7.0%      6.7%      6.5%
----------------------------------------------------------------------------

 
For the quarter ended December 31, 2012, the average effective
royalty rate was 7.5% compared to 7.0% for the same quarter of 2011.
For the year ended December 31, 2012, the average effective royalty
rate was 6.7% compared to 6.5% for the same period of 2011. The
Company continues to benefit from the New Well Royalty Reduction
Program and the Natural Gas Deep Drilling Program in Alberta as well
as the Deep Royalty Credit Program in British Columbia. 
The Company expects its royalty rate for 2013 to be approximately 10%
as some of the wells will no longer qualify for royalty incentive
programs due to production maximums being reached and other wells
coming off royalty holidays, thereby incr
easing the Company's overall
royalty rate. The royalty rate is sensitive to commodity prices,
however, and as such, a change in commodity prices will impact the
actual rate.  
OTHER INCOME  
For the quarter ended December 31, 2012, other income totaled $1.4
million, all of which pertained to processing income, compared to
$2.4 million of other income for the same quarter of 2011, of which
$2.3 million related to processing income. Processing income has been
decreasing as a smaller amount of third-party production has been
processed in Tourmaline owned-and-operated facilities as the Company
grows the amount of its own production, thus reducing capacity for
third-party volumes. For the year ended December 31, 2012, other
income was $5.0 million compared to $5.8 million for the prior year.  


 
OPERATING EXPENSES                                                          
                                                                            
                             Three Months Ended          Years Ended        
                                December 31,             December 31,       
                          --------------------------------------------------
(000s) except per unit                                                      
 amounts                      2012    2011 Change      2012    2011 Change  
----------------------------------------------------------------------------
Operating expenses         $21,576 $18,028     20%  $82,312 $63,129     30% 
----------------------------------------------------------------------------
Per Boe                      $4.10   $5.17    (21)%   $4.43   $5.58    (21)%
----------------------------------------------------------------------------

 
Operating expenses include all periodic lease and field-level
expenses and exclude income recoveries from processing third-party
volumes. For the fourth quarter of 2012, total operating expenses
increased 20% from $18.0 million in the fourth quarter of 2011 to
$21.6 million in 2012 due to the increased variable costs relating to
new production. On a per-Boe basis, the costs decreased 21% from
$5.17/Boe for the fourth quarter of 2011 to $4.10/Boe in the fourth
quarter of 2012 due to increased production, increased operational
efficiencies and the impact of redirecting natural gas from
third-party facilities to Tourmaline-owned infrastructure.
Tourmaline's operating expenses in the fourth quarter of 2012 include
third-party processing, gathering and compression fees of
approximately $5.7 million or $1.09/Boe (December 31, 2011- $5.9
million or $1.68/Boe). 
For the year ended December 31, 2012, total operating expenses were
$82.3 million, or $4.43/Boe, compared to $63.1 million, or $5.58/Boe
for the same period of 2011. Although total operating expenses
increased with production, the costs per Boe decreased 21% reflecting
increased operational efficiencies. Third-party processing, gathering
and compression fees for the year ended December 31, 2012 have
increased year-over-year with production ($21.7 million in 2012
versus $19.1 million in 2011); however, the cost per Boe has
decreased to $1.17/Boe in 2012 versus $1.68/Boe in 2011.  
In September 2012, the Company completed its plant expansion at
Musreau in the Alberta Deep Basin. During 2012, the Company also
began work on a gas plant at Doe in NEBC and a new liquids handling
facility at Spirit River. These projects allow for additional volumes
to flow through Company owned-and-operated plants thereby reducing
third-party processing charges on a go-forward basis.  
The Company's operating cost target is $4.25/Boe in 2013. This is
lower than the previous year's guidance due to a combination of
increased production, continued operational efficiencies and
redirecting third-party gas into Company owned-and-operated
facilities. Actual costs per Boe can change, however, depending on a
number of factors, including the Company's actual production levels.  


 
TRANSPORTATION                                                              
                                                                            
                             Three Months Ended          Years Ended        
                                December 31,             December 31,       
                          --------------------------------------------------
(000s) except per unit                                                      
 amounts                      2012    2011 Change      2012    2011 Change  
----------------------------------------------------------------------------
Gas transportation          $6,884  $6,239     10%  $25,246 $19,169     32% 
Oil and NGL transportation   2,927   1,559     88%    9,461   4,215    124% 
----------------------------------------------------------------------------
Total transportation        $9,811  $7,798     26%  $34,707 $23,384     48% 
----------------------------------------------------------------------------
Per Boe                      $1.86   $2.24    (17)%   $1.87   $2.06    (10)%
----------------------------------------------------------------------------

 
Transportation costs for the three months ended December 31, 2012
were $9.8 million or $1.86/Boe (three months ended December 31, 2011
- $7.8 million or $2.24/Boe). Transportation costs for the year ended
December 31, 2012 were $34.7 million or $1.87/Boe (year ended
December, 2011 - $23.4 million or $2.06/Boe). The increase in total
transportation costs for the three months and the year ended December
31, 2012 can be primarily attributed to increased production. Oil and
liquids transportation costs have increased due to pipeline and
infrastructure constraints resulting in a higher use of more
expensive truck transportation. 
On a per-Boe basis, transportation costs for the three months and
year ended December 31, 2012 are lower primarily due to the expansion
of the Company's owned-and-operated Sunrise and Musreau plants which
allows increased volumes to be processed at these facilities which
are closer to the Company's producing assets than the previous
third-party facilities.  


 
GENERAL & ADMINISTRATIVE EXPENSES ("G&A")                                   
                                                                            
                           Three Months Ended            Years Ended        
                               December 31,              December 31,       
                        ----------------------------------------------------
(000s)                      2012     2011 Change      2012     2011 Change  
----------------------------------------------------------------------------
G&A expenses              $7,539   $7,256      4%  $27,089  $23,943     13% 
Administrative and                                                          
 capital recovery           (341)    (786)   (57)%  (1,163)  (2,413)   (52)%
Capitalized G&A           (3,123)  (3,600)   (13)% (11,307) (10,036)    13% 
----------------------------------------------------------------------------
Total G&A expenses        $4,075   $2,870     42%  $14,619  $11,494     27% 
----------------------------------------------------------------------------
Per Boe                    $0.77    $0.82     (6)%   $0.79    $1.02    (23)%
----------------------------------------------------------------------------

 
G&A expenses for the fourth quarter of 2012 were $4.1 million
compared to $2.9 million for the same quarter of the prior year. G&A
costs per Boe for the fourth quarter of 2012 decreased 6% down to
$0.77/Boe, compared to $0.82/Boe for the fourth quarter of 2011. 
For the year ended December 31, 2012, G&A expenses were $14.6 million
or $0.79/Boe compared to $11.5 million or $1.02/Boe for the same
period of 2011. The higher total G&A expenses from 2011 to 2012
result from the need to manage the larger production, reserve and
land base. Additionally, the administrative and capital recoveries
from joint venture partners have decreased as the Company's overall
working interest ha
s increased. Notwithstanding this, the Company's
G&A expenses per Boe continue to trend downward as Tourmaline's
production base continues to grow faster than its accompanying G&A
costs.  
G&A costs for 2013 are expected to be similar to 2012 on a
dollar-per-Boe basis. Actual costs per Boe can change, however,
depending on a number of factors including the Company's actual
production levels.  


 
SHARE-BASED PAYMENTS                                                        
                                                                            
                                    Three Months Ended      Years Ended     
                                       December 31,         December 31,    
                                  ------------------------------------------
(000s)                                  2012       2011      2012      2011 
----------------------------------------------------------------------------
Share-based payments                  $7,710     $6,266   $29,892   $23,370 
Capitalized share-based payments      (3,855)    (3,133)  (14,946)  (11,685)
----------------------------------------------------------------------------
Total share-based payments            $3,855     $3,133   $14,946   $11,685 
----------------------------------------------------------------------------

 
Tourmaline uses the fair value method for the determination of
non-cash related share-based payments expense. During the fourth
quarter of 2012, 1,927,000 stock options were granted to employees,
officers, directors and key consultants at a weighted-average
exercise price of $32.00, and 683,799 options were exercised,
bringing $6.8 million of cash into treasury. The Company recognized
$3.9 million of share-based payment expense in the fourth quarter of
2012 compared to $3.1 million in the fourth quarter of 2011.
Capitalized share-based payments expense for the fourth quarter of
2012 was $3.9 million compared to $3.1 million for the same quarter
of the prior year.  
For the year ended December 31, 2012, share-based payment expense
totalled $14.9 million and a further $14.9 million in share-based
payments were capitalized (2011 - $11.7 million and $11.7 million,
respectively). The increase in share-based payment expense in 2012
compared to 2011 reflects the increased number of options
outstanding.  


 
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A")                           
                                                                            
                                     Three Months Ended      Years Ended    
                                         December 31,        December 31,   
                                   -----------------------------------------
(000s) except per unit amounts            2012       2011     2012      2011
----------------------------------------------------------------------------
Depletion, depreciation and                                                 
 amortization                          $65,998    $41,240 $242,528  $158,168
----------------------------------------------------------------------------
Per Boe                                 $12.53     $11.82   $13.04    $13.98
----------------------------------------------------------------------------

 
DD&A expense was $66.0 million for the fourth quarter of 2012
compared to $41.2 million for the same period of 2011 due to higher
production volumes, as well as a larger capital asset base being
depleted. The per-unit DD&A rate for the fourth quarter of 2012 was
$12.53/Boe compared to $11.82/Boe for the fourth quarter of 2011. 
For the year ended December 31, 2012, DD&A expense was $242.5 million
(December 31, 2011 - $158.2 million) with an effective rate of
$13.04/Boe (December 31, 2011 - $13.98/Boe). The lower DD&A rate in
2012 reflects strong reserve additions derived from Tourmaline's
exploration and production program, coupled with lower finding and
development costs in 2012 versus those incurred in 2011.  


 
FINANCE EXPENSES                                                            
                                                                            
                               Three Months Ended         Years Ended       
                                  December 31,            December 31,      
                            ------------------------------------------------
(000s)                          2012   2011  Change     2012   2011  Change 
----------------------------------------------------------------------------
Interest expense              $2,940   $690     326%  $9,728 $3,314     194%
Accretion expense                388    306      27%   1,328  1,315       1%
Transaction costs on                                                        
 corporate and property                                                     
 acquisitions                    974      -       -%   1,146    991      16%
Other                            124    103      20%     756    560      35%
----------------------------------------------------------------------------
Total finance expense         $4,426 $1,099     303% $12,958 $6,180     110%
----------------------------------------------------------------------------

 
Finance expenses totalled $4.4 million and $13.0 million for the
quarter and year ended December 31, 2012, respectively (December 31,
2011 - $1.1 million and $6.2 million, respectively) and are comprised
of interest expense, transaction costs on corporate and property
acquisitions and accretion of decommissioning obligations. The
increased finance expenses are largely due to higher interest expense
resulting from a higher balance drawn on the credit facility in 2012.
The average bank debt outstanding and the average effective interest
rate on that debt during 2012 were $245.4 million and 3.34%,
respectively (2011 - $54.7 million and 3.3% respectively). 


 
CASH FLOW FROM OPERATING ACTIVITIES, CASH FLOW AND NET EARNINGS             
                                                                            
                       Three Months Ended              Years Ended          
                          December 31,                 December 31,         
                  ----------------------------------------------------------
(000s) except per                                                           
 unit amounts           2012      2011 Change        2012      2011 Change  
----------------------------------------------------------------------------
Cash flow from                                                              
 operating                                                                  
 activities         $104,671   $61,801     69%   $273,477  $228,421     20% 
  Per share            $0.60     $0.38     58%      $1.64     $1.50      9% 
                                                                            
Cash flow(2)         $93,807   $73,311     28%   $280,279  $241,352     16% 
  Per share(1)(2)      $0.54     $0.45     20%      $1.68     $1.58      6% 
                                                                            
Net earnings         $16,301   $16,074      1%    $15,519   $42,681    (64)%
  Per share(1)         $0.09     $0.10    (10)%     $0.09     $0.28    (68)%
                                                                            
Operating netback                                                           
 per Boe (2)          $19.17    $21.39    (10)%    $16.27    $22.35    (27)%
----------------------------------------------------------------------------
(1) Fully diluted                                                           
(2) See "Non-GAAP Financial Measures"                                       

 
Cash flow for the three months ended December 31, 2012 was $93.8
million or $0.54 per diluted share compared to $73.3 million or $0.45
per diluted share for the same period of 2011. For the year ended
December 31, 2012, cash flow was $280.3 million or $1.68 per diluted
share, which is higher 
than the December 31, 2011 cash flow of $241.4
million or $1.58 per diluted share. Cash flow in 2012 reflects
increased production over 2011 offset by lower natural gas prices.  
The Company had after-tax earnings for both the three months and year
ended December 31, 2012 of $16.3 million ($0.09 per diluted share)
and $15.5 million ($0.09 per diluted share), respectively, compared
to earnings of $16.1 million ($0.10 per diluted share) and $42.7
million ($0.28 per diluted share), respectively, for the same periods
of 2011. The decreased after-tax earnings for the 2012 year, compared
to 2011, reflect lower natural gas prices.  


 
CAPITAL EXPENDITURES                                                        
                                                                            
                                     Three Months Ended     Years Ended     
                                        December 31,        December 31,    
                                    ----------------------------------------
(000s)                                   2012      2011      2012      2011 
----------------------------------------------------------------------------
Land and seismic                       $9,270   $17,227   $31,288   $51,995 
Drilling and completions              148,953   146,586   438,459   431,977 
Facilities                             52,917    58,638   184,406   227,052 
Property acquisitions                  81,778     6,590    88,619   115,231 
Property dispositions                     (49)     (617)  (12,682)   (7,983)
Other                                   3,239     3,743    11,550    10,684 
----------------------------------------------------------------------------
Total cash capital expenditures      $296,108  $232,167  $741,640  $828,956 
----------------------------------------------------------------------------

 
During the fourth quarter of 2012, the Company invested $296.1
million of cash consideration, net of dispositions, compared to
$232.2 million for the same period of 2011. Expenditures on
exploration and production were $211.1 million compared to $222.5
million for the same quarter of 2011. 
The following table summarizes the drill, complete and tie-in
activities for the period: 


 
                                     Three Months Ended  Year Ended December
                                      December 31, 2012       31, 2012      
                                    ----------------------------------------
                                         Gross       Net     Gross       Net
----------------------------------------------------------------------------
Drilled                                     23     20.04        76     65.84
Completed                                   29     23.09        82     70.12
Tied-in                                     13     13.00        46     41.94
----------------------------------------------------------------------------

 
Capital expenditures in 2013 are forecast to be $740 million, which
has been revised upward from $650 million (as previously disclosed by
press release November 8, 2012). A total of 70 Deep Basin wells, 25
NEBC Montney horizontal wells and 25 Charlie Lake horizontal wells
are expected to be drilled in 2013. Major 2013 facility projects
include the completion of the gas facilities at Doe in NEBC and
Spirit River, Alberta (planned to be completed in the second quarter)
and two gas facility expansions in the Alberta Deep Basin during the
second half of 2013. 
Corporate Acquisition  
On November 30, 2012, the Company acquired all of the issued and
outstanding shares of Huron Energy Corporation ("Huron") in exchange
for Tourmaline common shares. The acquisition resulted in an increase
to Property, Plant and Equipment ("PP&E") of approximately $251.5
million and an increase to Exploration and Evaluation ("E&E") assets
of $59.1 million. The acquisition of Huron provides for an increase
in lands and production in Tourmaline's key highly profitable core
and designated growth area of Sunrise in NEBC.  
LIQUIDITY AND CAPITAL RESOURCES  
On April 4, 2012, the Company issued 1.4 million flow-through common
shares at a price of $28.80 per share for total gross proceeds of
$40.4 million. On August 30, 2012, the Company issued 4.039 million
common shares at a price of $29.00 per share for total gross proceeds
of $117.1 million. Subsequently, on September 19, 2012, the
underwriters exercised their over-allotment option and purchased a
further 0.6 million shares at a price of $29.00 per share for total
gross proceeds of $17.4 million. On November 1, 2012, the Company
issued 1.05 million flow-through common shares at a price of $36.90
per share for total gross proceeds of $38.7 million. The proceeds of
the above-noted financings were used to temporarily reduce bank debt
and to fund the Company's capital exploration program.  
In June 2012, the Company amended and restated its bank credit
facility to be a covenant-based facility rather than a borrowing base
facility. This facility is a 3-year extendible revolving facility in
the amount of $550 million plus a $25 million operating revolver from
a syndicate of six lenders with an initial maturity date of June,
2015. The maturity date may, at the request of the Company and with
the consent of the lenders, be extended on an annual basis. The
facility is secured by a first ranking floating charge over all
assets of the Company and its material subsidiaries. The facility can
be drawn in either Canadian or U.S. funds and bears interest at the
bank's prime lending rate, bankers' acceptance rates or LIBOR (for
U.S. borrowings), plus applicable margins. The facility will provide
the Company with greater flexibility by providing access to an
additional $200 million over the previous facility.  
Under the terms of the bank credit facility, Tourmaline has provided
its covenant that, on a rolling four quarter basis: (i) the ratio of
EBITDA to interest expense shall equal or exceed 3.5:1, (ii) the
ratio of senior debt to EBITDA shall not exceed 3:1, (iii) the ratio
of total debt to EBITDA shall not exceed 4:1, and (iv) the ratio of
senior debt to total capitalization shall not exceed 0.5:1. As at
December 31, 2012, the Company is in compliance with all debt
covenants.  
At December 31, 2012, Tourmaline had negative working capital of
$103.7 million, after adjusting for the fair value of financial
instruments (the unadjusted working capital deficiency was $98.9
million) (December 31, 2011 - $146.6 million and $146.3 million,
respectively). Management believes the Company has sufficient
liquidity and capital resources to fund the 2013 exploration and
development program through expected cash flow from operations, its
unutilized bank credit facility and the financing described in the
subsequent events section of this MD&A. As at December 31, 2012, the
Company's bank debt balance was $360.6 million (December 31, 2011 -
$81.7 million), and net debt was $464.3 million (December 31, 2011 -
$228.3 million).  
SHARES AND STOCK OPTIONS OUTSTANDING  
As at March 19, 2013, the Company has 182,230,907 common shares
outstanding and 14,617,384 stock options granted and outstanding.  
COMMITMENTS AND CONTRACTUAL OBLIGATIONS  
In the normal course of business, Tourmaline is obligated to make
future payments. These obligations represent contracts and other
commitments that are known and non-cancellable. 


 
Payments Due by Year                                       2017 and         
 (000s)                     2013    2014     2015   2016 Thereafter    Total
----------------------------------------------------------------------------
Operating leases          $2,545  $2,168     $526     $-         $-   $5,239
Flow-through                                                                
 obligations(2)                -  42,667        -      -          -   42,667
Firm transportation                                                         
 agreements               32,355  25,326   14,449  2,55
7         20   74,707
Bank debt(1)                   -       -  396,023      -          -  396,023
----------------------------------------------------------------------------
                         $34,900 $70,161 $410,998 $2,557        $20 $518,636
----------------------------------------------------------------------------
(1) Includes interest expense at an annual rate of 3.31% being the rate     
    applicable to outstanding bank debt at December 31, 2012.               
(2) The Company closed a flow-through share financing on March 12, 2013     
    resulting in an additional flow-through obligation of $35.2 million due 
    to be spent by December 31, 2014 which has not been reflected in the    
    table above.                                                            

 
Subsequent to December 31, 2012, the Company entered into a 130
mmcf/d deep cut gas processing agreement and a firm service
transportation agreement for the associated liquids. Both agreements
have ten-year terms and begin in 2015. The Company also entered into
a ten-year 9,000 bbl/d natural gas liquids product fractionation
marketing agreement beginning in 2016. 
OFF BALANCE SHEET ARRANGEMENTS 
The Company has certain lease arrangements, all of which are
reflected in the commitments and contractual obligations table, which
were entered into in the normal course of operations. All leases have
been treated as operating leases whereby the lease payments are
included in operating expenses or general and administrative expenses
depending on the nature of the lease.  
FINANCIAL RISK MANAGEMENT  
The Board of Directors has overall responsibility for the
establishment and oversight of the Company's risk management
framework. The Board has implemented and monitors compliance with
risk management policies.  
The Company's risk management policies are established to identify
and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to market
conditions and the Company's activities. The Company's financial
risks are discussed in note 5 of the Company's consolidated financial
statements for the year ended December 31, 2012. 
As at December 31, 2012, the Company has entered into certain
financial derivative and physical delivery sales contracts in order
to manage commodity risk. These instruments are not used for trading
or speculative purposes. The Company has not designated its financial
derivative contracts as effective accounting hedges, even though the
Company considers all commodity contracts to be effective economic
hedges. Such financial derivative commodity contracts are recorded on
the consolidated statement of financial position at fair value, with
changes in the fair value being recognized as an unrealized gain or
loss on the consolidated statement of income and comprehensive
income. The contracts that the Company has entered into in the 2012
year are detailed in note 5 of the Company's consolidated financial
statements for the year ended December 31, 2012.  
The following table provides a summary of the unrealized gains and
losses on financial instruments for the year ended December 31, 2012: 


 
                                     Three Months Ended     Years Ended     
                                        December 31,        December 31,    
                                    ----------------------------------------
(000s)                                    2012     2011      2012      2011 
----------------------------------------------------------------------------
Unrealized gain (loss) on financial                                         
 instruments                            $1,174  $(4,566)   $2,600      $944 
Unrealized gain (loss) on                                                   
 investments held for trading                -       40      (103)     (111)
----------------------------------------------------------------------------
Total                                   $1,174  $(4,526)   $2,497      $833 
----------------------------------------------------------------------------

 
The Company has entered into physical contracts to manage commodity
risk. These contracts are considered normal sales contracts and are
not recorded at fair value in the consolidated financial statements.
These contracts have been disclosed in note 5 of the Company's
consolidated financial statements for the year ended December 31,
2012. 
The Company has entered into several financial derivative and
physical delivery sales contracts subsequent to December 31, 2012.
These contracts are detailed in note 5 of the Company's consolidated
financial statements for the year ended December 31, 2012. 
SUBSEQUENT EVENTS  
On March 12, 2013, the Company closed on the disposition of a
non-producing property for proceeds of $77.5 million, subject to
closing adjustments and transaction costs. The asset has been
reclassified to current as an asset held for sale as at December 31,
2012.  
On March 12, 2013, the Company issued 5.78 million common shares, at
a price of $34.25 per share, and 0.835 million flow-through common
shares, at a price of $42.15 per share, for total gross proceeds of
$233.2 million.   
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES  
Certain accounting policies require that management make appropriate
decisions with respect to the formulation of estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Management reviews its estimates on a regular
basis. The emergence of new information and changed circumstances may
result in actual results or changes to estimates that differ
materially from current estimates. The Company's use of estimates and
judgments in preparing the consolidated financial statements is
discussed in note 1 of the consolidated financial statements for the
year ended December 31, 2012.  
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING  
The Company's Chief Executive Officer and Chief Financial Officer
have designed, or caused to be designed under their supervision,
disclosure controls and procedures ("DC&P"), as defined by National
Instrument 52-109 - Certification of Disclosure in Issuers' Annual
and Interim Filings ("NI 52-109"), to provide reasonable assurance
that: (i) material information relating to the Company is made known
to the Company's Chief Executive Officer and Chief Financial Officer
by others, particularly during the periods in which the annual and
interim filings are being prepared; and (ii) information required to
be disclosed by the Company in its annual filings, interim filings or
other reports filed or submitted by it under securities legislation
is recorded, processed, summarized and reported within the time
period specified in securities legislation. All control systems by
their nature have inherent limitations and, therefore, the Company's
DC&P are believed to provide reasonable, but not absolute, assurance
that the objectives of the control systems are met.  
The Company's Chief Executive Officer and Chief Financial Officer
have designed, or caused to be designed under their supervision,
internal controls over financial reporting ("ICFR"), as defined by NI
52-109, to provide reasonable assurance regarding the reliability of
the Company's financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP.  
The Company's Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of the Company's DC&P and ICFR.
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as at December 31, 2012, the
Company's DC&P and ICFR are effective. There were no changes in the
Company's ICFR during the period beginning on October 1, 2012 and
ending December 31, 2012 that have materially affected, or are
reasonably likely to materially affect, the Company's ICFR. It should
be noted that a control system, including th
e Company's disclosure
and internal controls and procedures, no matter how well conceived
can provide only reasonable, but not absolute assurance that the
objectives of the control system will be met and it should not be
expected that the disclosure and internal controls and procedures
will prevent all errors or fraud.  
BUSINESS RISKS AND UNCERTAINTIES  
Tourmaline monitors and complies with current government regulations
that affect its activities, although operations may be adversely
affected by changes in government policy, regulations or taxation. In
addition, Tourmaline maintains a level of liability, property and
business interruption insurance which is believed to be adequate for
Tourmaline's size and activities, but is unable to obtain insurance
to cover all risks within the business or in amounts to cover all
possible claims.  
See "Forward-Looking Statements" in this MD&A and "Risk Factors" in
Tourmaline's most recent annual information form for additional
information regarding the risks to which Tourmaline and its business
and operations are subject. 
IMPACT OF NEW ENVIRONMENTAL REGULATIONS  
Environmental legislation, including the Kyoto Accord, the federal
government's "EcoACTION" plan and Alberta's Bill 3 - Climate Change
and Emissions Management Amendment Act, is evolving in a manner
expected to result in stricter standards and enforcement, larger
fines and liability and potentially increased capital expenditures
and operating costs. Given the evolving nature of the debate related
to climate change and the resulting requirements, it is not possible
to determine the operational or financial impact of those
requirements on Tourmaline.  
RECENT PRONOUNCEMENTS ISSUED  
The following pronouncements from the IASB will become effective for
financial reporting periods beginning on or after January 1, 2013 and
have not yet been adopted by the Company. All of these new or revised
standards permit early adoption with transitional arrangements
depending upon the date of initial application.  
IFRS 9 - Financial Instruments addresses the classification and
measurement of financial assets. 
IFRS 10 - Consolidated Financial Statements builds on existing
principles and standards and identifies the concept of control as the
determining factor in whether an entity should be included within the
consolidated financial statements of the parent company. 
IFRS 11 - Joint Arrangements establishes the principles for financial
reporting by entities when they have an interest in arrangements that
are jointly controlled. 
IFRS 12 - Disclosure of Interest in Other Entities provides the
disclosure requirements for interests held in other entities
including joint arrangements, associates, special purpose entities
and other off balance sheet entities. 
IFRS 13 - Fair Value Measurement defines fair value, requires
disclosure about fair value measurements and provides a framework for
measuring fair value when it is required or permitted within the IFRS
standards. 
IAS 19 - Employee Benefits revises the existing standard to eliminate
options to defer the recognition of gains and losses in defined
benefit plans, requires re-measurements of a defined benefit plan's
assets and liabilities to be presented in other comprehensive income
and increases disclosure. 
IAS 27 - Separate Financial Statements revised the existing standard
which addresses the presentation of parent company financial
statements that are not consolidated financial statements. 
IAS 28 - Investments in Associate and Joint Ventures revised the
existing standard and prescribes the accounting for investments and
sets out the requirements for the application of the equity method
when accounting for investments in associates and joint ventures. 
The Company has not completed its evaluation of the effect of
adopting these standards on its financial statements.  
The IASB also issued Presentation of Items of Other Comprehensive
Income, an amendment to IAS 1 Financial Statement Presentation. The
amendment addresses the presentation of other comprehensive income
and requires the grouping of items within other comprehensive income
that might eventually be reclassified to the profit and loss section
of the income statement. The change became effective on July 1, 2012. 
NON-GAAP FINANCIAL MEASURES  
This MD&A includes references to financial measures commonly used in
the oil and gas industry such as "cash flow", "operating netback",
"working capital (adjusted for the fair value of financial
instruments)" and "net debt", which do not have any standardized
meaning prescribed by GAAP. Management believes that in addition to
net income and cash flow from operating activities, the
aforementioned non-GAAP financial measures are useful supplemental
measures in assessing Tourmaline's ability to generate the cash
necessary to repay debt or fund future growth through capital
investment. Readers are cautioned, however, that these measures
should not be construed as an alternative to net income or cash flow
from operating activities determined in accordance with GAAP as an
indication of Tourmaline's performance. Tourmaline's method of
calculating these measures may differ from other companies and
accordingly, they may not be comparable to measures used by other
companies. For these purposes, Tourmaline defines cash flow as cash
flow from operating activities before changes in non-cash operating
working capital, defines operating netback as revenue (excluding
processing income) less royalties, transportation costs and operating
expenses and defines working capital (adjusted for the fair value of
financial instruments) as working capital adjusted for the fair value
of financial instruments. Net debt is defined as long-term bank debt
plus working capital (adjusted for the fair value of financial
instruments). 
Cash Flow  
A summary of the reconciliation of cash flow from operating
activities (per the statement of cash flow), to cash flow, is set
forth below: 


 
                                       Three Months Ended     Years Ended   
                                           December 31,       December 31,  
                                      --------------------------------------
(000s)                                     2012       2011     2012     2011
----------------------------------------------------------------------------
Cash flow from operating activities                                         
 (per GAAP)                            $104,671    $61,801 $273,477 $228,421
Change in non-cash working capital      (10,864)    11,510    6,802   12,931
----------------------------------------------------------------------------
Cash flow                               $93,807    $73,311 $280,279 $241,352
----------------------------------------------------------------------------

 
Operating Netback 
Operating netback is calculated on a per Boe basis and is defined as
revenue (excluding processing income) less royalties, transportation
costs and operating expenses, as shown below: 


 
                                     Three Months Ended     Years Ended     
                                        December 31,        December 31,    
                                    ----------------------------------------
($/Boe)                                  2012      2011      2012      2011 
----------------------------------------------------------------------------
Revenue, excluding processing income   $27.18    $30.95    $24.19    $32.07 
Royalties                               (2.05)    (2.15)    (1.63)    (2.08)
Transportation costs                    (1.86)    (2.24)    (1.87)    (2.06)
Operating expenses                      (4.10)    (5.17)    (4.43)    (5.58)
----------------------------------------------------------------------------
Operating netback (1)                  $19.17    $21.39    $16.27    $22.35 
----------------------------------------------------------------------------
(1) May not add due to rounding.                   

 
Working Capital (Adjusted for the Fair Value of Financial
Instruments)  
A summary of the reconciliation of working capital to working capital
(adjusted for the fair value of financial instruments) is set forth
below: 


 
                                                       As at          As at 
                                                December 31,   December 31, 
(000s)                                                  2012           2011 
----------------------------------------------------------------------------
Working capital (deficit)                           $(98,913)     $(146,317)
Fair value of financial instruments - short-                                
 term asset                                           (4,814)          (276)
----------------------------------------------------------------------------
Working capital (deficit) (adjusted for the                                 
 fair value of financial instruments)              $(103,727)     $(146,593)
----------------------------------------------------------------------------

 
Net Debt 
A summary of the reconciliation of net debt is set forth below: 


 
                                                       As at          As at 
                                                December 31,   December 31, 
(000s)                                                  2012           2011 
----------------------------------------------------------------------------
Bank debt                                          $(360,573)      $(81,749)
Working capital (deficit)                            (98,913)      (146,317)
Fair value of financial instruments - short-                                
 term asset                                           (4,814)          (276)
----------------------------------------------------------------------------
Net debt                                           $(464,300)     $(228,342)
----------------------------------------------------------------------------
                                                                            
SELECTED QUARTERLY INFORMATION                                              
                                                                            
                                                    2012                    
                                --------------------------------------------
($000s, unless otherwise noted)         Q4         Q3         Q2         Q1 
----------------------------------------------------------------------------
PRODUCTION                                                                  
Gas (mcf)                       27,879,639 23,501,484 24,276,149 22,430,621 
Crude oil and NGL(bbls)            618,483    515,157    596,992    515,408 
Oil equivalent (Boe)             5,265,090  4,432,071  4,643,016  4,253,845 
Gas (mcf/d)                        303,040    255,451    266,771    246,490 
Crude oil and NGL (bbls/d)           6,723      5,600      6,560      5,664 
Oil equivalent (Boe/d)              57,230     48,175     51,022     46,746 
----------------------------------------------------------------------------
FINANCIAL                                                                   
Revenue, net of royalties          134,864     91,863    105,567     94,781 
Cash flow from operating                                                    
 activities                        104,671     66,713     42,566     59,527 
Cash flow (1)                       93,807     63,515     61,121     61,836 
  Per diluted share                   0.54       0.38       0.37       0.38 
Net earnings (loss)                 16,301     (4,770)     1,012      2,976 
  Per basic share                     0.10      (0.03)      0.01       0.02 
  Per diluted share                   0.09      (0.03)      0.01       0.02 
Total assets                     3,580,253  2,992,552  2,862,502  2,878,261 
Working capital                    (98,913)   (98,184)   (15,311)  (176,029)
Working capital (adjusted for                                               
 the fair value of financial                                                
 instruments) (1)                 (103,727)  (101,577)   (19,809)  (175,696)
Capital expenditures               296,108    175,277     53,831    216,424 
Total outstanding shares (000s)    174,813    165,678    160,459    158,807 
----------------------------------------------------------------------------
PER UNIT                                                                    
Gas ($/mcf)                           3.29       2.52       2.23       2.54 
Crude oil and NGL ($/bbl)            83.28      83.34      77.75      91.48 
Revenue ($/Boe)                      27.18      23.04      21.64      24.48 
Operating netback ($/Boe) (1)        19.17      15.68      14.22      15.52 
----------------------------------------------------------------------------
 
                                                                            
SELECTED QUARTERLY INFORMATION                                              
                                                                            
                                                    2011                    
                                --------------------------------------------
($000s, unless otherwise noted)         Q4         Q3         Q2         Q1 
----------------------------------------------------------------------------
PRODUCTION                                                                  
Gas (mcf)                       18,437,079 17,058,132 13,798,653 11,283,617 
Crude oil and NGL(bbls)            415,074    316,890    272,184    217,121 
Oil equivalent (Boe)             3,487,920  3,159,912  2,571,959  2,097,724 
Gas (mcf/d)                        200,403    185,414    151,634    125,374 
Crude oil and NGL (bbls/d)           4,512      3,444      2,991      2,412 
Oil equivalent (Boe/d)              37,912     34,347     28,263     23,308 
----------
------------------------------------------------------------------
FINANCIAL                                                                   
Revenue, net of royalties           98,309     98,225     87,551     62,019 
Cash flow from operating                                                    
 activities                         61,801     77,622     42,112     46,886 
Cash flow (1)                       73,311     62,686     60,415     44,940 
  Per diluted share                   0.45       0.40       0.41       0.32 
Net earnings (loss)                 16,074      8,688     15,192      2,727 
  Per basic share                     0.10       0.06       0.11       0.02 
  Per diluted share                   0.10       0.06       0.10       0.02 
Total assets                     2,711,024  2,517,607  2,030,285  1,936,836 
Working capital                   (146,317)  (120,080)   (31,963)  (139,138)
Working capital (adjusted for                                               
 the fair value of financial                                                
 instruments) (1)                 (146,593)  (123,858)   (31,592)  (136,933)
Capital expenditures               232,167    249,162    130,075    217,553 
Total outstanding shares (000s)    158,578    151,906    145,215    138,124 
----------------------------------------------------------------------------
PER UNIT                                                                    
Gas ($/mcf)                           3.76       4.25       4.38       4.48 
Crude oil and NGL ($/bbl)            93.05      87.01      95.54      83.00 
Revenue ($/Boe)                      30.95      31.67      33.61      32.68 
Operating netback ($/Boe) (1)        21.39      21.21      24.52      22.99 
----------------------------------------------------------------------------
(1) See Non-GAAP Financial Measures.                                        

 
The oil and gas exploration and production industry is cyclical in
nature. The Company's financial 
position, results of operations and
cash flows are principally impacted by production levels and
commodity prices, particularly natural gas prices.  
Overall, the Company has had continued annual growth over the last
two years summarized in the table above. The small decrease in
production from the second quarter to the third quarter of 2012 was
due to weather-related tie-in delays, as well as production
disruptions related to sour gas handling issues at Spirit River and a
one-time equipment issue at Sunrise. The Company's average annual
production has increased from 31,007 Boe per day in 2011 to 50,804
Boe per day in 2012. The production growth can be attributed
primarily to the Company's exploration and development activities, as
well as from acquisitions of producing properties. Over the same
period, natural gas prices have declined, with the largest declines
occurring in 2012. 
The Company's cash flows from operating activities were $228.4
million in 2011 and $273.5 million in 2012. Commodity price changes
can indirectly impact expected production by changing the amount of
funds available to reinvest in exploration, development and
acquisition activities in the future. Decreases in commodity prices
not only reduce revenues and cash flows available for exploration,
they may also challenge the economics of potential capital projects
by reducing the quantities of reserves that are commercially
recoverable. The Company's capital program is dependent on cash flows
generated from operations and access to capital markets.  


 
SELECTED ANNUAL INFORMATION                                                 
                                                                            
($000s unless otherwise noted)                 2012        2011        2010 
----------------------------------------------------------------------------
PRODUCTION                                                                  
Gas (mcf)                                98,087,893  60,577,481  34,895,923 
Crude oil and NGL (bbls)                  2,246,040   1,221,268     701,355 
Oil equivalent (Boe)                     18,594,022  11,317,515   6,517,342 
Gas (mcf/d)                                 268,000     165,966      95,605 
Crude oil and NGL (bbls/d)                    6,137       3,346       1,922 
Oil equivalent (Boe/d)                       50,804      31,007      17,856 
----------------------------------------------------------------------------
FINANCIAL                                                                   
Revenue, net of royalties                   427,075     346,104     195,407 
Cash flow from operating activities         273,477     228,421     143,296 
Cash flow (1)                               280,279     241,352     133,218 
  Per diluted share                            1.68        1.58        1.08 
Net earnings                                 15,519      42,681       8,813 
  Per diluted share                            0.09        0.28        0.07 
Total assets                              3,580,253   2,711,024   1,816,043 
Working capital (deficit)                   (98,913)   (146,317)    (49,642)
Working capital (deficit) (adjusted for                                     
 the fair value of financial                                                
 instruments) (1)                          (103,727)   (146,593)    (49,170)
Capital expenditures (cash                                                  
 consideration)                             741,640     828,956     814,334 
Basic outstanding shares (000s)             174,813     158,578     136,191 
----------------------------------------------------------------------------
PER UNIT                                                                    
Gas ($/mcf)                                    2.67        4.17        4.52 
Crude oil and NGL ($/bbl)                     83.71       90.24       74.62 
Revenue ($/Boe)                               24.19       32.07       32.24 
Operating netback ($/Boe)                     16.27       22.35       21.76 
----------------------------------------------------------------------------
(1) See Non-GAAP Financial Measures.                                        

 
The changes to the financial information summarized above are due
primarily to the continuing growth in the Company's crude oil,
natural gas and NGL production over the periods, from the Company's
exploration and development activities and from the acquisition of
producing properties. 


 
CONSOLIDATED FINANCIAL STATEMENTS                                           
                                                                            
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                               
                                                                            
                                                        December    December
(000s)                                                  31, 2012    31, 2011
----------------------------------------------------------------------------
Assets                                                                      
Current assets:                                                             
  Accounts receivable                                $    83,868 $    60,799
  Assets held for sale                                    33,007           -
  Prepaid expenses and deposits                            5,309       5,313
  Fair value of financial instruments (notes 4 and 5)      4,814         276
----------------------------------------------------------------------------
Total current assets                                     126,998      66,388
Investments                                                    -         233
Long-term asset                                            2,580           -
Exploration and evaluation assets (note 6)               639,933     620,515
Property, plant and equipment (note 7)                 2,810,742   2,023,888
--------------------------------------------
--------------------------------
Total Assets                                         $ 3,580,253 $ 2,711,024
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity                                        
Current liabilities:                                                        
  Accounts payable and accrued liabilities           $   225,911 $   212,705
----------------------------------------------------------------------------
Total current liabilities                                225,911     212,705
Bank debt (note 9)                                       360,573      81,749
Decommissioning obligations (note 8)                      64,757      50,463
Long-term obligation                                       7,139      10,864
Fair value of financial instruments (notes 4 and 5)        2,012          74
Deferred premium on flow-through shares                    8,755      11,316
Deferred taxes (note 12)                                 176,391     107,977
Shareholders' equity:                                                       
  Share capital (note 11)                              2,599,614   2,140,660
  Non-controlling interest (note 10)                      16,298      15,079
  Contributed surplus                                     70,923      47,776
  Retained earnings                                       47,880      32,361
----------------------------------------------------------------------------
Total shareholders' equity                             2,734,715   2,235,876
----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity           $ 3,580,253 $ 2,711,024
----------------------------------------------------------------------------
Commitments (note 19)                                                       
Subsequent events (notes 5, 19 and 21)                                      
See accompanying notes to the consolidated financial statements.
            
                                                                            
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME                  
                                                                            
                                                   Years Ended December 31, 
----------------------------------------------------------------------------
(000s) except per-share amounts                           2012         2011 
----------------------------------------------------------------------------
Revenue:                                                                    
  Oil and natural gas sales                        $   441,888  $   342,820 
  Royalties                                            (30,304)     (23,553)
----------------------------------------------------------------------------
  Net revenue from oil and natural gas sales           411,584      319,267 
  Realized gain on financial instruments                 7,955       20,172 
  Unrealized gain on financial instruments (note 5)      2,497          833 
  Other income (note 15)                                 5,039        5,832 
----------------------------------------------------------------------------
Total net revenue                                      427,075      346,104 
Expenses:                                                                   
  Operating                                             82,312       63,129 
  Transportation                                        34,707       23,384 
  General and administration                            14,619       11,494 
  Share-based payments                                  14,946       11,685 
  (Gain) loss on divestitures                           (7,634)       3,630 
  Depletion, depreciation and amortization             242,528      158,168 
----------------------------------------------------------------------------
Total expenses                                         381,478      271,490 
----------------------------------------------------------------------------
Income from operations                                  45,597       74,614 
Finance expenses (note 16)                              12,958        6,180 
----------------------------------------------------------------------------
Income before taxes                                     32,639       68,434 
Deferred taxes (note 12)                                15,901       24,583 
----------------------------------------------------------------------------
Net income and comprehensive income before non-                             
 controlling interest                                   16,738       43,851 
----------------------------------------------------------------------------
Net income and comprehensive income attributable                            
 to:                                                                        
  Shareholders of the Company                           15,519       42,681 
  Non-controlling interest (note 10)                     1,219        1,170 
----------------------------------------------------------------------------
                                                   $    16,738  $    43,851 
----------------------------------------------------------------------------
                                                                            
Net income per share attributable to common                                 
 shareholders (note 13)                                                     
----------------------------------------------------------------------------
  Basic                                            $      0.10  $      0.29 
----------------------------------------------------------------------------
  Diluted                                          $      0.09  $      0.28 
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.            
                                                                            
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                                
                                                                            
(000s)                                                                      
----------------------------------------------------------------------------
                                                            Non-            
                       Share  Contributed   Retained Controlling      Total 
                     Capital      Surplus   Earnings    Interest     Equity 
----------------------------------------------------------------------------
Balance at                                                                  
 December 31,                                                               
 2011            $ 2,140,660 $     47,776 $   32,361$     15,079 $2,235,876 
Issue of common                                                             
 shares (note 11)    441,620            -          -           -    441,620 
Share issue                                                                 
 costs, net of                                                              
 tax                  (7,123)           -          -           -     (7,123)
Share-based                                                                 
 payments                  -       14,946          -           -     14,946 
Capitalized                                                                 
 share-based                                                                
 payments                  -       14,946          -           -     14,946 
Options exercised                                                           
 (note 11)       -    24,457       (6,745)         -           -     17,712 
Income                                                                      
 attributable to                                                            
 common                                                                     
 shareholders              -            -     15,519           -     15,519 
Income                                                                      
 attributable to                                                            
 non-controlling                                                            
 interest                  -            -          -       1,219      1,219 
----------------------------------------------------------------------------
Balance at                                                                  
 December 31,                                                               
 2012            $ 2,599,614 $     70,923 $   47,880$     16,298 $2,734,715 
----------------------------------------------------------------------------
                                                                            
(000s)                                                                      
----------------------------------------------------------------------------
                                         Retained          Non-             
                    Share  Contributed  Earnings/   Controlling       Total 
                  Capital      Surplus  (Deficit)      Interest      Equity 
----------------------------------------------------------------------------
Balance at                                                                  
 December 31,                                                               
 2010          $1,508,052 $     29,262 $  (10,320) $     13,909 $ 1,540,903 
Issue of common                                                             
 shares (note                                                               
 11)              629,809            -          -             -     629,809 
Share issue                                                                 
 costs, net of                                                              
 tax              (14,589)           -          -             -   
  (14,589)
Share-based                                                                 
 payments               -       11,685          -             -      11,685 
Capitalized                                                                 
 share-based                                                                
 payments               -       11,685          -             -      11,685 
Options                                                                     
 exercised                                                                  
 (note 11)         17,388       (4,856)         -             -      12,532 
Income                                                                      
 attributable                                                               
 to common                                                                  
 shareholders           -            -     42,681             -      42,681 
Income                                                                      
 attributable                                                               
 to non-                                                                    
 controlling                                                                
 interest               -            -          -         1,170       1,170 
----------------------------------------------------------------------------
Balance at                                                                  
 December 31,                                                               
 2011          $2,140,660 $     47,776 $   32,361  $     15,079 $ 2,235,876 
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.            
                                                                            
CONSOLIDATED STATEMENTS OF CASH FLOW                                        
                                                                            
                                                   Years Ended December 31, 
----------------------------------------------------------------------------
(000s)                                                  2012           2011 
----------------------------------------------------------------------------
Cash provided by (used in):                                                 
Operations:                                                                 
  Net income                                     $    15,519    $    42,681 
  Items not involving cash:                                                 
    Depletion and depreciation                       242,528        158,168 
    Accretion of decommissioning obligations           1,328          1,315 
    Share-based payments                              14,946         11,685 
    Deferred taxes                                    15,901         24,583 
    Unrealized (gain) on financial instruments                              
     (note 5)                                         (2,497)          (833)
    Realized (gain) on sale of investments               (38)             - 
    (Gain) loss on divestitures                       (7,634)         3,630 
    Non-controlling interest                           1,219          1,170 
  Decommissioning expenditures                          (993)        (1,047)
  Changes in non-cash operating working capital                             
   (note 18)                                          (6,802)       (12,931)
----------------------------------------------------------------------------
Total cash flow from operating activities            273,477        228,421 
Financing:                                                                  
  Issue of common shares                             231,367        451,491 
  Share issue costs                                   (9,497)       (19,329)
  Increase in bank debt                              246,607         62,053 
----------------------------------------------------------------------------
Total cash flow from financing activities            468,477        494,215 
Investing:                                                                  
  Exploration and evaluation                         (79,295)      (213,414)
  Property, plant and equipment                     (586,408)      (508,294)
  Property acquisitions                              (88,619)      (115,231)
  Proceeds from divestitures                          12,682          7,983 
  Proceeds from sale of investments                      168          3,588 
  Repayment of long-term obligation                   (3,725)        (3,725)
  Changes in non-cash investing working capital                             
   (note 18)                                           3,243         41,297 
----------------------------------------------------------------------------
Total cash flow from investing activities           (741,954)      (787,796)
Changes in cash                                            -        (65,160)
Cash, beginning of year                                    -         65,160 
----------------------------------------------------------------------------
Cash, end of year                                $         -    $         - 
----------------------------------------------------------------------------
Cash is defined as cash and cash equivalents.                               
                                                                            
See accompanying notes to the consolidated financial statements.            

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
For the years ended December 31, 2012 and 2011 
(tabular amounts in thousands of dollars, unless otherwise noted) 
Corporate Information:  
Tourmaline Oil Corp. (the "Company") was incorporated under the laws
of the Province of Alberta on July 21, 2008. The Company is engaged
in the acquisition, exploration, development and production of
petroleum and natural gas properties and conducts many of its
activities jointly with others. These consolidated financial
statements reflect only the Company's proportionate interest in such
activities.  
The Company's registered office is located at Suite 2400, 525 - 8th
Avenue S.W., Calgary, Alberta T2P 1G1. 
1. BASIS OF PREPARATION 
(a) Statement of compliance: 
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB"). 
The consolidated financial statements were authorized for issue by
the Board of Directors on March 19, 2013. 
(b) Basis of measurement: 
The consolidated financial statements have been prepared on the
historical-cost basis except for the following: 
(i) derivative financial instruments are measured at fair value; and  
(ii) held for trading financial assets are measured at fair value
with changes in fair value recorded in earnings. 
The methods used to m
easure fair values are discussed in note 4.  
Operating expenses in the consolidated statements of income and
comprehensive income are presented as a combination of function and
nature in conformity with industry practice. Depletion, depreciation
and amortization are presented in separate lines by their nature,
while operating expenses and net administrative expenses are
presented on a functional basis. Significant expenses such as
salaries and benefits are presented by their nature in the notes to
the financial statements. 
(c) Functional and presentation currency: 
These consolidated financial statements are presented in Canadian
dollars, which is the Company's functional currency. 
(d) Use of estimates and judgments: 
The timely preparation of the financial statements requires
management to make judgments, estimates and assumptions that affect
the application of accounting policies and reported amounts of assets
and liabilities and income and expenses. Accordingly, actual results
may differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimates are revised and
in any future periods affected. Significant estimates and judgments
made by management in the preparation of these financial statements
are outlined below. 
Critical judgments in applying accounting policies:  
The following are the critical judgments, apart from those involving
estimations (see below), that management has made in the process of
applying the Company's accounting policies and that have the most
significant effect on the amounts recognized in these consolidated
financial statements: 
(i) Identification of cash-generating units: 
The Company's assets are aggregated into cash-generating units
("CGU") for the purpose of calculating impairment. A CGU is comprised
of assets that are grouped together into the smallest group of assets
that generate cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets.
By their nature, these estimates and assumptions are subject to
measurement uncertainty and may impact the carrying value of the
Company's assets in future periods. 
(ii) Impairment of petroleum and natural gas assets: 
Judgements are required to assess when impairment indicators exist
and impairment testing is required. For the purposes of determining
whether impairment of petroleum and natural gas assets has occurred,
and the extent of any impairment or its reversal, the key assumptions
the Company uses in estimating future cash flows are forecast
petroleum and natural gas prices, expected production volumes and
anticipated recoverable quantities of proved and probable reserves.
These assumptions are subject to change as new information becomes
available. Changes in economic conditions can also affect the rate
used to discount future cash flow estimates. Changes in the
aforementioned assumptions could affect the carrying amounts of
assets. Impairment charges and reversals are recognized in profit or
loss. 
(iii) Deferred taxes: 
Deferred tax assets (if any) are recognized only to the extent it is
considered probable that those assets will be recoverable. This
involves an assessment of when those deferred tax assets are likely
to reverse and a judgment as to whether or not there will be
sufficient taxable profits available to offset the tax assets when
they do reverse. This requires assumptions regarding future
profitability and is therefore inherently uncertain. To the extent
assumptions regarding future profitability change, there can be an
increase or decrease in the amounts recognized in respect of deferred
tax assets as well as the amounts recognized in profit or loss in the
period in which the change occurs. 
Key sources of estimation uncertainty:  
The following are the key assumptions concerning the sources of
estimation uncertainty at the end of the reporting period, that have
a significant risk of causing adjustments to the carrying amounts of
assets and liabilities. 
(i) Reserves: 
Estimation of reported recoverable quantities of proved and probable
reserves include judgmental assumptions regarding production profile,
commodity prices, exchange rates, remediation costs, timing and
amount of future development costs, and production, transportation
and marketing costs for future cash flows. It also requires
interpretation of geological and geophysical models in anticipated
recoveries. The economical, geological and technical factors used to
estimate reserves may change from period to period. Changes in
reported reserves can impact the carrying values of the Company's
petroleum and natural gas properties and equipment, the calculation
of depletion and depreciation, the provision for decommissioning
obligations, and the recognition of deferred tax assets due to
changes in expected future cash flows. The recoverable quantities of
reserves and estimated cash flows from the Company's petroleum and
natural gas interests are independently evaluated by reserve
engineers at least annually.  
The Company's petroleum and natural gas reserves represent the
estimated quantities of petroleum, natural gas and natural gas
liquids which geological, geophysical and engineering data
demonstrate with a specified degree of certainty to be economically
recoverable in future years from known reservoirs and which are
considered commercially producible. Such reserves may be considered
commercially producible if management has the intention of developing
and producing them and such intention is based upon (i) a reasonable
assessment of the future economics of such production; (ii) a
reasonable expectation that there is a market for all or
substantially all the expected petroleum and natural gas production;
and (iii) evidence that the necessary production, transmission and
transportation facilities are available or can be made available.
Reserves may only be considered proven and probable if producibility
is supported by either production or conclusive formation tests. The
Company's petroleum and gas reserves are determined pursuant to
National Instrument 51-101, Standard of Disclosures for Oil and Gas
Activities. 
(ii) Share-based payments: 
All equity-settled, share-based awards issued by the Company are
recorded at fair value using the Black-Scholes option-pricing model.
In assessing the fair value of equity-based compensation, estimates
have to be made regarding the expected volatility in share price,
option life, dividend yield, risk-free rate and estimated forfeitures
at the initial grant date. 
(iii) Decommissioning obligations: 
The Company estimates future remediation costs of production
facilities, wells and pipelines at different stages of development
and construction of assets or facilities. In most instances, removal
of assets occurs many years into the future. This requires judgment
regarding abandonment date, future environmental and regulatory
legislation, the extent of reclamation activities, the engineering
methodology for estimating cost, future removal technologies in
determining the removal cost and liability-specific discount rates to
determine the present value of these cash flows. 
(iv) Deferred taxes: 
Tax provisions are based on enacted or substantively enacted laws.
Changes in those laws could affect amounts recognized in profit or
loss both in the period of change, which would include any impact on
cumulative provisions, and in future periods. 
2. SIGNIFICANT ACCOUNTING POLICIES 
The accounting policies set out below have been applied consistently
to all periods presented in these consolidated financial statements,
and have been applied consistently by the Company and its
subsidiaries. 
(a) Consolidation: 
The consolidated financial statements include the accounts of
Tourmaline Oil Corp., Exshaw Oil Corp., of which the Company owns
90.6% (note 10), and Huron Energy Corporation, which is a
wholly-owned subsidiary.  
(i) Subsidiaries:  
Subsidiaries are entities controlled by the Company. Control exists
when the Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that currently are
exercisable are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases.  
The purchase method of accounting is used to account for acquisitions
of subsidiaries and assets that meet the definition of a business
under IFRS. The cost of an acquisition is measured as the fair value
of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at
the acquisition date. If the cost of acquisition is less than the
fair value of the net assets of the subsidiary acquired, the
difference is recognized immediately in the income statement.  
(ii) Transactions eliminated on consolidation:  
Intercompany balances and transactions, and any unrealized income and
expenses arising from intercompany transactions, are eliminated in
preparing the consolidated financial statements.  
(iii) Jointly-controlled operations and jointly-controlled assets:  
Substantially all of the Company's oil and natural gas activities
involve jointly-controlled assets. The consolidated financial
statements include the Company's share of these jointly-controlled
assets and a proportionate share of the relevant revenue and related
costs. 
(b) Financial instruments:  
(i) Non-derivative financial instruments:  
Non-derivative financial instruments comprise accounts receivable,
cash and cash equivalents, investments, bank overdrafts, bank debt,
and accounts payable and accrued liabilities. Non-derivative
financial instruments are recognized initially at fair value plus,
for instruments not at fair value through profit or loss, any
directly attributable transaction costs. Subsequent to initial
recognition, non-derivative financial instruments are measured as
described below:  
Cash and cash equivalents:  
Cash and cash equivalents comprise cash on hand, term deposits held
with banks, other short-term highly-liquid investments with original
maturities of three months or less, and are measured similar to other
non-derivative financial instruments. 
Investments:  
An instrument is classified at fair value through profit or loss if
it is held for trading or is designated as such upon initial
recognition. Tourmaline's investments in public companies are
designated as held for trading. Financial instruments are designated
at fair value through profit or loss if the Company manages such
investments and makes purchase and sale decisions based on their fair
value in accordance with the Company's risk management or investment
strategy. Upon initial recognition, attributable transaction costs
are recognized in profit or loss when incurred. Financial instruments
at fair value through profit or loss are measured at fair value, and
changes therein are recognized in profit or loss. 
Other:  
Other non-derivative financial instruments, such as accounts
receivable, bank debt, and accounts payable and accrued liabilities,
are measured at amortized cost using the effective interest method,
less any impairment losses. The bank debt has a floating rate of
interest and therefore the carrying value approximates the fair
value.  
(ii) Derivative financial instruments:  
The Company has entered into certain financial derivative contracts
in order to manage the exposure to market risks from fluctuations in
commodity prices and interest rates. These instruments are not used
for trading or speculative purposes. The Company has not designated
its financial derivative contracts as effective accounting hedges,
and thus not applied hedge accounting, even though the Company
considers all commodity contracts to be economic hedges. As a result,
all financial derivative contracts are classified as fair value
through profit or loss and are recorded on the statement of financial
position at fair value. Transaction costs are recognized in profit or
loss when incurred.  
The Company has accounted for its forward physical delivery sales
contracts, which were entered into and continue to be held for the
purpose of receipt or delivery of non-financial items in accordance
with its expected purchase, sale or usage requirements as executory
contracts. As such, these contracts are not considered to be
derivative financial instruments and have not been recorded at fair
value on the statement of financial position. Settlements on these
physical sales contracts are recognized in oil and natural gas
revenue.  
Embedded derivatives are separated from the host contract and
accounted for separately if the economic characteristics and risks of
the host contract and the embedded derivative are not closely
related, a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative, and the
combined instrument is not measured at fair value through earnings.
Changes in the fair value of separable embedded derivatives are
recognized immediately in earnings.  
(iii) Share capital:  
Common shares are classified as equity. Incremental costs directly
attributable to the issue of common shares and share options are
recognized as a deduction from equity, net of any tax effects. 
(c) Property, plant and equipment and intangible exploration assets: 
(i) Recognition and measurement: 
Exploration and evaluation expenditures:  
Pre-license costs are recognized in the statement of operations as
incurred.  
Exploration and evaluation costs, including the costs of acquiring
licenses and directly attributable general and administrative costs,
initially are capitalized as either tangible or intangible
exploration and evaluation assets according to the nature of the
assets acquired. The costs are accumulated in cost centers by well,
field or exploration area pending determination of technical
feasibility and commercial viability.  
Exploration and evaluation assets are assessed for impairment if (i)
sufficient data exists to determine technical feasibility and
commercial viability, and (ii) facts and circumstances suggest that
the carrying amount exceeds the recoverable amount. For purposes of
impairment testing, exploration and evaluation assets are allocated
to cash-generating units.  
The technical feasibility and commercial viability of extracting a
mineral resource is considered to be determinable when proven and/or
probable reserves are determined to exist. A review of each
exploration licence or field is carried out, at least annually, to
ascertain whether proven or probable reserves have been discovered.
Upon determination of proven and/or probable reserves, intangible
exploration and evaluation assets attributable to those reserves are
first tested for impairment and then reclassified from exploration
and evaluation assets to a separate category within tangible assets
referred to as oil and natural gas interests. The cost of undeveloped
land that expires or any impairment recognized during a period is
charged as additional depletion and depreciation expense. 
Development and production costs:  
Items of property, plant and equipment, which include oil and gas
development and production assets, are measured at cost less
accumulated depletion and depreciation and accumulated impairment
losses. Development and production assets are grouped into CGUs for
impairment testing. The Company allocated its property, plant and
equipment to the following CGUs: 'Deep Basin', 'Spirit River' and 'BC
Montney'. When significant parts of an item of property, plant and
equipment, including oil and natural gas interests, have different
useful lives, they are accounted for as separate items (major
components).  
Gains and losses on disposal of an item of property, plant and
equipment, including oil and natural gas interests, are measured as
the difference between the fair value of the proceeds received or
given up and the carrying value of the assets disposed, and are
recognized in profit or loss. 
(ii) Subsequent costs: 
Costs incurred subsequent to the determination of technical
feasibility and commercial viability and the costs of replacing parts
of property, plant and equipment are recognized as oil and natural
gas interests only when they increase the future economic benefits
embodied in the specific asset to which they relate. All other
expenditures are recognized in profit or loss as incurred. Such
capitalized oil and natural gas interests generally represent costs
incurred in developing proved and/or probable reserves and bringing
in or enhancing production from such reserves, and are accumulated on
a field or geotechnical area basis.
 The carrying amount of any
replaced or sold component is derecognized. The costs of the
day-to-day servicing of property, plant and equipment are recognized
in profit or loss as incurred. 
(iii) Depletion and depreciation: 
The net carrying value of development or production assets is
depleted using the unit-of-production method by reference to the
ratio of production in the year to the related proved-plus-probable
reserves, taking into account estimated future development costs
necessary to bring those reserves into production. Future development
costs are estimated taking into account the level of development
required to produce the reserves. These estimates are reviewed by
independent reserve engineers at least annually.  
Proved-plus-probable reserves are estimated annually by independent
qualified reserve evaluators and represent the estimated quantities
of crude oil, natural gas and natural gas liquids which geological,
geophysical and engineering data demonstrate with a specified degree
of certainty to be recoverable in future years from known reservoirs
and which are considered commercially producible. For interim
consolidated financial statements, internal estimates of changes in
reserves and future development costs are used for determining
depletion for the period.  
For other assets, depreciation is recognized in profit or loss on a
straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment. Leased assets are
depreciated over the shorter of the lease term and their useful lives
unless it is reasonably certain that the Company will obtain
ownership by the end of the lease term. Land is not depreciated.  
The estimated useful lives for depreciable assets are as follows: 


 
----------------------------------------------------------------------------
Plants and facilities                                  30 years             
Office equipment                                       25% declining balance
Furniture and fixtures                                 25% declining balance
----------------------------------------------------------------------------

 
Depreciation methods, useful lives and residual values are reviewed
at each reporting date.  
(d) Impairment: 
(i) Financial assets: 
A financial asset is assessed at each reporting date to determine
whether there is any objective evidence that it is impaired. A
financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the
estimated future cash flows of that asset.  
An impairment loss in respect of a financial asset measured at
amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.  
Individually significant financial assets are tested for impairment
on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk
characteristics.  
All impairment losses are recognized in profit or loss.  
An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognized. For financial assets measured at amortized cost, the
reversal is recognized in profit or loss.  
(ii) Non-financial assets:  
The carrying amounts of the Company's non-financial assets, other
than E&E assets and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's
recoverable amount is estimated. For goodwill and other intangible
assets that have indefinite lives, or that are not yet available for
use, an impairment test is completed each year. E&E assets are
assessed for impairment when they are reclassified to property, plant
and equipment, as oil and natural gas interests, and also if facts
and circumstances suggest that the carrying amount exceeds the
recoverable amount.  
For the purpose of impairment testing, assets are grouped into CGUs.
The recoverable amount of an asset or a CGU is the greater of its
value in use and its fair value less costs to sell.  
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and
the risks specific to the asset. Value in use is generally computed
by reference to the present value of the future cash flows expected
to be derived from production of proven-plus-probable reserves. Fair
value less costs to sell is determined as the amount that would be
obtained from the sale of an asset in an arm's length transaction
between knowledgeable and willing parties.  
The goodwill acquired in an acquisition, for the purpose of
impairment testing, is allocated to the CGUs that are expected to
benefit from the synergies of the combination. E&E assets are
allocated to the related CGUs when they are assessed for impairment,
both at the time of triggering facts and circumstances as well as
upon their eventual reclassification to property, plant and
equipment.  
An impairment loss is recognized if the carrying amount of an asset
or its CGU exceeds its estimated recoverable amount. Impairment
losses are recognized in profit or loss. Impairment losses recognized
in respect of CGUs are allocated first to reduce the carrying amount
of any goodwill allocated to the units and then to reduce the
carrying amounts of the assets in the unit (group of units) on a
pro-rata basis. Impairment losses recognized in prior years are
assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent
that the asset's carrying amount does not exceed the carrying amount
that would have been determined, net of depletion and depreciation or
amortization, if no impairment loss had been recognized. 
(e) Provisions:  
A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax
"risk-free" rate that reflects current market assessments of the time
value of money. Provisions are not recognized for future operating
losses. 
(i) Decommissioning obligations: 
The Company recognizes the decommissioning obligations for the future
costs associated with removal, site restoration and decommissioning
costs. The fair value of the liability for the Company's
decommissioning obligation is recorded in the period in which it is
incurred, discounted to its present value using the risk-free
interest rate and the corresponding amount recognized by increasing
the carrying amount of petroleum and natural gas assets. The asset
recorded is depleted on a unit-of-production basis over the life of
the reserves. The liability amount is increased each reporting period
due to the passage of time and the amount of accretion is charged to
earnings in the period. Revisions to the estimated timing of cash
flows or to the original estimated undiscounted cost could also
result in an increase or decrease to the obligation. Actual costs
incurred upon settlement of the decommissioning obligation are
charged against the obligation to the extent of the liability
recorded. 
(ii) Onerous contracts: 
A provision for onerous contracts is recognized when the expected
benefits to be derived by the Company from a contract are lower than
the unavoidable cost of meeting its obligations under the contract.
The provision is measured at the present value of the lower of the
expected cost of terminating the contract and the expected n
et cost
of continuing with the contract. Before a provision is established,
the Company recognizes any impairment loss on associated assets. 
(f) Revenue recognition:  
Revenue from the sale of oil and natural gas is recorded when the
significant risks and rewards of ownership of the product is
transferred to the buyer, which is usually when legal title passes to
the external party. This is generally at the time product enters the
pipeline. Revenue is measured net of discounts, customs duties and
royalties. With respect to the latter, the entity is acting as a
collection agent on behalf of others.  
Tariffs and tolls charged to other entities for use of pipelines and
facilities owned by the Company are recognized as revenue as they
accrue in accordance with the terms of the service or tariff and
tolling agreements.  
Royalty income is recognized as it accrues in accordance with the
terms of the overriding royalty agreements. 
(g) Finance income and expenses:  
Finance expense comprises interest expense on borrowings, accretion
of the discount on provisions, transaction costs on business
combinations and impairment losses recognized on financial assets.  
Interest income is recognized as it accrues in profit or loss, using
the effective-interest method. 
(h) Deferred taxes:  
Income tax expense comprises current and deferred tax. Income tax
expense is recognized in profit or loss except to the extent that it
relates to items recognized directly in equity, in which case it is
recognized in equity.  
Current tax is the expected tax payable on the taxable income for the
year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of
previous years.  
Deferred tax is recognized on the temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is
not recognized on the initial recognition of assets or liabilities in
a transaction that is not a business combination. In addition,
deferred tax is not recognized for taxable temporary differences
arising on the initial recognition of goodwill. Deferred tax is
measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted by the reporting date.
Deferred-tax assets and liabilities are offset if there is a legally
enforceable right to offset, and they relate to income taxes levied
by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will be
realized simultaneously.  
A deferred-tax asset is recognized to the extent that it is probable
that future taxable profits will be available against which the
temporary difference can be utilized. Deferred-tax assets are
reviewed at each reporting date and are reduced to the extent that it
is no longer probable that the related tax benefit will be realized. 
(i) Flow-through common shares:  
Periodically, the Company finances a portion of its exploration and
development activities through the issuance of flow-through shares.
The resource expenditure deductions for income tax purposes related
to exploratory development activities are renounced to investors in
accordance with tax legislation. Flow-through shares issued are
recorded in share capital at the fair value of common shares on the
date of issue. The premium received on issuing flow-through shares is
initially recorded as a deferred liability. As qualifying
expenditures are incurred, the premium is reversed and a deferred
income tax liability is recorded. The net amount is then recognized
as deferred income tax expense. 
(j) Share-based payments:  
The Company applies the fair-value method for valuing share option
grants. Under this method, compensation cost attributable to all
share options granted are measured at fair value at the grant date
and expensed over the vesting period with a corresponding increase to
contributed surplus. A forfeiture rate is estimated on the grant date
and is adjusted to reflect the actual number of options or units that
vest. Upon the exercise of the share options, consideration received,
together with the amount previously recognized in contributed
surplus, is recorded as an increase to share capital. 
(k) Per-share information:  
Basic per-share information is computed by dividing income by the
weighted average number of common shares outstanding for the period.
The treasury-stock method is used to determine the diluted per share
amounts, whereby any proceeds from the share options, warrants or
other dilutive instruments are assumed to be used to purchase common
shares at the average market price during the period. The weighted
average number of shares outstanding is then adjusted by the net
change. 
(l) Leased assets:  
Leases where the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Upon initial
recognition, the leased asset is measured at an amount equal to the
lower of its fair value and the present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that
asset.  
Minimum lease payments made under finance leases are apportioned
between the finance expenses and the reduction of the outstanding
liability. The finance expenses are allocated to each year during the
lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability.  
Other leases are operating leases, which are not recognized on the
Company's statement of financial position. 
3. FUTURE ACCOUNTING CHANGES 
The following pronouncements from the IASB will become effective for
financial reporting periods beginning on or after January 1, 2013 and
have not yet been adopted by the Company. All of these new or revised
standards permit early adoption with transitional arrangements
depending upon the date of initial application. 
IFRS 9 - Financial Instruments addresses the classification and
measurement of financial assets. 
IFRS 10 - Consolidated Financial Statements builds on existing
principles and standards and identifies the concept of control as the
determining factor in whether an entity should be included within the
consolidated financial statements of the parent company. 
IFRS 11 - Joint Arrangements establishes the principles for financial
reporting by entities when they have an interest in arrangements that
are jointly controlled. 
IFRS 12 - Disclosure of Interest in Other Entities provides the
disclosure requirements for interests held in other entities
including joint arrangements, associates, special purpose entities
and other off balance sheet entities. 
IFRS 13 - Fair Value Measurement defines fair value, requires
disclosure about fair value measurements and provides a framework for
measuring fair value when it is required or permitted within the IFRS
standards. 
IAS 19 - Employee Benefits revises the existing standard to eliminate
options to defer the recognition of gains and losses in defined
benefit plans, requires re-measurements of a defined benefit plan's
assets and liabilities to be presented in other comprehensive income
and increases disclosure. 
IAS 27 - Separate Financial Statements revised the existing standard
which addresses the presentation of parent company financial
statements that are not consolidated financial statements. 
IAS 28 - Investments in Associate and Joint Ventures revised the
existing standard and prescribes the accounting for investments and
sets out the requirements for the application of the equity method
when accounting for investments in associates and joint ventures.  
The Company has not completed its evaluation of the effect of
adopting these standards on its consolidated financial statements. 
4
. DETERMINATION OF FAIR VALUE 
A number of the Company's accounting policies and disclosures require
the determination of fair value, for both financial and non-financial
assets and liabilities. Fair values have been determined for
measurement and/or disclosure purposes based on the following
methods. When applicable, further information about the assumptions
made in determining fair values is disclosed in the notes specific to
that asset or liability. 
(i) Property, plant and equipment and intangible exploration assets: 
The fair value of property, plant and equipment recognized in a
business combination, is based on market values. The market value of
property, plant and equipment is the estimated amount for which
property, plant and equipment could be exchanged on the acquisition
date between a willing buyer and a willing seller in an arm's-length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion. The market value of
oil and natural gas interests (included in property, plant and
equipment) and intangible exploration assets is estimated with
reference to the discounted cash flow expected to be derived from oil
and natural gas production based on externally prepared reserve
reports. The risk-adjusted discount rate is specific to the asset
with reference to general market conditions.  
The market value of other items of property, plant and equipment is
based on the quoted market prices for similar items. 
(ii) Cash and cash equivalents, accounts receivable, bank debt and
accounts payable and accrued liabilities: 
The fair value of cash and cash equivalents, accounts receivable,
bank debt and accounts payable and accrued liabilities is estimated
as the present value of future cash flow, discounted at the market
rate of interest at the reporting date. At December 31, 2012 and
December 31, 2011, the fair value of these balances approximated
their carrying value due to their short term to maturity. The bank
debt has a floating rate of interest and therefore the carrying value
approximates the fair value. 
(iii) Derivatives: 
The fair value of commodity price risk management contracts is
determined by discounting the difference between the contracted
prices and published forward price curves as at the statement of
financial position date, using the remaining contracted oil and
natural gas volumes and a risk-free interest rate (based on published
government rates). The fair value of options and costless collars is
based on option models that use published information with respect to
volatility, prices and interest rates. 
(iv) Share options: 
The fair value of employee share options is measured using a Black
Scholes option pricing model. Measurement inputs include share price
on measurement date, exercise price of the instrument, expected
volatility (based on weighted average historic volatility adjusted
for changes expected due to publicly available information), weighted
average expected life of the instruments (based on historical
experience and general option holder behaviour), expected dividends,
and the risk-free interest rate (based on government bonds). 
(v) Measurement: 
Tourmaline classifies the fair value of these transactions according
to the following hierarchy based on the amount of observable inputs
used to value the instrument.  
- Level 1 - Quoted prices are available in active markets for
identical assets or liabilities as of the reporting date. Active
markets are those in which transactions occur in sufficient frequency
and volume to provide pricing information on an ongoing basis.  
- Level 2 - Pricing inputs are other than quoted prices in active
markets included in Level 1. Prices are either directly or indirectly
observable as of the reporting date. Level 2 valuations are based on
inputs, including quoted forward prices for commodities, time value
and volatility factors, which can be substantially observed or
corroborated in the marketplace.  
- Level 3 - Valuations in this level are those with inputs for the
asset or liability that are not based on observable market data.  
The following tables provide fair value measurement information for
financial assets and liabilities as of December 31, 2012 and December
31, 2011. The carrying value of cash and cash equivalents, trade and
other receivables and trade and other payables included in the
consolidated statement of financial position approximate fair value
due to the short-term nature of those instruments. These assets and
liabilities are not included in the following tables. 


 
December 31, 2012          Carrying                                         
 (000s)                      Amount  Fair Value    Level 1  Level 2  Level 3
----------------------------------------------------------------------------
Financial assets:                                                           
  Commodity price                                                           
   risk contracts     $       4,814 $     4,814   $      - $  4,814 $      -
Financial                                                                   
 liabilities:                                                              -
  Bank debt                 360,573     360,573    360,573        -        -
  Commodity price                                                           
   risk contracts             2,012       2,012          -    2,012        -
----------------------------------------------------------------------------
December 31, 2011          Carrying                                         
 (000s)                      Amount  Fair Value    Level 1  Level 2  Level 3
----------------------------------------------------------------------------
Financial assets:                                                           
  Investments         $         233 $       233   $    233 $      - $      -
  Commodity price                                                           
   risk contracts               276         276          -      276        -
Financial                                                                   
 liabilities:                                                               
  Bank debt                  81,749      81,749     81,749        -        -
  Commodity price                                                           
   risk contracts                74          74          -       74        -
----------------------------------------------------------------------------

 
5. FINANCIAL RISK MANAGEMENT 
The Board of Directors has overall responsibility for the
establishment and oversight of the Company's risk management
framework. The Board has implemented and monitors compliance with
risk management policies.  
The Company's risk management policies are established to identify
and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to market
conditions and the Company's activities. 
(a) Credit risk:  
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Company's
receivables from joint venture partners and petroleum and natural gas
marketers. As at December 31, 2012, Tourmaline's receivables
consisted of $22.7 million (December 31, 2011 - $9.7 million) from
joint venture partners, $52.8 million (December 31, 2011 - $40.1
million) from petroleum and natural gas marketers and $8.4 million
(December 31, 2011 - $11.0 million) from provincial governments.  
Receivables from petroleum and natural gas marketers are normally
collected on the 25th day of the month following production. The
Company sells a significant portion of its oil and gas to a limited
number of counterparties. In 2012, Tourmaline had two counterparties
that individually accounted for more than ten percent of annual
revenues. The Company's policy to mitigate credit risk associated
with these balances is to establish marketing relationships with
creditworthy purchasers. Tourmaline historically has not experienced
any collection issues with its petroleum and natural gas marketers.
Joint venture receivables are typically collected within one to three
months of the joint venture bill being issued to the partner. The
Company attempts to mitigate the risk from joint venture receivables
by obtaining partner approval of significant capital expenditures
prior to expenditure. The receivables, however, are from participants
in the petroleum and natural gas sector, and collection of the
outstanding balances are dependent on industry factors such as
commodity price fluctuations, escalating costs and the risk of
unsuccessful drilling. In addition, further risk exists with joint
venture partners as disagreements occasionally arise that increase
the potential for non-collection. The Company does not typically
obtain collateral from petroleum and natural gas marketers or joint
venture partners; however, the Company does have the ability to
withhold production from joint venture partners in the event of
non-payment.  
The Company monitors the age of, and investigates issues behind, its
receivables that have been past due for over 90 days. At December 31,
2012, the Company had $1.1 million (December 31, 2011 - $0.6 million)
over 90 days. The Company is satisfied that these amounts are
substantially collectible.  
The carrying amount of accounts receivable, cash and cash equivalents
and commodity price risk management contracts represents the maximum
credit exposure. The Company does not have an allowance for doubtful
accounts as at December 31, 2012 (December 31, 2011 - nil) and did
not provide for any doubtful accounts nor was it required to
write-off any receivables during the year ended December 31, 2012
(December 31, 2011 - nil). 
(b) Liquidity risk:  
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they come due. The Company's approach to
managing liquidity is to ensure that it will have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions without incurring unacceptable losses or risking
harm to the Company's reputation. Liquidity risk is mitigated by cash
on hand, when available, and access to credit facilities.  
The Company's accounts payable and accrued liabilities balance at
December 31, 2012 is approximately $225.9 million (December 31, 2011
- $212.7 million). It is the Company's policy to pay suppliers within
45-75 days. These terms are consistent with industry practice. As at
December 31, 2012, substantially all of the account balances were
less than 90 days.  
The Company prepares annual capital expenditure budgets, which are
regularly monitored and updated as considered necessary. Further, the
Company utilizes authorizations for expenditures on both operated and
non-operated projects to further manage capital expenditures. The
Company also attempts to match its payment cycle with collection of
petroleum and natural gas revenues on the 25th of each month.  
The following are the contractual maturities of financial
liabilities, including estimated interest payments, at December 31,
2012: 


 
                                                                        More
                                             Less    One -     Two -    Than
                 Carrying   Contractual  Than One      Two      Five    Five
(000s)             Amount     Cash Flow      Year    Years     Years   Years
----------------------------------------------------------------------------
Non-derivative                                                              
 financial                                                                  
 liabilities:                                                               
 Trade and                                                                  
  other                                                                     
  payables      $ 222,186 $     222,186 $ 222,186 $      - $       - $     -
 Bank debt (1)    360,573       396,023         -        -   396,023       -
 Transportation                                                             
  liability        10,864        10,864     3,725    3,725     3,414       -
Derivative                                                                  
 financial                                                                  
 liabilities:                                                               
 Financial                                                                  
  commodity                                                                 
  contracts         2,012         2,012     1,997       15         -       -
----------------------------------------------------------------------------
                $ 595,635 $     631,085 $ 227,908 $  3,740 $ 399,437 $     -
----------------------------------------------------------------------------
(1) Includes interest expense at 3.31% being the rate applicable at December
    31, 2012.                                                               

 
(c) Market risk:  
Market risk is the risk that changes in market conditions, such as
commodity prices, interest rates and foreign exchange rates will
affect the Company's net income or value of financial instruments.
The objective of market risk management is to manage and curtail
market risk exposure within acceptable limits, while maximizing the
Company's returns.  
The Company utilizes both financial derivatives and physical delivery
sales contracts to manage market risks. All such transactions are
conducted in accordance with the risk management policy that has been
approved by the Board of Directors.  
Currency risk has minimal impact on the value of the financial assets
and liabilities on the consolidated statement of financial position
at December 31, 2012. Changes in the US to Canadian exchange rate,
however, could influence future petroleum and natural gas prices
which could impact the value of certain derivative contracts. This
influence cannot be accurately quantified.  
Interest rate risk is the risk that future cash flows will fluctuate
as a result of changes in market interest rates. The Company is
exposed to interest rate risk to the extent that changes in market
interest rates will impact the Company's bank debt which is subject
to a floating interest rate. Assuming all other variables remain
constant, an increase or decrease of 1% in market interest rates in
the year ended December 31, 2012 would have decreased or increased
shareholders' equity and net income by $1.8 million, and $0.4 for
2011. The unrealized loss on the interest rate swap has been included
on the consolidated statement of financial position with changes in
the fair value included in the unrealized gain/(loss) on financial
instruments on the consolidated statement of income and comprehensive
income.  
Commodity price risk is the risk that the fair value or future cash
flow will fluctuate as a result of changes in commodity prices.
Commodity prices for oil and natural gas are impacted by not only the
relationship between the Canadian and United States dollar, but also
world economic events that dictate the levels of supply and demand.
As at December 31, 2012, the Company has entered into certain
financial derivative and physical delivery sales contracts in order
to manage commodity risk. These instruments are not used for trading
or speculative purposes. The Company has not designated its financial
derivative contracts as effective accounting hedges, even though the
Company considers all commodity contracts to be effective economic
hedges. As a result, all such commodity contracts are recorded on the
consolidated statement of financial position at fair value, with
changes in the fair value being recognized as an unrealized gain or
loss on the consolidated statement of income and comprehensive
income.  
The Company has entered into the 
following derivative contracts as at
December 31, 2012:  


 
(000s)
----------------------------------------------------------------------------
Type of                                                              Fair   
 Contract   Quantity       Time Period(1)           Contract Price   Value  
----------------------------------------------------------------------------
Financial   100 bbls/d     July 2012 - June 2013    USD$100.10/bbl $ 128    
 Swap                                                                       
Financial   100 bbls/d     August 2012 - July 2013  USD$101.10/bbl   169    
 Swap                                                                       
Financial   100 bbls/d     August 2012 - December   USD$100.60/bbl   267    
 Swap                      2013                                             
Financial   100 bbls/d     July 2012 - March 2013   USD$103.30/bbl   97     
 Swap                                                                       
Financial   100 bbls/d     January - June 2013      USD$99.70/bbl    121    
 Swap                                                                       
Financial   400 bbls/d     January - December 2013  USD$101.31/bbl   1,173  
 Swap                                               average                 
Financial   200 bbls/d     July - December 2013(2)  USD$101.38/bbl   (100)  
 Swap                                               average                 
Financial   200 bbls/d     January - December       USD$100.25/bbl   121    
 Swap                      2013(2)                  average                 
Financial   100 bbls/d     April 2013 - March       USD$97.35/bbl    3      
 Swap                      2014(3)                                          
Financial   10,000 MMbtu/d January - December       USD$4.15/MMbtu   2,199  
 Swap                      2013(4)                                          
Financial   10,000 MMbtu/d January - December       USD$4.15/MMbtu   (1,223)
 Swap                      2014(4)                                          
Financial   100 bbls/d     July 2012 - June 2013    USD$85.00/bbl    25     
 Costless                                           floor                   
 Collar                                             USD$109.65/bbl          
                                                    ceiling                 
----------------------------------------------------------------------------
Total Fair                                                         $ 2,980  
 Value                                                                      
----------------------------------------------------------------------------
(1) Transactions with common terms have been aggregated and presented as the
    weighted average price.                                                 
(2) The counter-party to these contracts holds options at December 31, 2013 
    to extend a swap on 100 bbls/d (per contract) of oil at WTI USD$100/bbl.
(3) The counter-party to this contract holds an option at March 31, 2014 to 
    extend a swap on 100 bbls/d of oil at WTI USD$100/bbl.                  
(4) The counter-party to this contract holds an option at December 23, 2013 
    to extend a swap on 10,000 MMbtu/d of gas at USD$4.15/MMbtu.            

 
As at December 31, 2012, if the future strip prices for oil were
$1.00 per bbl higher and prices for natural gas were $0.10 per mcf
higher, with all other variables held constant, before-tax earnings
would have been $1.3 million (December 31, 2011 - $0.3 million)
lower. An equal and opposite impact would have occurred to before-tax
earnings and the fair value of the derivative contracts liability if
oil prices were $1.00 per bbl lower and gas prices were $0.10 per mcf
lower. In addition to the financial commodity contracts discussed
above, the Company has entered into physical contracts to manage
commodity risk. These contracts are considered normal sales contracts
and are not recorded at fair value in the consolidated financial
statements.  
On May 29, 2012, the Company entered into an interest rate swap. The
following table outlines the realized and unrealized losses on the
interest rate contract recorded on the consolidated statement of
income and comprehensive income for the year ended December 31, 2012: 


 
(000s)                                                                      
----------------------------------------------------------------------------
                                    Company    Counter                      
                  Type               Fixed      Party                       
                (Floating           Interest  Floating  Year Ended December 
Term            to Fixed)  Amount   Rate (%) Rate Index      31, 2012       
                                                       -------------------- 
                                                        Realized Unrealized 
                                                         (Loss)    (Loss)   
----------------------------------------------------------------------------
May 29, 2012-                                 Floating                      
 May 29, 2014     Swap    $150,000   1.35%      Rate      $(116)    $(178)  
----------------------------------------------------------------------------

 
The following table provides a summary of the unrealized gains
(losses) on financial instruments for the years ended December 31,
2012 and 2011: 


 
                                                  Years Ended December 31,  
(000s)                                                  2012           2011 
----------------------------------------------------------------------------
Unrealized gain on financial instruments        $      2,600   $        944 
Unrealized (loss) on investments held for                                   
 trading                                                (103)          (111)
----------------------------------------------------------------------------
Total                                           $      2,497   $        833 
----------------------------------------------------------------------------

 
The following contracts were entered into subsequent to December 31,
2012 and are therefore not reflected in the consolidated statements
of income and comprehensive income: 


 
----------------------------------------------------------------------------
Type of         Quantity   Time Period(1)             Contract Price        
 Contract                                                                   
----------------------------------------------------------------------------
Financial Swap  200 bbls/d April 2013 - March 2014(2) USD$97.865/bbl average
Financial Swap  200 bbls/d July 2013 - June 2014(3)   USD$98.00/bbl average 
----------------------------------------------------------------------------
(1) Transactions with common terms have been aggregated and presented as the
    weighted average price.                                                 
(2) The counter-party to these contracts holds options at March 31, 2014 to 
    extend a swap on 100 bbls/d (per contract) of oil at WTI USD$100/bbl.   
(3) The counter-party to these contracts holds options at December 31, 2014 
    to extend a swap on 200 bbls/d of oil at WTI USD$114.95/bbl.            

 
The Company has entered into the following physical contracts as at
December 31, 2012: 


 
----------------------------------------------------------------------------
Type of                                                                     
 Contract     Quantity       Time Period(1)   Contract Price                
----------------------------------------------------------------------------
AECO Fixed    3,000 Gjs/d    January 2012 -   CAD$4.45/Gj                   
 Price                       December 2014                                  
AECO Fixed    10,000 Gjs/d   April - October  CAD$3.65/Gj                   
 Price                       2013(2)           
                             
AECO Fixed    20,000 Gjs/d   January -        CAD$3.63/Gj average           
 Price                       December 2013(3)                               
AECO Call     3,000 Gjs/d    January 2012 -   CAD$4.50/Gj strike price      
 Option                      December 2014                                  
AECO Call     3,000 Gjs/d    January 2015 -   CAD$6.00/Gj strike price      
 Option                      December 2016                                  
AECO/Nymex    5,000 MMbtu/d  November 2012 -  Nymex less USD$0.405/MMbtu    
 Differential                March 2013                                     
 Swap                                                                       
AECO/Nymex    5,000 MMbtu/d  November 2012 -  Nymex less USD$0.425/MMbtu    
 Differential                December 2013                                  
 Swap                                                                       
AECO/Nymex    10,000 MMbtu/d January -        Nymex less USD$0.415/MMbtu    
 Differential                December 2014                                  
 Swap                                                                       
AECO/Nymex    10,000 MMbtu/d November 2012 -  Nymex less USD$0.355/MMbtu    
 Differential                March 2013                                     
 Swap                                                                       
AECO/Nymex    15,000 MMbtu/d November 2012 -  Nymex less USD$0.413/MMbtu    
 Differential                October 2013     average                       
 Swap                                                                       
AECO/Nymex    20,000 MMbtu/d January -        Nymex less USD$0.446/MMbtu    
 Differential                December 2013    average                       
 Swap                                                                       
AECO Costless 20,000 Gjs/d   January 2013 -   CAD$3.0625/GJ average floor - 
 Collar                      March 2014       CAD$3.87/GJ average ceiling   
----------------------------------------------------------------------------
(1) Transactions with common terms have been aggregated and presented as the
    weighted average price.                                                 
(2) The counter-party to this contract holds an option at October 31, 2013  
    to extend the fixed price contract for 10,000 Gjs/d at an average of    
    CAD$3.80/Gj.                                                            
(3) The counter-party to these contracts holds options at December 31, 2013 
    to extend the fixed price contracts (one for 10,000/Gjs/d and the other 
    for 15,000 Gjs/d) at an average of CAD $3.50/Gj.                        

 
The Company has entered into the following physical contracts
subsequent to December 31, 2012: 


 
----------------------------------------------------------------------------
Type of                                                                     
 Contract     Quantity       Time Period(1)   Contract Price                
----------------------------------------------------------------------------
AECO Fixed    20,000 Gjs/d   April 2013 -     CAD$3.31/Gj average           
 Price                       March 2014(2)                                  
(Buyer)       30,000 MMbtu/d April - October  Nymex less USD$0.42/MMbtu     
 AECO/Nymex                  2013             average                       
 Differential                                                               
 Swap                                                                       
AECO Fixed    20,000 Gjs/d   April - October  CAD$3.66/Gj average           
 Price                       2013(3)                                        
----------------------------------------------------------------------------
(1) Transactions with common terms have been presented as the weighted      
    average price.                                                          
(2) The counter-party to these contracts holds options at March 31, 2014 to 
    extend a swap on these contracts (one for 10,000 Gjs/d and two for 5,000
    Gjs/d) at an average of CAD$3.75/Gj.                                    
(3) The counter-party to these contracts holds options at October 31, 2013  
    to extend a swap on these contracts (both for 10,000 Gjs/d) at an       
    average of $4.00/Gj.  Subsequently, the counter-party to these two      
    contracts holds another option at October 31, 2014 to extend a further  
    swap on these contracts (both for 10,000 Gjs/d) at an average of        
    $4.00/Gj.                                                               

 
(d) Capital management:  
The Company's policy is to maintain a strong capital base to maintain
investor, creditor and market confidence and to sustain the future
development of the business. The Company considers its capital
structure to include shareholders' equity, bank debt and working
capital. In order to maintain or adjust the capital structure, the
Company may from time to time issue shares and adjust its capital
spending to manage current and projected debt levels. The annual and
updated budgets are approved by the Board of Directors.  
The key measure that the Company utilizes in evaluating its capital
structure is net debt to cash annualized flow, which is defined as
long-term bank debt plus working capital (adjusted for the fair value
of financial instruments), to annualized cash flow, defined as cash
flow from operating activities before changes in non-cash working
capital. Net debt to annualized cash flow represents a measure of the
time it is expected to take to pay off the debt if no further capital
expenditures were incurred and if cash flow in the next year were
equal to the amount in the most recent quarter annualized.  
The Company monitors this ratio and endeavours to maintain it at, or
below, 2.0 to 1.0 in a normalized commodity price environment. This
ratio may increase at certain times as a result of acquisitions or
low commodity prices. As shown below, as at December 31, 2012, the
Company's ratio of net debt to annualized cash flow was 1.24 to 1.0. 


 
(000s)                                               As at            As at 
                                              December 31,     December 31, 
                                                      2012             2011 
----------------------------------------------------------------------------
Net debt:                                                                   
 Bank debt                                  $     (360,573)  $      (81,749)
 Working capital (deficit)                         (98,913)        (146,317)
 Fair value of financial instruments -                                      
  short-term asset                                  (4,814)            (276)
----------------------------------------------------------------------------
Net debt                                    $     (464,300)  $     (228,342)
----------------------------------------------------------------------------
Annualized cash flow:                                                       
 Cash flow from operating activities for                                    
  Q4                                        $      104,671   $       61,801 
 Change in non-cash working capital                (10,864)          11,510 
----------------------------------------------------------------------------
 Cash flow for Q4                           $       93,807   $       73,311 
Annualized cash flow (based on most recent                                  
 quarter annualized)                        $      375,228   $      293,244 
----------------------------------------------------------------------------
Net debt to annualized cash flow                      1.24             0.78 
----------------------------------------------------------------------------

 
The Company has not paid or declared any dividends since the date of
incorporation, nor are any contempl
ated in the foreseeable future.
There have been no changes in the Company's approach to capital
management since December 31, 2011. 
6. EXPLORATION AND EVALUATION ASSETS  


 
(000s)                                                                      
----------------------------------------------------------------------------
As at January 1, 2011                                          $    479,067 
  Capital expenditures                                              222,788 
  Transfers to property, plant and equipment (note 7)              (212,303)
  Acquisitions                                                      135,766 
  Divestitures                                                       (4,803)
----------------------------------------------------------------------------
As at December 31, 2011                                        $    620,515 
----------------------------------------------------------------------------
  Capital expenditures                                               85,135 
  Transfers to property, plant and equipment (note 7)              (118,515)
  Acquisitions                                                       62,165 
  Divestitures                                                       (6,255)
  Reclassified to assets held for sale                               (3,112)
----------------------------------------------------------------------------
As at December 31, 2012                                        $    639,933 
----------------------------------------------------------------------------

 
General and administrative expenditures for the year ended December
31, 2012 of $5.2 million (December 31, 2011 - $8.2 million) have been
capitalized and included as exploration and evaluation assets.
Non-cash share-based payment expense in the amount of $5.8 million
(December 31, 2011 - $9.4 million) were also capitalized and included
in exploration and evaluation assets. 
7. PROPERTY, PLANT AND EQUIPMENT  
Cost 


 
(000s)                                                                      
----------------------------------------------------------------------------
As at January 1, 2011                                        $    1,299,582 
  Capital expenditures                                              510,606 
  Transfers from exploration and evaluation (note 6)                212,303 
  Change in decommissioning liabilities (note 8)                     15,397 
  Acquisitions                                                      246,940 
  Divestitures                                                       (8,525)
----------------------------------------------------------------------------
As at December 31, 2011                                      $    2,276,303 
----------------------------------------------------------------------------
  Capital expenditures                                              595,514 
  Transfers from exploration and evaluation (note 6)                118,515 
  Change in decommissioning liabilities (note 8)                      9,920 
  Acquisitions                                                      342,320 
  Divestitures                                                       (6,992)
  Reclassified to assets held for sale                              (29,895)
----------------------------------------------------------------------------
As at December 31, 2012                                      $    3,305,685 
----------------------------------------------------------------------------

 
Accumulated Depletion, Depreciation and Amortization 


 
(000s)                                                                      
----------------------------------------------------------------------------
As at January 1, 2011                                        $       95,481 
  Depletion, depreciation and amortization                          158,168 
  Divestitures                                                       (1,234)
----------------------------------------------------------------------------
As at December 31, 2011                                      $      252,415 
----------------------------------------------------------------------------
  Depletion, depreciation and amortization                          242,528 
----------------------------------------------------------------------------
As at December 31, 2012                                      $      494,943 
----------------------------------------------------------------------------

 
Net Book Value 


 
(000s)                                                                      
----------------------------------------------------------------------------
As at December 31, 2011                                      $     2,023,888
As at December 31, 2012                                      $     2,810,742
----------------------------------------------------------------------------

 
General and administrative expenditures for the year ended December
31, 2012 of $6.1 million (December 31, 2011 - $1.8 million) have been
capitalized and included as costs of oil and natural gas properties.
Also included in oil and natural gas properties is non-cash
share-based payment expense of $9.1 million (December 31, 2011 - $2.3
million). 
Future development costs for the year ended December 31, 2012 of
$2,233 million (December 31, 2011 - $1,539 million) were included in
the depletion calculation. 
Impairment Testing  
In accordance with IFRS, an impairment is recognized if the carrying
value exceeds the recoverable amount for each CGU. The Company
determines the recoverable amount by using fair value less costs to
sell, based on discounted future cash flows of proved plus probable
reserves using forecast prices and costs.  
An impairment test was performed at December 31, 2012 on the
Company's PP&E assets using a pre-tax discount rate of 10% and the
following forward commodity price estimates: 


 
                                 Foreign      Edmonton Light                
                 WTI Oil      Exchange Rate     Crude Oil        AECO Gas   
Year           (US$/bbl)(1)   (US$/Cdn$)(1)   (Cdn$/bbl)(1)  (Cdn$/mmbtu)(1)
----------------------------------------------------------------------------
2013              90.00           1.000           85.00            3.38     
2014              92.50           1.000           91.50            3.83     
2015              95.00           1.000           94.00            4.28     
2016              97.50           1.000           96.50            4.72     
2017              97.50           1.000           96.50            4.95     
2018              97.50           1.000           96.50            5.22     
2019              98.54           1.000           97.54            5.32     
2020              100.51          1.000           99.51            5.43     
2021              102.52          1.000           101.52           5.54     
2022              104.57          1.000           103.57           5.64     
Thereafter       +2.0%/yr         1.000          +2.0%/yr        +2.0%/yr   
----------------------------------------------------------------------------
(1) Source: GLJ Petroleum Consultants price forecast, effective January 1,  
    2013.                                                                   

 
There was no impairment to PP&E at December 31, 2012 (December 31,
2011 - nil). 
Corporate Acquisitions 
Huron Energy Corporation  
On November 30, 2012, the Company acquired all of the issued and
outstanding shares of Huron Energy Corporation. ("Huron"). As
consideration, the Company issued 7,401,682 common shares at a price
of $33.02 per share. Total transaction costs incurred by the Company
of $1.0 million associated with this acquisition were expensed in the
consolidated statement of income and comprehensive income.  
The acquisition of Huron provided for an increase in lands and
production in Tourmaline's core and designated growth area of
Sunrise, NEBC.  
Results from operat
ions for Huron are included in the Company's
consolidated financial statements from the closing date of the
transaction. The value attributed to the property, plant and
equipment acquired was supported by an engineering report prepared at
August 31, 2012 by independent reserve engineers using proved plus
probable reserves discounted at a rate of 10% and updated internally
to the date of the corporate acquisition of November 30, 2012. The
allocation of net assets acquired is based on the best available
information at the time and could be subject to further change. The
acquisition has been accounted for using the purchase method based on
estimated fair values as follows: 


 
(000s)                                                         Huron Energy 
                                                                Corporation 
----------------------------------------------------------------------------
Fair value of net assets acquired:                                          
----------------------------------------------------------------------------
  Property, plant and equipment                              $      251,481 
  Exploration and evaluation                                         59,085 
  Working capital                                                     6,585 
  Bank debt                                                         (32,217)
  Decommissioning obligations                                        (4,643)
  Deferred income tax liabilities                                   (35,887)
----------------------------------------------------------------------------
Total                                                        $      244,404 
----------------------------------------------------------------------------
Consideration:                                                              
----------------------------------------------------------------------------
  Common shares issued                                       $      244,404 
----------------------------------------------------------------------------

 
Included in the consolidated statements of income and comprehensive
income for the year ended December 31, 2012 are the following amounts
relating to Huron Energy Corporation since November 30, 2012: 


 
(000s)                                                                      
----------------------------------------------------------------------------
Oil and natural gas sales                                    $         3,466
Net income and comprehensive income                          $         1,985
----------------------------------------------------------------------------

 
If Tourmaline had acquired Huron on January 1, 2012, the pro-forma
results of the oil and gas sales and net income for the year ended
December 31, 2012 would have been as follows: 


 
                                                                   Pro Forma
                                                                  Year Ended
                                                                December 31,
(000s)                                As Stated      Huron              2012
----------------------------------------------------------------------------
Oil and natural gas sales            $  441,888 $   22,027 $         463,915
Net income and comprehensive income  $   16,738 $    3,893 $          20,631
----------------------------------------------------------------------------

 
Cinch Energy Corp.  
On July 12, 2011, the Company acquired all of the issued and
outstanding shares of Cinch Energy Corp. ("Cinch"). As consideration,
the Company issued 6,363,523 common shares at a price of $33.02 per
share. Total transaction costs incurred by the Company of $1 million
associated with this acquisition were expensed in the consolidated
statement of income and comprehensive income. 
The acquisition of Cinch provided for an increase in lands and
production in two of Tourmaline's core and designated growth areas of
Dawson, NEBC and Musreau-Kakwa in Alberta.  
Results from operations for Cinch are included in the Company's
consolidated financial statements from the closing date of the
transaction. The value attributed to the property, plant and
equipment acquired was supported by an engineering report prepared at
December 31, 2010 by independent reserve engineers using proved plus
probable reserves discounted at a rate of 10%. The report was
internally rolled forward to June 30, 2011 using updated pricing.
Additional value was also attributed based on internal reserve
estimates relating to successful drilling results in 2011. The
allocation of net assets acquired is based on the best available
information at the time and could be subject to further change. The
acquisition has been accounted for using the purchase method based on
estimated fair values as follows: 


 
(000s)                                                   Cinch Energy Corp. 
----------------------------------------------------------------------------
Fair value of net assets acquired:                                          
----------------------------------------------------------------------------
  Property, plant and equipment                         $           182,770 
  Exploration and evaluation                                         87,136 
  Working capital deficiency                                         (3,897)
  Bank debt                                                         (19,696)
  Decommissioning obligations                                        (2,430)
  Deferred income tax liabilities                                   (33,759)
----------------------------------------------------------------------------
Total                                                   $           210,124 
----------------------------------------------------------------------------
Consideration:                                                              
----------------------------------------------------------------------------
  Common shares issued                                  $           210,124 
----------------------------------------------------------------------------

 
Included in the consolidated statements of income and comprehensive
income for the year ended December 31, 2011 are the following amounts
relating to Cinch Energy Corp. since July 12, 2011: 


 
(000s)                                                                      
----------------------------------------------------------------------------
Oil and natural gas sales                                    $        17,923
Net income and comprehensive income                          $         3,605
----------------------------------------------------------------------------

 
If Tourmaline had acquired Cinch on January 1, 2011, the pro-forma
results of the oil and gas sales and net income for the year ended
December 31, 2011 would have been as follows: 


 
                                                                   Pro Forma
                                                                  Year Ended
                                                                December 31,
(000s)                                  As Stated      Cinch            2011
----------------------------------------------------------------------------
Oil and natural gas sales              $  342,820 $   38,033 $       380,853
Net income and comprehensive income    $   43,851 $    6,276 $        50,127
----------------------------------------------------------------------------

 
Acquisition of Oil and Natural Gas Properties  
For the year ended December 31, 2012, the Company completed property
acquisitions for total cash consideration of $88.6 million (before
adjustments) (December 31, 2011 - $115.2 million) and an additional
$5.3 million in non-cash consideration (December 31, 2011 - $0.9
million). The Company also assumed $4.2 million in decommissioning
liabilities (December 31, 2011 - $1.8 million). 
8. DECOMMISSIONING 
OBLIGATIONS  
The Company's decommissioning obligations result from net ownership
interests in petroleum and natural gas assets including well sites,
gathering systems and processing facilities. The Company estimates
the total undiscounted amount of cash flow required to settle its
decommissioning obligations is approximately $92.7 million (December
31, 2011 - $72.5 million), with some abandonments expected to
commence in 2021. A risk-free rate of 2.49% (December 31, 2011 -
2.49%) and an inflation rate of 2.0% (December 31, 2011 - 2.0%) were
used to calculate the fair value of the decommissioning obligations. 


 
(000s)                                             Years Ended December 31, 
----------------------------------------------------------------------------
                                                        2012           2011 
----------------------------------------------------------------------------
Balance, beginning of year                      $     50,463 $       35,279 
  Obligation incurred                                  5,685          6,048 
  Obligation incurred on corporate                                          
   acquisitions                                        4,643          2,430 
  Obligation incurred on property acquisitions         4,235          1,845 
  Obligation divested                                   (319)          (481)
  Obligation settled                                    (993)        (1,047)
  Reclassification of obligation associated                                 
   with assets held for sale                            (285)             - 
  Accretion expense                                    1,328          1,315 
  Change in future estimated cash outlays                  -          5,074 
----------------------------------------------------------------------------
Balance, end of year                            $     64,757 $       50,463 
----------------------------------------------------------------------------

 
9. BANK DEBT  
In June 2012, the Company amended and restated its bank credit
facility to a covenant-based facility rather than a borrowing base
facility. This facility is a three-year extendible revolving facility
in the amount of $550 million plus a $25 million operating revolver
from a syndicate of lenders with an initial maturity date of June
2015. The maturity date may, at the request of the Company and with
the consent of the lenders, be extended on an annual basis. The
facility is secured by a first ranking floating charge over all
assets of the Company and its material subsidiaries. The facility can
be drawn in either Canadian or U.S. funds and bears interest at the
bank's prime lending rate, bankers' acceptance rates or LIBOR (for
U.S. borrowings), plus applicable margins, which range from 2.00 to
3.25 percent over bankers' acceptance rates depending on the
Company's senior debt to EBITDA ratio.  
Under the terms of the bank credit facility, Tourmaline has provided
its covenant that, on a rolling four quarter basis: (i) the ratio of
EBITDA to interest expense shall equal or exceed 3.5:1, (ii) the
ratio of senior debt to EBITDA shall not exceed 3:1, (iii) the ratio
of total debt to EBITDA shall not exceed 4:1, and (iv) the ratio of
senior debt to total capitalization shall not exceed 0.5:1. As at
December 31, 2012, the Company is in compliance with all debt
covenants.  
As at December 31, 2012, Tourmaline's bank debt balance was $360.6
million (December 31, 2011 - $81.7 million). In addition, Tourmaline
has outstanding letters of credit of $4.4 million (December 31, 2011
- $3.6 million), which reduce the credit available on the facility. 
10. NON-CONTROLLING INTEREST  
Tourmaline owns 90.6 percent of Exshaw Oil Corp., a private company
engaged in oil and gas exploration in Canada.  
A reconciliation of the non-controlling interest is provided below: 


 
(000s)                                              Years Ended December 31,
----------------------------------------------------------------------------
                                                        2012            2011
----------------------------------------------------------------------------
Balance, beginning of year                     $      15,079   $      13,909
  Share of subsidiary's net income for the                                  
   year                                                1,219           1,170
----------------------------------------------------------------------------
Balance, end of year                           $      16,298   $      15,079
----------------------------------------------------------------------------

 
11. SHARE CAPITAL  
(a) Authorized  
Unlimited number of Common Shares without par value.  
Unlimited number of non-voting Preferred Shares, issuable in series.  
(b) Common Shares Issued 


 
                                       Year Ended                Year Ended 
                                December 31, 2012         December 31, 2011 
----------------------------------------------------------------------------
(000s) except share         Number of                 Number of             
 amounts                       Shares      Amount        Shares      Amount 
----------------------------------------------------------------------------
Balance, beginning of                                                       
 year                     158,577,586 $ 2,140,660   136,191,061 $ 1,508,052 
For cash on public                                                          
 offering of common                                                         
 shares(1)                  4,639,000     134,531    11,725,000     335,737 
For cash on public                                                          
 offering of flow-                                                          
 through common                                                             
 shares(2)(3)(4)(5)         2,452,000      62,685     1,361,500      44,290 
For cash on private                                                         
 placement of flow-                                                         
 through common shares              -           -     1,580,000      39,658 
Issued on corporate                                                         
 acquisitions               7,401,682     244,404     6,363,523     210,124 
For cash on exercise of                                                     
 stock options              1,742,791      17,712     1,356,502      12,532 
Contributed surplus on                                                      
 exercise of stock                                                          
 options                            -       6,745             -       4,856 
Share issue costs                   -      (9,497)            -     (19,329)
Tax effect of share                                                         
 issue costs                        -       2,374             -       4,740 
----------------------------------------------------------------------------
Balance, end of year      174,813,059 $ 2,599,614   158,577,586 $ 2,140,660 
----------------------------------------------------------------------------
(1) On August 30, 2012, the Company issued 4.039 million common shares at a 
    price of $29.00 per share for total gross proceeds of $117.1 million.  A
    total of 39,000 shares were purchased by insiders.  Subsequently, on    
    September 19, 2012, the underwriters exercised their over-allotment     
    Option and purchased a further 0.6 million shares at a price of $29.00  
    per share for total gross proceeds of $17.4 million.                    
(2) On March 8, 2011, the Company issued 1.58 million flow-through shares at
    $30.00 per share for total gross proceeds of $47.4 million.  The implied
    premium on the flow-through shares was determined to be $7.7 million or 
    $4.90 per share.  A total of 0.38 million shares were purchased by      
    insiders.  As 
at December 31, 2011, the Company had spent the full      
    committed amount.  The expenditures were renounced to investors in      
    February 2012, with an effective date of renunciation of December 31,   
    2011.                                                                   
(3) On December 1, 2011, the Company issued 1.36 million flow-through common
    shares at $41.00 per share for total gross proceeds of $55.8 million.   
    The implied premium on the flow-through common shares was determined to 
    be $11.5 million or $8.47 per share.  A total of 0.16 million shares    
    were purchased by insiders.  As at December 31, 2012, the Company had   
    spent the full committed amount.  The expenditures were renounced to    
    investors in February 2012, with an effective date of renunciation of   
    December 31, 2011.                                                      
(4) On April 4, 2012, the Company issued 1.4 million flow-through common    
    shares at $28.80 per share for total gross proceeds of $40.4 million.   
    The implied premium on the flow-through common shares was determined to 
    be $8.5 million or $6.07 per share.  A total of 0.15 million shares were
    purchased by insiders.  As at December 31, 2012, the Company has spent  
    $36.5 million on eligible expenditures and is committed to spend the    
    remainder of $3.9 million on qualified exploration and development      
    expenditures by December 31, 2013. The expenditures will be renounced to
    investors with an effective renunciation date of December 31, 2012.     
(5) On November 1, 2012, the Company issued 1.05 million flow-through common
    shares at $36.90 per share for total gross proceeds of $38.7 million.   
    The implied premium on the flow-through common shares was determined to 
    be $7.9 million or $7.55 per share.  A total of 0.05 million shares were
    purchased by insiders.  The Company has not incurred any eligible       
    expenditures as at December 31, 2012 and is committed to spend the      
    entire $38.7 million on qualified exploration and development           
    expenditures by December 31, 2013. The expenditures will be renounced to
    investors with an effective renunciation date of December 31, 2012.     

 
12. DEFERRED TAXES  
The provision for deferred taxes in the consolidated statements of
income and comprehensive income reflect an effective tax rate which
differs from the expected statutory tax rate. Differences were
accounted for as follows: 


 
(000s)                                             Years Ended December 31, 
----------------------------------------------------------------------------
                                                        2012           2011 
----------------------------------------------------------------------------
Income before taxes                            $      32,639  $      68,434 
----------------------------------------------------------------------------
Canadian statutory rate(1)                              25.0%          26.5%
----------------------------------------------------------------------------
Expected income taxes at statutory rates               8,160         18,135 
Effect on income tax of:                                                    
  Share-based payments                                 3,736          3,097 
  Flow-through shares                                  3,809          4,330 
  Effect of change in corporate tax rate and                                
   other                                                 196           (979)
----------------------------------------------------------------------------
Deferred income tax                            $      15,901  $      24,583 
----------------------------------------------------------------------------
(1) The statutory rate consists of the combined statutory tax rate for the  
    Company and its subsidiaries for the year ended December 31, 2012.The   
    general combined Federal/Provincial tax rate was reduced from 26.5% to  
    25% due to the Federal tax rate dropping from 16.5% in 2011 to 15.0% in 
    2012.                                                                   

 
The movement in deferred tax balances during the years ended December
31, 2012 and 2011 is as follows: 


 
                                      Balance                     Recognized
                                   January 1,  Recognized in              in
(000s)                                   2012   Net Earnings     Liabilities
----------------------------------------------------------------------------
Deferred tax liabilities:                                                   
 Exploration and evaluation and                                             
  property, plant and equipment$      165,171 $       39,642 $        19,000
 Assets held for sale                       -          8,181               -
 Risk management contracts                 76            624               -
 Long-term asset                            -            645               -
Deferred tax assets:                                                        
 Decommissioning obligations          (12,616)        (2,435)              -
 Short-term obligation                      -              -               -
 Long-term obligations                 (3,647)           931               -
 Non-capital losses                   (30,550)       (35,796)              -
 Share issue costs                    (10,457)         4,109               -
----------------------------------------------------------------------------
Deferred tax liability (asset) $      107,977 $       15,901 $        19,000
----------------------------------------------------------------------------
 
                                                 Acquired in        Balance 
                                   Recognized       Business   December 31, 
(000s)                              in Equity    Combination           2012 
----------------------------------------------------------------------------
Deferred tax liabilities:                                                   
 Exploration and evaluation and                                             
  property, plant and equipment$            - $       45,793 $      269,606 
 Assets held for sale                       -              -          8,181 
 Risk management contracts                  -              -            700 
 Long-term asset                            -              -            645 
Deferred tax assets:                                                        
 Decommissioning obligations                -         (1,138)       (16,189)
 Short-term obligation                      -            (37)           (37)
 Long-term obligations                      -              -         (2,716)
 Non-capital losses                         -         (8,710)       (75,056)
 Share issue costs                     (2,374)           (21)        (8,743)
----------------------------------------------------------------------------
Deferred tax liability (asset) $       (2,374)$       35,887 $      176,391 
----------------------------------------------------------------------------
                                                                            
                                      Balance                     Recognized
                                   January 1,  Recognized in              in
(000s)                                   2011   Net Earnings     Liabilities
----------------------------------------------------------------------------
Deferred tax liabilities:                                                   
 Exploration and evaluation and                                             
  property, plant and equipment$       91,995 $       27,429 $         8,306
 Risk management contracts               (136)           212               -
Deferred tax assets:                                                        
 Decommissioning obl
igations           (8,806)        (3,204)              -
 Long-term obligations                 (4,634)           987               -
 Non-capital losses                   (23,308)        (4,804)              -
 Share issue costs                     (9,042)         3,963               -
----------------------------------------------------------------------------
Deferred tax liability (asset) $       46,069 $       24,583 $         8,306
----------------------------------------------------------------------------
 
                                                                            
                                                 Acquired in        Balance 
                                   Recognized       Business   December 31, 
(000s)                              in Equity    Combination           2011 
----------------------------------------------------------------------------
Deferred tax liabilities:                                                   
 Exploration and evaluation and                                             
  property, plant and equipment$            - $       37,441 $      165,171 
 Risk management contracts                  -              -             76 
Deferred tax assets:                                                        
 Decommissioning obligations                -           (606)       (12,616)
 Long-term obligations                      -              -         (3,647)
 Non-capital losses                         -         (2,438)       (30,550)
 Share issue costs                     (4,740)          (638)       (10,457)
----------------------------------------------------------------------------
Deferred tax liability (asset) $       (4,740)$       33,759 $      107,977 
----------------------------------------------------------------------------

 
As at December 31, 2012, the Company has estimated federal tax pools
of $2.7 billion (2011 - $2.1 billion) available for deduction against
future taxable income. 
13. EARNINGS PER SHARE  
Basic earnings per share was calculated as follows: 


 
                                                   Years Ended December 31, 
                                              ------------------------------
                                                         2012           2011
----------------------------------------------------------------------------
Net earnings for the year (000s)                $      15,519  $      42,681
Weighted average number of common shares -                                  
 basic                                            162,559,931    146,647,848
----------------------------------------------------------------------------
Earnings per share - basic                      $        0.10  $        0.29
----------------------------------------------------------------------------

 
Diluted earnings per share was calculated as follows: 


 
                                                   Years Ended December 31, 
                                              ------------------------------
                                                         2012           2011
----------------------------------------------------------------------------
Net earnings for the year (000s)                $      15,519  $      42,681
Weighted average number of common shares -                                  
 diluted                                          167,028,522    152,315,296
----------------------------------------------------------------------------
Earnings per share - fully diluted              $        0.09  $        0.28
----------------------------------------------------------------------------

 
There were 6,147,524 options excluded from the weighted-average share
calculation for the year ended December 31, 2012 because they were
anti-dilutive (December 31, 2011 - 3,568,024). 
14. SHARE-BASED PAYMENTS  
The Company has a rolling stock option plan. Under the employee stock
option plan, the Company may grant options to its employees up to
17,481,306 shares of common stock. The exercise price of each option
equals the volume-weighted average market price for the five days
preceding the issue date of the Company's stock on the date of grant
and the option's maximum term is five years. Options are granted
throughout the year and vest 1/3 on each of the first, second and
third anniversaries from the date of grant. 


 
                                     Years Ended December 31,               
                     -------------------------------------------------------
                                 2012                        2011           
                     -------------------------------------------------------
                                        Weighted                    Weighted
                                         Average                     Average
                        Number of       Exercise    Number of       Exercise
                          Options          Price      Options          Price
----------------------------------------------------------------------------
Stock options                                                               
 outstanding,                                                               
 beginning of year     14,213,523    $     16.82   11,997,000  $       12.24
 Granted                2,907,000          29.16    3,768,024          28.53
 Exercised             (1,742,791)         10.16   (1,356,502)          9.24
 Forfeited                (52,500)         30.39     (194,999)         13.99
----------------------------------------------------------------------------
Stock options                                                               
 outstanding, end of                                                        
 year                  15,325,232    $     19.87   14,213,523  $       16.82
----------------------------------------------------------------------------

 
The following table summarizes stock options outstanding and
exercisable at December 31, 2012: 


 
                               Weighted                                     
                     Number     Average     Weighted      Number    Weighted
                Outstanding   Remaining      Average Exercisable     Average
Range of          at Period Contractual     Exercise   at Period    Exercise
 Exercise Price         End        Life        Price         End       Price
----------------------------------------------------------------------------
$7.00 - $10.00    3,609,918        1.12  $      8.33   3,609,918 $      8.33
$12.00 - $18.35   4,989,791        2.23        16.36   3,934,124       16.00
$20.68 - $29.93   4,206,523        3.87        26.80   1,095,840       27.64
$30.76 - $32.78   2,519,000        4.57        31.77     197,333       31.04
----------------------------------------------------------------------------
                 15,325,232        2.80  $     19.87   8,837,215 $     14.65
----------------------------------------------------------------------------

 
The fair value of options, granted during the year, was estimated on
the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions and resulting values: 


 
                                                   Years Ended December 31, 
                                              ------------------------------
                                                        2012           2011 
----------------------------------------------------------------------------
Fair value of options granted (weighted                                     
 average)                                        $     10.01    $     10.05 
Risk-free interest rate                                 2.33%          1.67%
Estimated hold period prior to exercise              4 years        5 years 
Expected volatility                                       40%            40%
Forfeiture rate                                            2%             2%
Dividend per share                               $      0.00    $      0.00 
----------------------------------------------------------------------------

 
15. OTHER INCOME  


 
                                                    Years Ended December 31,
                                              ------------------------------
(000s)                                                   2012           2011
----------------------------------------------------------------------------
Processing income                               $       4,310  $       5,152
Interest income                                           138            304
Other                                                     591            376
----------------------------------------------------------------------------
Total other income                              $       5,039  $       5,832
----------------------------------------------------------------------------

 
16. FINANCE EXPENSES  


 
                                                    Years Ended December 31,
                                              ------------------------------
(000s)                                                   2012           2011
----------------------------------------------------------------------------
Finance expenses:                                                           
  Interest on loans and borrowings              $      10,484  $       3,874
  Transaction costs on corporate and property                               
   acquisitions                                         1,146            991
  Accretion of decommissioning obligations              1,328          1,315
----------------------------------------------------------------------------
Total finance expenses                          $      12,958  $       6,180
----------------------------------------------------------------------------

 
17. SUPPLEMENTAL DISCLOSURES  
Tourmaline's consolidated statement of income and comprehensive
income is prepared primarily by nature of the expenses, with the
exception of salaries and wages which are included in both the
operating and general and administrative expense line items as
follows:  


 
                                                    Years Ended December 31,
----------------------------------------------------------------------------
(000s)                                                   2012           2011
----------------------------------------------------------------------------
Operating                                       $      12,032  $      10,139
General and Administrative                              7,952          6,497
----------------------------------------------------------------------------
Total employee compensation costs               $      19,984  $      16,636
----------------------------------------------------------------------------

 
18. SUPPLEMENTAL CASH FLOW INFORMATION  
Changes in non-cash working capital is comprised of: 


 
                                                   Years Ended December 31, 
----------------------------------------------------------------------------
(000s)                                                  2012           2011 
----------------------------------------------------------------------------
Source/(use) of cash:                                                       
  Trade and other receivables                   $    (23,069)  $     (2,130)
  Deposit and prepaid expenses                             4           (199)
  Trade and other payables                            12,921         34,592 
----------------------------------------------------------------------------
                                                     (10,144)        32,263 
  Working capital (deficiency)/surplus                                      
   acquired                                            6,585         (3,897)
----------------------------------------------------------------------------
                                                $     (3,559)  $     28,366 
----------------------------------------------------------------------------
Related to operating activities                 $     (6,802)  $    (12,931)
Related to investing activities                 $      3,243   $     41,297 
----------------------------------------------------------------------------

 
Cash interest paid was $11.8 million for the year ended December 31,
2012 (December 31, 2011 - $1.9 million). 
19. COMMITMENTS  
On April 4, 2012, the Company issued 1.4 million common shares on a
flow-through basis at a price of $28.80 per share for gross proceeds
of $40.4 million. As of December 31, 2012, the Company has spent
$36.5 million on eligible expenditures and is committed to spend the
remaining $3.9 million before December 31, 2013.  
On November 1, 2012, the Company issued 1.05 million common shares on
a flow-through basis at a price of $36.90 per share for gross
proceeds of $38.7 million. The Company has not incurred any eligible
expenditures pertaining to this issuance as at December 31, 2012 and
is committed to spend the entire $38.7 million before December 31,
2013.  
In the normal course of business, Tourmaline is obligated to make
future payments. These obligations represent contracts and other
commitments that are known and non-cancellable: 


 
Payments Due by                                            2017 and         
 Year (000s)           2013     2014     2015     2016   Thereafter    Total
----------------------------------------------------------------------------
Operating leases   $  2,545 $  2,168 $    526 $      -  $         - $  5,239
Flow-through                                                                
 obligations(2)           -   42,667        -        -            -   42,667
Firm                                                                        
 transportation                                                             
 agreements          32,355   25,326   14,449    2,557           20   74,707
Bank debt(1)              -        -  396,023        -            -  396,023
----------------------------------------------------------------------------
                   $ 34,900 $ 70,161 $410,998 $  2,557  $        20 $518,636
----------------------------------------------------------------------------
(1) Includes interest expense at an annual rate of 3.31% being the rate     
    applicable at December 31, 2012.                                        
(2) The Company closed a flow-through share financing on March 12, 2013     
    resulting in an additional flow-through obligation of $35.2 million due 
    to be spent by December 31, 2014.This amount has not been included in   
    the table above.                                                        

 
Subsequent to December 31, 2012, the Company entered into a 130
mmcf/d deep cut gas processing agreement and a firm service
transportation agreement for the associated liquids. Both agreements
have ten-year terms and begin in 2015. The Company also entered into
a ten-year 9,000 bbl/d natural gas liquids product fractionation
marketing agreement beginning in 2016. 
20. KEY MANAGEMENT PERSONNEL COMPENSATION  
Key management personnel are persons who have the authority and
responsibility for planning, directing and controlling the activities
of the Company, directly or indirectly. Key management includes all
directors and executives of the Company. The table below summarizes
all key management personnel compensation paid during the years ended
December 31, 2012 and 2011. Non-executive directors do not receive
short-term compensation. 
Compensation of Key Management 


 
                                                    Years Ended December 31,
----------------------------------------------------------------------------
(000s)                                                   2012           2011
----------------------------------------------------------------------
------
Short-term compensation(1)                      $       1,511  $       1,561
Share-based payments(2)                                 5,302          6,507
----------------------------------------------------------------------------
Total compensation paid to key management       $       6,813  $       8,068
----------------------------------------------------------------------------
(1) Short-term compensation includes employee benefits provided to key      
    management personnel.                                                   
(2) Based on the grant date fair value of the applicable awards. The fair   
    value of options granted is estimated at the date of grant using a      
    Black-Scholes Option Pricing Model. The total share-based payment of    
    options issued in 2012 is based on a weighted average fair value        
    estimated to be $7.99 per option (2011- $11.14 per option).             

 
21. SUBSEQUENT EVENTS 
On March 12, 2013, the Company closed on the disposition of a
non-producing property for proceeds of $77.5 million, subject to
closing adjustments and transaction costs. The asset has been
reclassified to current as an asset held for sale as at December 31,
2012.  
On March 12, 2013, the Company issued 5.78 million common shares, at
a price of $34.25 per share, and 0.835 million flow-through common
shares, at a price of $42.15 per share, for total gross proceeds of
$233.2 million.  
About Tourmaline Oil Corp.  
Tourmaline is a Canadian intermediate crude oil and natural gas
exploration and production company focused on long-term growth
through an aggressive exploration, development, production and
acquisition program in the Western Canadian Sedimentary Basin.
Contacts:
Tourmaline Oil Corp.
Michael Rose
Chairman, President and Chief Executive Officer
(403) 266-5992 
Tourmaline Oil Corp.
Brian Robinson
Vice President, Finance and Chief Financial Officer
(403) 767-3587
robinson@tourmalineoil.com 
Tourmaline Oil Corp.
Scott Kirker
Secretary and General Counsel
(403) 767-3593
kirker@tourmalineoil.com 
Tourmaline Oil Corp.
Suite 3700, 250 - 6th Avenue S.W.
Calgary, Alberta  T2P 3H7
(403) 266-5992
(403) 266-5952 (FAX)
www.tourmalineoil.com