Tourmaline Oil Corp. Achieves Record Cash Flow and Earnings Growth in 2013

Tourmaline Oil Corp. Achieves Record Cash Flow and Earnings Growth in 2013 
CALGARY, ALBERTA -- (Marketwired) -- 03/17/14 --   Tourmaline Oil
Corp. (TSX: TOU) ("Tourmaline" or the "Company") achieved exceptional
growth in reserves (41%), production (47%) and cash flow(1) (88%) in
2013 while delivering strong profitability. The Company posted
significant after-tax earnings of $148.1 million for the 2013 fiscal
year. 
Highlights 


 
 
--  Record full year after tax earnings of $148.1 million ($0.79 per diluted
    share), an 854% increase over 2012, and record quarterly after tax
    earnings of $56.8 million in the fourth quarter, underscoring the
    fundamental full cycle profitability of Tourmaline's natural gas
    business.
 
--  2013 cash flow of $526.8 million ($2.80 per diluted share), an 88%
    increase over 2012 (67% per diluted share).
 
--  Record quarterly cash flow of $160.7 million ($0.83 per diluted share)
    in Q4 2013. 
 
--  2013 annual production growth of 47% (31% per diluted share), and
    forecast 2014 production growth of 60% over 2013. 
 
--  Q4 2013 average production of 86,089 boepd, a 50% increase over the
    fourth quarter of 2012 and a 16% increase over the previous quarter. 
 
--  Total 2P reserve additions of 179.4 mmboe in 2013, representing 41%
    growth over 2012 total 2P reserves before 2013 production (30% per
    diluted share). 
 
--  Year end 2013 2P reserve value of $6.2 billion (10% discount, before
    tax), representing 42% growth over year end 2012 2P reserve value of
    $4.3 billion, a net present value increase in 2013 of $1.9 billion vs.
    $1.7 billion in 2012. 
 
--  Three-year 2P finding, development and acquisitions cost (FD&A) of
    $11.65/boe (including FDC) and $7.20/boe (excluding FDC).  
 
--  2013 reserve replacement ratio of 6.6 times.  
 
--  Continued industry-leading all-in cost structure of $7.72/boe (operating
    costs, transportation, general and administrative, and financing costs).
 
1   Cash flow is defined 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 


 
 
--  Anticipated full year 2014 average production of 120,000 boepd
    represents a 60% increase from the 2013 average. 
 
--  The Company expects to tie-in approximately 48 wells during the first
    quarter of 2014, reaching estimated production levels of 115,000-120,000
    boepd in late March/early April 2014. 
 
--  The Musreau plant expansion, Doe B.C. plant expansion and start-up of
    the Tourmaline Spirit River gas plant will lead to significant further
    production growth in the third quarter of 2014. 

EP Update 
Alberta Deep Basin 


 
 
--  Tourmaline intends to operate 12 drilling rigs in the Alberta Deep Basin
    through the balance of 2014; the fleet will be shut down during break-
    up. 
 
--  17 new Wilrich horizontals have been drilled thus far in 2014; a total
    of 55 new Wilrich horizontals which will be tied into Tourmaline
    facilities, are planned for full year 2014.
 
--  The winter program has yielded five new high deliverability Wilrich
    horizontals in the Smoky-Horse-Berland areas including the Smoky 4-1-59-
    2W6 well with a 30-day average IP of 22.2 mmcfpd.
 
--  Cretaceous Notikewin results have continued to exceed internal economic
    template expectations. The 30-day average IP from the Wild River 12-28-
    56-24W5 horizontal is 20.9 mmcfpd.
 
--  The Company is expanding the Musreau gas plant by 50-55 mmcfpd with a Q3
    2014 expected start-up and is also participating in a plant expansion at
    West Edson. Tourmaline expects to reach the 0.5 bcf/day production
    milestone in the Deep Basin in either late 2014 or early 2015. 

NEBC Montney Gas/Condensate 


 
 
--  Tourmaline is currently operating two rigs in the NEBC Montney
    gas/condensate complex and will continue with drilling operations
    through break-up and the remainder of the year. The Company expects to
    drill 35 Montney horizontal wells in NEBC in 2014. 
 
--  The A5-5 and D5-5 condensate-rich Lower Montney discovery wells from
    late 2013 have 30-day IP rates of 6.3 mmcfpd and 634 bbls/day condensate
    (100.5 bbls/mmcfpd at wellhead) and 5.6 mmcfpd and 501 bbls/day
    condensate (89.5 bbls/mmcfpd at wellhead), respectively. One regional
    follow-up has been drilled and will be completed over the next month.
    Drilling on an adjacent multi-well follow-up pad to 5-5 has commenced
    and will continue through break-up. The Company acquired considerable
    acreage prospective for this new horizon in December 2013. 
 
--  The Doe gas plant expansion of 55 mmcfpd is planned for a Q3 2014 start-
    up. The Company expects to be producing 250 mmcfpd and 5,000-6,000
    bbls/day of condensate and NGLs in NEBC by year end 2014.

Peace River High Charlie Lake Oil 


 
 
--  14 new Charlie Lake horizontal oil wells have been drilled along the
    trend thus far in 2014; Tourmaline will continue to operate three
    drilling rigs during 2014, yielding approximately 45 new wells. The
    Company has now drilled 72 successful horizontal oil wells into the
    regional pool with no dry holes to date.
 
--  Two concurrently-completed dual well pairs are currently being
    stimulated and will be brought on-stream by break-up.
 
--  Current daily production from the complex is averaging 9,000 - 10,000
    boepd; an additional 6,000 boepd of production remains shut-in at Spirit
    River.
 
--  The Tourmaline sour gas injection plant at Spirit River remains on
    schedule for a Q3 2014 start-up and construction of the Mulligan oil
    battery will commence during the third quarter as well.
 
--  The Company is targeting a 2014 exit volume of 18,000 - 20,000 boepd
    from the Peace River High Charlie Lake Complex with these new facilities
    on-stream.

Exploration Program 


 
 
--  The Paleozoic Exploration test at Sunset 11-17 in NEBC was cased to
    total depth during the first quarter of 2014, with 3 gas pay zones to
    complete. Completion operations will commence in July as the higher
    pressure equipment required to safely conduct operations could not be
    secured in time to finish operations prior to break-up.
 
--  The Company's first Montney horizontal in the Resthaven-Kakwa gas-
    condensate play area is currently being completed and stimulated.
 
--  The Smoky 8-15 deep test has been drilled to the Cambrian and cased to
    total depth; there are multiple deep gas zones to be completed.

Financial Update 


 
 
--  2014 full year cash flow forecast of $1.0 billion, representing a 92%
    increase over 2013 cash flow, is driven primarily by the combination of
    growth in production volumes and stronger natural gas prices.
 
--  2013 full year operating netbacks(2) of $20.37/boe increased 25% over
    the prior year.
 

 
 
--  Maintained low overall cash costs by continuing to drive down unit
    operating costs to $4.35/boe.
 
--  Year end 2013 net debt(3) at $832.9 million, subsequently reduced in
    February 2014 as a result of 4.6 million common shares issued for gross
    proceeds of $219.2 million.
 
--  2013 cash consideration invested in capital expenditures (net of
    dispositions) was $1.3 billion which included drilling 129 gross wells
    and investing $43.0 million in land and seismic to acquire 146 sections
    (net) of undeveloped land. In addition, $386.6 million was spent in part
    to expand two Deep Basin gas plants and construct a new gas plant in
    NEBC, bringing total throughput capacity for the Company to
    approximately 600 mmcfpd. Multiple property acquisitions in Spirit
    River, NEBC and the Alberta Deep Basin were completed for $226.9 million
    (515 net sections). During the year, the Company also disposed of non-
    core assets for cash proceeds of $78.1 million. 
 
2   Operating netback is calculated on a per-boe basis and is defined as    
    revenue (excluding processing income) less royalties, transportation    
    costs and operating expenses. See "Non-GAAP Financial Measures" in the  
    attached Management's Discussion and Analysis.                          
3   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.         
 
CORPORATE SUMMARY - DECEMBER 31, 2013                                       
 
                                          Three Months Ended December 31,   
                                         -----------------------------------
                                                  2013         2012 Change  
----------------------------------------------------------------------------
OPERATIONS                                                                  
Production                                                                  
 Natural gas (mcf/d)                           446,337      303,040     47% 
 Crude oil and NGL (bbl/d)                      11,700        6,723     74% 
 Oil equivalent (boe/d)                         86,089       57,230     50% 
 
Product prices(1)                                                           
 Natural gas ($/mcf)                       $      3.84  $      3.29     17% 
 Crude oil and NGL ($/bbl)                 $     71.83  $     83.28    (14)%
 
Operating expenses ($/boe)                 $      4.44  $      4.10      8% 
 
Transportation costs ($/boe)               $      2.25  $      1.86     21% 
 
Operating netback(4) ($/boe)               $     21.29  $     19.17     11% 
 
Cash general and administrative expenses                                    
 ($/boe)(2)                                $      0.68  $      0.77    (12)%
 
FINANCIAL ($000, EXCEPT PER SHARE)                                          
Revenue                                        235,113      143,117     64% 
Royalties                                       13,489       10,793     25% 
 
Cash flow(4)                                   160,732       93,807     71% 
Cash flow per share (diluted)(4)           $      0.83  $      0.54     54% 
 
Net earnings                                    56,763       16,301    248% 
Net earnings per share (diluted)           $      0.29  $      0.09    222% 
 
Capital expenditures                           497,941      296,108     68% 
 
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, 2013                                       
 
                                          Twelve Months Ended December 31,  
                                         -----------------------------------
                                                 2013          2012 Change  
----------------------------------------------------------------------------
OPERATIONS                                                                  
Production                                                                  
 Natural gas (mcf/d)                          397,487       268,000     48% 
 Crude oil and NGL (bbl/d)                      8,548         6,137     39% 
 Oil equivalent (boe/d)                        74,796        50,804     47% 
 
Product prices(1)                                                           
 Natural gas ($/mcf)                     $       3.65  $       2.67     37% 
 Crude oil and NGL ($/bbl)               $      83.25  $      83.71     (1)%
 
Operating expenses ($/boe)               $       4.35  $       4.43     (2)%
 
Transportation costs ($/boe)             $       2.07  $       1.87     11% 
 
Operating netback(4) ($/boe)             $      20.37  $      16.27     25% 
 
Cash general and administrative expenses                                    
 ($/boe)(2)                              $       0.74  $       0.79     (6)%
 
FINANCIAL ($000, EXCEPT PER SHARE)                                          
Revenue                                       788,863       449,843     75% 
Royalties                                      57,504        30,304     90% 
 
Cash flow(4)                                  526,761       280,279     88% 
Cash flow per share (diluted)(4)         $       2.80  $       1.68     67% 
 
Net earnings                                  148,114        15,519    854% 
Net earnings per share (diluted)         $       0.79  $       0.09    778% 
 
Capital expenditures                        1,315,416       741,640     77% 
 
Weighted average shares outstanding                                         
 (diluted)                                188,244,300   167,028,522     13% 
 
Net debt(4)                                  (832,942)     (464,300)    79% 
 
PROVED + PROBABLE RESERVES(3)                                               
Natural gas (bcf)                             3,026.1       2,319.8     30% 
Crude oil (mbbls)                              26,960        13,653     97% 
Natural gas liquids (mbbls)                    58,590        37,583     56% 
                                         -----------------------------------
Mboe                                          589,904       437,869     35% 
 
(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 9:00 a.m. MT (11:00 a.m. ET) 
Tourmaline will host a conference call tomorrow, March 18, 2014
starting at 9:00 a.m. MT (11:00 a.m. ET). To participate, please dial
1-800-766-6630 (toll-free in North America), or local dial-in
416-340-8527, a few minutes prior to the conference call.   
The conference call ID number is 4187197. 
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 LLP, each dated
effective December 31, 2013, 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, 2014 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, 2013, which
will be filed on SEDAR (accessible at www.sedar.com) on or before
March 31, 2014.  
Per diluted share reserve information is based on the total common
shares outstanding, after accounting for outstanding Company options,
at year end 2013 and 2012, respectively. 
See also the Company's news release dated February 19, 2014 for more
information with respect to the Company's reserves data. 
Initial Production (IP) Rates  
Any references in this news release to IP rates are useful in
confirming the presence of hydrocarbons, however, such rates are not
determinative of the rates at which such wells will continue
production and decline thereafter and are not necessarily indicative
of long-term performance or ultimate recovery. While encouraging,
readers are cautioned not to place reliance on such rates in
calculating the aggregate production for the Company. Such rates are
based on field estimates and may be based on limited data available
at this time. 
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 2014
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 2014 average production of 120,000 boepd and commodity
price assumptions for natural gas (AECO - $3.86/mcf) (2014), and
crude oil (WTI (US) - $97.00/bbl) (2014) and an exchange rate
assumption of $0.97 (US/CAD) for 2014. To the extent such estimate
constitutes a financial outlook, it was approved by management and
the Board of Directors of Tourmaline on March 17, 2014 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:                                                        
bbl                 barrel                                                  
bcf                 billion cubic feet                                      
bpd                 barrels per day                                         
boe                 barrel of oil equivalent                                
boepd or boe/d      barrel of oil equivalent per day                        
bopd or bbl/d       barrel of oil, condensate or liquids per day            
gj                  gigajoule                                               
gjs/d               gigajoules per day                                      
mbbls               thousand barrels                                        
mboe                thousand barrels of oil equivalent                      
mcf                 thousand cubic feet                                     
mcfe                thousand cubic feet equivalent                          
mmboe               million barrels of oil equivalent                       
mmbtu               million British thermal units                           
mmbtu/d             million British thermal units per day                   
mmcf                million cubic feet                                      
mmcfpd or mmcf/d    million cubic feet per day                              
mstboe              thousand stock tank barrels of oil equivalent           
NGL                 natural gas liquids                                     

MANAGEMENT'S DISCUSSION AND ANALYSIS 
For the years ended December 31, 2013 and December 31, 2012 
This management's discussion and analysis ("MD&A") should be read in
conjunction with Tourmaline Oil Corp.'s consolidated financial
statements and related notes for the years ended December 31, 2013
and 2012. Both the consolidated financial statements and the MD&A can
be found at www.sedar.com. This MD&A is dated March 17, 2014. 
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)", "net debt", "adjusted
EBITDA", "senior debt", "total debt", and "total capitalization".  
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",
"estimate", "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                              
                               December 31,        Years Ended December 31, 
                        ----------------------------------------------------
                             2013     2012 Change      2013     2012 Change 
----------------------------------------------------------------------------
Natural gas (mcf/d)       446,337  303,040     47%  397,487  268,000     48%
Crude oil and NGL                                                           
 (bbl/d)                   11,700    6,723     74%    8,548    6,137     39%
----------------------------------------------------------------------------
Oil equivalent (boe/d)     86,089   57,230     50%   74,796   50,804     47%
----------------------------------------------------------------------------

Production for the fourth quarter of 2013 averaged 86,089 boe/d, a 50%
increase over the average production for the same quarter of 2012 of
57,230 boe/d. Production was 86% natural gas weighted in the fourth
quarter of 2013, compared to 88% for the same quarter of the prior
year. For the year ended December 31, 2013, production increased 47%
to 74,796 boe/d from 50,804 boe/d in 2012. The Company's significant
production growth when compared to 2012 can be primarily attributed
to new wells that have been brought on-stream in 2013, as well as
property acquisitions. The significant increase in liquids production
can be attributed to growth in oil production in Spirit River and
stronger NGL recoveries in both the Alberta Deep Basin and NEBC. 
Tourmaline increased its 2014 production guidance from 118,000 boe/d
to 120,000 boe/d in its February 19, 2014 press release. The
production increase is a direct result of Tourmaline's continued
success in the ongoing exploration and production program, as well
as, continued investments in facilities and infrastructure.  


 
 
REVENUE                                                                     
 
                            Three Months Ended                              
                               December 31,        Years Ended December 31, 
                        ----------------------------------------------------
(000s)                       2013     2012 Change      2013     2012 Change 
----------------------------------------------------------------------------
Revenue from:                                                               
  Natural gas            $157,800 $ 91,608     72% $529,124 $261,833    102%
  Oil and NGL              77,313   51,509     50%  259,739  188,010     38%
----------------------------------------------------------------------------
Total revenue from                                                          
 natural gas, oil and                                                       
 NGL sales               $235,113 $143,117     64% $788,863 $449,843     75%
----------------------------------------------------------------------------

Revenue for the three months ended December 31, 2013 increased 64% to
$235.1 million from $143.1 million for the same quarter of 2012.
Revenue for the year ended December 31, 2013 increased 75% to $788.9
million from $449.8 million in 2012. Revenue growth is consistent
with the increase in production and increased natural gas prices over
the same periods, offset by a small decrease in liquids prices.
Revenue includes all natural gas, petroleum and NGL sales and
realized gains on financial instruments. 


 
 
TOURMALINE PRICES:                                                          
 
                          Three Months Ended                                
                             December 31,         Years Ended December 31,  
                      ------------------------------------------------------
                           2013     2012 Change       2013     2012 Change  
----------------------------------------------------------------------------
Natural gas ($/mcf)    $   3.84 $   3.29     17%  $   3.65 $   2.67     37% 
Oil and NGL ($/bbl)    $  71.83 $  83.28    (14)% $  83.25 $  83.71     (1)%
----------------------------------------------------------------------------
Oil equivalent ($/boe) $  29.69 $  27.18      9%  $  28.90 $  24.19     19% 
----------------------------------------------------------------------------

The realized average natural gas prices for the quarter and year ended
December 31, 2013 were 17% and 37%, respectively, higher than the
same periods of the prior year.  
Realized crude oil and NGL prices decreased 14% for the quarter ended
December 31, 2013, compared to the same quarter in 2012 as a result
of widening Canadian differentials for sour crude and liquids
relative to Edmonton Par. Realized crude oil and NGL prices decreased
1% for the year ended December 31, 2013, compared 2012.  
The realized natural gas price for the quarter ended December 31,
2013 was $3.84/mcf, which is $0.32/mcf higher than the AECO index
price (three months ended December 31, 2012 - $3.29/mcf and $0.10/mcf
higher than AECO). The higher realized price is primarily due to
higher heat content ($0.26/mcf and $0.29/mcf for the fourth quarters
of 2013 and 2012, respectively). The remainder of the premium in the
fourth quarter of 2013 relates to positive hedging positions, where
in the fourth quarter of 2012 hedging losses offset the premium
received by $0.19/mcf.   
The realized natural gas price for the year ended December 31, 2013
was 15% (December 31, 2012 - 10%) 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                                
                             December 31,         Years Ended December 31,  
                      ------------------------------------------------------
                           2013     2012  Change      2013     2012  Change 
----------------------------------------------------------------------------
Natural gas                                                                 
  NYMEX Henry Hub                                                           
   (USD$/mcf)          $   3.85 $   3.54       9% $   3.73 $   2.83      32%
  AECO (CAD$/mcf)      $   3.52 $   3.19      10% $   3.17 $   2.38      33%
Oil                                                                         
  NYMEX (USD$/bbl)     $  97.61 $  88.23      11% $  98.05 $  94.15       4%
  Edmonton Par                                                              
   (CAD$/bbl)          $  87.00 $  84.97       2% $  93.54 $  86.90       8%
----------------------------------------------------------------------------
 
RECONCILIATION OF AECO INDEX TO TOURMALINE'S REALIZED GAS PRICES:           
 
                          Three Months Ended                                
                             December 31,         Years Ended December 31,  
                      ------------------------------------------------------
($/mcf)                    2013    2012  Change       2013     2012  Change 
----------------------------------------------------------------------------
AECO index             $   3.52 $  3.19      10%  $   3.17 $   2.42      31%
Heat/quality                                                                
 differential              0.26    0.29     (10)%     0.30     0.20      50%
Realized gain (loss)       0.06   (0.19)    132%      0.18     0.05     260%
----------------------------------------------------------------------------
Tourmaline realized                                                         
 natural gas price     $   3.84 $  3.29      17%  $   3.65 $   2.67      37%
----------------------------------------------------------------------------
 
CURRENCY - EXCHANGE RATES:                                                  
 
                          Three Months Ended      Years Ended December 31,  
                             December 31,                                   
                      ------------------------------------------------------
                           2013     2012 Change       2013     2012 Change  
----------------------------------------------------------------------------
CAD/USD$(1)            $ 0.9528 $ 1.0088     (6)% $ 0.9708 $ 1.0004     (3)%
----------------------------------------------------------------------------
(1) Average rates for the period                                            
 
ROYALTIES                                                                   
 
                                     Three Months Ended         Years Ended 
                                           December 31,        December 31, 
                                    ----------------------------------------
(000s)                                   2013      2012      2013      2012 
----------------------------------------------------------------------------
Natural gas                          $  3,143  $  3,562  $ 22,899  $  2,053 
Oil and NGL                            10,346     7,231    34,605    28,251 
----------------------------------------------------------------------------
Total royalties                      $ 13,489  $ 10,793  $ 57,504  $ 30,304 
----------------------------------------------------------------------------
Royalties as a percentage of revenue      5.7%      7.5%      7.3%      6.7%
----------------------------------------------------------------------------

For the quarter ended December 31, 2013, the average effective royalty
rate was 5.7% compared to 7.5% for the same quarter of 2012. The
reduced royalty rate reflects additional drilling credits earned and
recorded in the fourth quarter of 2013. In 2013 the Company continued
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.  
For the year ended December 31, 2013, the average effective royalty
rate was 7.3% compared to 6.7% for the same period of 2012. The
average effective royalty rate increased in 2013 over 2012 mainly due
to increased natural gas prices, and the impact of some wells
reaching production maximums or coming off royalty holidays.  
The Company expects an increase in its royalty rate for 2014 to
approximately 10% as some wells will continue to reach production
maximums and come off royalty holidays partially offset by new wells
coming on stream receiving some royalty relief. The royalty rate is
sensitive to commodity prices, and as such, a change in commodity
prices will impact the actual rate. 


 
 
OTHER INCOME                                                                
 
                               Three Months Ended                           
                                     December 31,  Years Ended December 31, 
                        ----------------------------------------------------
(000s) except per unit                                                      
 amounts                     2013     2012 Change      2013     2012 Change 
----------------------------------------------------------------------------
Other income             $  2,292 $  1,366     68% $  6,523 $  5,039     29%
----------------------------------------------------------------------------

The increase in other income in 2013 compared to 2012 can be attributed
to higher processing income due to temporary excess capacity at the
new Doe gas plant and a processing facility acquired in NEBC in late
2012, which was partially utilized in 2013 by a third party. 


 
 
OPERATING EXPENSES                                                          
 
                           Three Months Ended                               
                              December 31,        Years Ended December 31,  
                       -----------------------------------------------------
(000s) except per unit                                                      
 amounts                    2013     2012 Change      2013     2012 Change  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating expenses      $ 35,177 $ 21,576     63% $118,671 $ 82,312     44% 
----------------------------------------------------------------------------
Per boe                 $   4.44 $   4.10      8% $   4.35 $   4.43     (2)%
----------------------------------------------------------------------------

Operating expenses include all periodic lease and field-level expenses
and exclude income recoveries from processing third-party volumes.
For the fourth quarter of 2013, total operating expenses increased
63% from $21.6 million in the fourth quarter of 2012 to $35.2 million
in 2013 due to the increased total costs relating to the growing
production base. On a per-boe basis, the costs increased 8% from
$4.10/boe for the fourth quarter of 2012 to $4.44/boe in the fourth
quarter of 2013. The higher costs per boe can be attributed to
additional turnarounds which were incurred in the fourth quarter of
2013. Tourmaline's operating expenses in the fourth quarter of 2013
include third-party processing, gathering and compression fees of
approximately $8.7 million or $1.10/boe (December 31, 2012 - $5.7
million or $1.09/boe).  
For the year ended December 31, 2013, total operating expenses were
$118.7 million, or $4.35/boe, compared to $82.3 million, or $4.43/boe
for the same period of 2012. Although total operating expenses
increased with production, the cost per boe decreased 2% reflecting
increased operational efficiencies. The Company's operating expenses
were $0.10 higher than expected on a per-boe basis due to slightly
lower production than originally forecasted.   
Third-party processing, gathering and compression fees for the year
ended December 31, 2013, have increased year-over-year with
production ($33.2 million in 2013 versus $21.7 million in 2012); the
cost per boe has increased to $1.22/boe in 2013 versus $1.17/boe in
2012 due to the temporary use of higher cost third-party processing
on certain volumes, as well as, increased oil and liquids production
which is subject to higher processing fees.  
During 2013, the Company commissioned a gas plant at Doe in NEBC,
completed an expansion of the Spirit River battery in Alberta and two
gas plant expansions at Wild River and Banshee in the Deep Basin.
These projects allow for additional volumes to flow through Company
owned-and-operated plants thereby reducing third-party charges on a
go-forward basis.  
The Company's operating cost target is $4.15/boe in 2014. Actual
costs per boe can change, however, depending on a number of factors,
including the Company's actual production levels. 


 
 
TRANSPORTATION                                                              
 
                            Three Months Ended                              
                               December 31,        Years Ended December 31, 
                        ----------------------------------------------------
(000s) except per unit                                                      
 amounts                     2013     2012 Change      2013     2012 Change 
----------------------------------------------------------------------------
Natural gas                                                                 
 transportation          $ 12,220 $  6,884     78% $ 38,671 $ 25,246     53%
Oil and NGL                                                                 
 transportation             5,635    2,927     93%   17,963    9,461     90%
----------------------------------------------------------------------------
Total transportation     $ 17,855 $  9,811     82% $ 56,634 $ 34,707     63%
----------------------------------------------------------------------------
Per boe                  $   2.25 $   1.86     21% $   2.07 $   1.87     11%
----------------------------------------------------------------------------

Transportation costs for the three months ended December 31, 2013 were
$17.9 million or $2.25/boe (three months ended December 31, 2012 -
$9.8 million or $1.86/boe). Transportation costs for the year ended
December 31, 2013 were $56.6 million or $2.07/boe (year ended
December 31, 2012 - $34.7 million or $1.87/boe). The increase in
total transportation costs for the three months and year ended
December 31, 2013 can be primarily attributed to increased
production. 
On a per-boe basis, transportation costs for the three and twelve
months ended December 31, 2013 are higher as a result of the
increased use of more expensive transportation due to pipeline and
infrastructure constraints.   


 
 
GENERAL & ADMINISTRATIVE EXPENSES ("G&A")                                   
 
                        Three Months Ended                                  
                           December 31,          Years Ended December 31,   
                    --------------------------------------------------------
(000s)                   2013      2012 Change       2013      2012 Change  
----------------------------------------------------------------------------
G&A expenses         $ 10,355  $  7,539     37%  $ 37,582  $ 27,089     39% 
Administrative and                                                          
 capital recovery        (985)     (341)   189%    (2,317)   (1,163)    99% 
Capitalized G&A        (3,951)   (3,123)    27%   (15,023)  (11,307)    33% 
----------------------------------------------------------------------------
Total G&A expenses   $  5,419  $  4,075     33%  $ 20,242  $ 14,619     38% 
----------------------------------------------------------------------------
Per boe              $   0.68  $   0.77    (12)% $   0.74  $   0.79     (6)%
----------------------------------------------------------------------------

Total G&A expenses for the fourth quarter of 2013 were $5.4 million
compared to $4.1 million for the same quarter of the prior year. G&A
costs per boe for the fourth quarter of 2013 decreased 12% down to
$0.68/boe, compared to $0.77/boe for the fourth quarter of 2012. 
For the year ended December 31, 2013, total G&A expenses were $20.2
million or $0.74/boe compared to $14.6 million or $0.79/boe for the
same period of 2012. The higher total G&A expenses in 2013 are
directly attributable to managing a larger production, reserve and
land base. 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 2014 are expected to be approximately $0.60/boe. The
Company expects G&A costs per boe to continue to decrease as the
production base grows. 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
                                        December 31,            31,         
                                    ----------------------------------------
(000s)                                   2013      2012      2013      2012 
----------------------------------------------------------------------------
Share-based payments                  $11,588   $ 7,710  $ 38,614 $  29,892 
Capitalized share-based payments       (5,794)   (3,855)  (19,307)  (14,946)
----------------------------------------------------------------------------
Total share-based payments            $ 5,794   $ 3,855  $ 19,307 $  14,946 
----------------------------------------------------------------------------

The Company uses the fair value method for the determination of
non-cash related share-based payments expense. During the fourth
quarter of 2013, 2,398,000 stock options were granted to employees,
officers, directors and key consultants at a weighted-average
exercise price of $40.77, and 763,694 options were exercised,
bringing $8.7 million of cash into treasury. The Company recognized
$5.8 million of share-based payment expense in the fourth quarter of
2013 compared to $3.9 million in the fourth quarter of 2012.
Capitalized share-based payments for the fourth quarter of 2013 were
$5.8 million compared to $3.9 million for the same quarter of the
prior year.  
For the year ended December 31, 2013, share-based payment expense
totalled $19.3 million and a further $19.3 million in share-based
payments were capitalized (2012 - $14.9 million and $14.9 million,
respectively). The increase in share-based payment expense in 2013
compared to 2012 reflects the increased value attributed to the
options and a higher number of options outstanding.  


 
 
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A")                           
 
                                    Three Months Ended  Years Ended December
                                       December 31,             31,         
                                   -----------------------------------------
(000s) except per unit amounts          2013       2012     2013        2012
----------------------------------------------------------------------------
Total depletion, depreciation and                                           
 amortization                       $ 96,249  $  65,998 $356,239  $  242,528
Less mineral lease expiries           (2,282)         -  (33,127)          -
----------------------------------------------------------------------------
Depletion, depreciation and                                                 
 amortization                       $ 93,967  $  65,998 $323,112  $  242,528
----------------------------------------------------------------------------
Per boe                             $  11.86  $   12.53 $  11.84  $    13.04
----------------------------------------------------------------------------

DD&A expense was $94.0 million for the fourth quarter of 2013 compared
to $66.0 million for the same period of 2012 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 2013 was $11.86/boe
compared to $12.53/boe for the same quarter of 2012. 
For the year ended December 31, 2013, DD&A expense was $323.1 million
(December 31, 2012 - $242.5 million) with a DD&A rate of $11.84/boe
(December 31, 2012 - $13.04/boe). The lower DD&A rate for the quarter
and year ended December 31, 2013 reflects strong reserve additions
derived from Tourmaline's exploration and production program. 
Mineral lease expiries for the three months and year ended December
31, 2013 were $2.3 million and $33.1 million, respectively (December
31, 2012 - nil and nil, respectively). The increase in expiries is a
result of mineral leases acquired via property and corporate
acquisitions which were partially through their term at the date they
were purchased, and have now begun to expire. The Company prioritizes
drilling on what it believes to be the most cost-efficient and
productive acreage, and with such a large land base, the Company has
chosen to not continue some of the expiring sections of land.
Tourmaline expects to continue to see mineral lease expiries of a
similar magnitude on a go-forward basis.  


 
 
FINANCE EXPENSES                                                            
 
                            Three Months Ended                              
                              December 31,        Years Ended December 31,  
                        ----------------------------------------------------
(000s)                      2013    2012 Change       2013     2012 Change  
----------------------------------------------------------------------------
Interest expense         $ 3,551 $ 3,064     16%  $ 12,220 $ 10,484     17% 
Accretion expense            626     388     61%     2,038    1,328     53% 
Transaction costs on                                                        
 corporate and property                                                     
 acquisitions                  9     974    (99)%    1,100    1,146     (4)%
----------------------------------------------------------------------------
Total finance expenses   $ 4,186 $ 4,426     (5)% $ 15,358 $ 12,958     19% 
----------------------------------------------------------------------------

Finance expenses totalled $4.2 million and $15.4 million for the
quarter and year ended December 31, 2013, respectively, and are
comprised of interest expense, transaction costs on corporate and
property acquisitions and accretion of decommissioning obligations
(December 31, 2012 - $4.4 million and $13.0 million, respectively).
The increased finance expenses in 2013 are largely due to higher
interest expense resulting from a higher balance drawn on the credit
facility. The average bank debt outstanding and the average effective
interest rate on the debt during 2013 were $337.0 million and 3.0%,
respectively (2012 - $245.4 million and 3.34%, respectively). In the
fourth quarter of 2013, this increase in interest expense was offset
by a decrease in transaction costs on corporate acquisitions, with
the fourth quarter of 2012 having costs related to a corporate
acquisition.  


 
 
CASH FLOW FROM OPERATING ACTIVITIES, CASH FLOW AND NET EARNINGS             
 
                            Three Months Ended                              
                               December 31,        Years Ended December 31, 
                        ----------------------------------------------------
(000s) except per unit                                                      
 amounts                     2013     2012 Change      2013     2012 Change 
----------------------------------------------------------------------------
Cash flow from operating                                                    
 activities              $128,852 $104,671     23% $479,239 $273,477     75%
  Per share(1)           $   0.66 $   0.60     10% $   2.55 $   1.64     55%
 
Cash flow(2)             $160,732 $ 93,807     71% $526,761 $280,279     88%
  Per share(1)(2)        $   0.83 $   0.54     54% $   2.80 $   1.68     67%
 
Net earnings             $ 56,763 $ 16,301    248% $148,114 $ 15,519    854%
  Per share(1)           $   0.29 $   0.09    222% $   0.79 $   0.09    778%
 
Operating netback per                                                       
 boe (2)                 $  21.29 $  19.17     11% $  20.37 $  16.27     25%
----------------------------------------------------------------------------
(1)  Fully diluted                                                          
(2)  See "Non-GAAP Financial Measures"                                      

Cash flow for the three months ended December 31, 2013 was $160.7
million or $0.83 per diluted share compared to $93.8 million or $0.54
per diluted share for the same period of 2012. For the year ended
December 31, 2013, cash flow was $526.8 million or $2.80 per diluted
share, which is higher than the December 31, 2012 cash flow of $280.3
million or $1.68 per diluted share. The increase in cash flow in 2013
reflects increased production and higher natural gas prices.  
The Company had after-tax earnings for the three months and year
ended December 31, 2013 of $56.8 million ($0.29 per diluted share)
and $148.1 million ($0.79 per diluted share), respectively, compared
to earnings of $16.3 million ($0.09 per diluted share) and $15.5
million ($0.09 per diluted share), respectively, for the same periods
of 2012. The significant increase is attributable to increased
natural gas prices and production, as well as the $77.0 million in
gains realized on the sale of certain non-core assets in Alberta and
NEBC (December 31, 2012 - $7.6 million). 


 
 
CAPITAL EXPENDITURES                                                        
 
                               Three Months Ended     Years Ended December  
                                  December 31,                31,           
                            ------------------------------------------------
(000s)                             2013        2012        2013        2012 
----------------------------------------------------------------------------
Land and seismic             $    8,660  $    9,270  $   43,008  $   31,288 
Drilling and completions        280,326     148,953     721,653     438,459 
Facilities                      122,801      52,917     386,601     184,406 
Property acquisitions            82,180      81,778     226,926      88,619 
Property dispositions               (24)        (49)    (78,069)    (12,682)
Other                             3,998       3,239      15,297      11,550 
----------------------------------------------------------------------------
Total cash capital                                                          
 expenditures                $  497,941  $  296,108  $1,315,416  $  741,640 
----------------------------------------------------------------------------

During the fourth quarter of 2013, the Company invested $497.9 million
of cash consideration, net of dispositions, compared to $296.1
million for the same period of 2012. Expenditures on exploration and
production were $411.8 million compared to $211.1 million for the
same quarter of 2012, which is consistent with the Company's
aggressive growth strategy. The growth in facilities expenditures
includes costs related to the expansion of the Wild River and Banshee
gas facilities both of which were completed in late 2013. The Company
also continued to add to its overall asset base through strategic
property acquisitions during the third and fourth quarters of 2013.  
During 2013 the Company invested $1,315.4 million of cash
consideration, net of dispositions, compared to $741.6 million in
2012. Expenditures on exploration and production were $1,151.3
million compared to $654.2 million for 2012. 
The following table summarizes the drill, complete and tie-in
activities for the period: 


 
 
                                     Three Months Ended  Year Ended December
                                      December 31, 2013       31, 2013      
                                    ----------------------------------------
                                         Gross       Net     Gross       Net
----------------------------------------------------------------------------
Drilled                                     48     42.69       129    115.14
Completed                                   51     45.06       123    111.33
Tied-in                                     21     15.16        54     46.85
----------------------------------------------------------------------------

Capital expenditures in 2014 are forecast to be $1.0 billion, which was
revised upward from $900 million in the February 19, 2014 press
release. Major planned 2014 facility projects include expansions at
Musreau in Alberta and Doe in NEBC, and a new gas plant in Spirit
River, Alberta (in late 2014). 
LIQUIDITY AND CAPITAL RESOURCES  
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. The proceeds were used to temporarily reduce bank
debt and to fund the Company's 2013 exploration and development
program.   
On October 8, 2013, the Company issued 3.495 million common shares at
a price of $41.75 per share and 0.925 million flow-through common
shares at a price of $51.60 per share, for total gross proceeds of
$193.6 million. The proceeds were used to temporarily reduce bank
debt and to fund the Company's remaining 2013 and its upcoming 2014
exploration and development programs.   
On February 12, 2014 the Company issued 4.615 million common shares
at a price of $47.50 per share for total gross proceeds of $219.2
million. The proceeds will be used to temporarily reduce bank debt
and to fund the Company's upcoming 2014 exploration and development
programs.   
The Company has a covenant-based bank credit facility in place with a
syndicate of bankers, the details of which are described in note 9 of
the Company's consolidated financial statements for the year ended
December 31, 2013. In October 2013, the facility was increased to
$900 million from $750 million, under the same terms and covenants,
with an initial maturity of June 2016.   
At December 31, 2013, Tourmaline had negative working capital of
$242.6 million, after adjusting for the fair value of financial
instruments (the unadjusted working capital deficiency was $245.3
million) (December 31, 2012 - $103.7 million and $98.9 million,
respectively). Management believes the Company has sufficient
liquidity and capital resources to fund the 2014 exploration and
development program through expected cash flow from operations, its
unutilized bank credit facility and the financings described above.
As at December 31, 2013, the Company's bank debt balance was $590.3
million (December 31, 2012 - $360.6 million), and net debt was $832.9
million (December 31, 2012 - $464.3 million). 
SHARES AND STOCK OPTIONS OUTSTANDING 
As at March 17, 2014, the Company has 195,138,903 common shares
outstanding and 15,654,810 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. 


 
 
                                                          greater           
Payments Due by Year                                       than 5           
 (000s)                   1 Year  2-3 Years  4-5 Years      Years      Total
----------------------------------------------------------------------------
Operating leases        $  3,591 $    9,552 $   10,163 $    6,168 $   29,474
Firm transportation and                                                     
 processing agreements    55,539    262,358    143,562    344,206    805,665
Bank debt(1)                   -    639,271          -          -    639,271
----------------------------------------------------------------------------
                        $ 59,130 $  911,181 $  153,725 $  350,374 $1,474,410
----------------------------------------------------------------------------
(1) Includes interest expense at an annual rate of 3.06% being the rate     
    applicable to outstanding bank debt at December 31, 2013.               

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, 2013.  
As at December 31, 2013, the Company has entered into certain
financial derivative 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 entered into in 2013 are detailed in note
5 of the Company's consolidated financial statements for the year
ended December 31, 2013. 
The following table provides a summary of the unrealized gains and
losses on financial instruments for the year ended December 31,
2013: 


 
 
                                     Three Months Ended     Years Ended     
                                        December 31,        December 31,    
                                    ----------------------------------------
(000s)                                   2013       2012     2013      2012 
----------------------------------------------------------------------------
Unrealized gain (loss) on financial                                         
 instruments                         $ (4,847) $   1,174 $(10,046) $  2,600 
Unrealized (loss) on investments                                            
 held for trading                           -          -        -      (103)
----------------------------------------------------------------------------
Total                                $ (4,847) $   1,174 $(10,046) $  2,497 
----------------------------------------------------------------------------

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.
Physical contracts in place at December 31, 2013 have been disclosed
in note 5 of the Company's consolidated financial statements for the
year ended December 31, 2013.  
Financial derivative and physical delivery contracts entered into
subsequent to December 31, 2013 are detailed in note 5 of the
Company's consolidated financial statements for the year ended
December 31, 2013.  
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, 2013. 
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, 2013, the
Company's DC&P and ICFR are effective. There were no changes in the
Company's DC&P or ICFR during the period beginning on October 1, 2013
and ending December 31, 2013 that have materially affected, or are
reasonably likely to materially affect, the Company's DC&P or ICFR.
It should be noted that a control system, including the 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. 
The design and assessment of the Company's DC&P and ICFR were based
on the framework in 'Internal Control - Integrated Framework (1992)'
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.   
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  
The oil and gas industry is currently subject to regulation pursuant
to a variety of provincial and federal environmental legislation, all
of which is subject to governmental review and revision from time to
time. Such legislation provides for, among other things, restrictions
and prohibitions on the spill, release or emission of various
substances produced in association with certain oil and gas industry
operations, such as sulphur dioxide and nitrous oxide. In addition,
such legislation sets out the requirements with respect to oilfield
waste handling and storage, habitat protection and the satisfactory
operation, maintenance, abandonment and reclamation of well and
facility sites. Compliance with such legislation can require
significant expenditures and a breach of such requirements may result
in suspension or revocation of necessary licenses and authorizations,
civil liability and the imposition of material fines and penalties.   
The use of fracture stimulations has been ongoing safely in an
environmentally responsible manner in western Canada for decades.
With the increase in the use of fracture stimulations in horizontal
wells there is increased communication between the oil and natural
gas industry and a wider variety of stakeholders regarding the
responsible use of this technology. This increased attention to
fracture stimulations may result in increased regulation or changes
of law which may make the conduct of the Company's business more
expensive or prevent the Company from conducting its business as
currently conducted. Tourmaline focuses on conducting transparent,
safe and responsible operations in the communities in which its
people live and work.  
CHANGES IN ACCOUNTING POLICIES  
The following new accounting standards and amendments to existing
standards, as issued by the International Accounting Standards Board
("IASB"), have been adopted by the Company effective January 1, 2013. 
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 and 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.   
NON-GAAP FINANCIAL MEASURES 
This MD&A or documents referred to in this MD&A make reference to the
terms "cash flow", "operating netback", "working capital (adjusted
for the fair value of financial instruments)", "net debt", "adjusted
EBITDA", "senior debt", "total debt", and "total capitalization"
which are not recognized measures under GAAP, and do not have a
standardized meaning prescribed by GAAP. Accordingly, the Company's
use of these terms may not be comparable to similarly defined
measures presented by other companies. Management uses the terms
"cash flow", "operating netback", "working capital (adjusted for the
fair value of financial instruments)" and "net debt", for its own
performance measures and to provide shareholders and potential
investors with a measurement of the Company's efficiency and its
ability to generate the cash necessary to fund a portion of its
future growth expenditures or to repay debt. Investors are cautioned
that the non-GAAP measures should not be construed as an alternative
to net income determined in accordance with GAAP as an indication of
the Company's performance. The terms "adjusted EBITDA", "senior
debt", "total debt", and "total capitalization" are not used by
management in measuring performance but are used in the financial
covenants under the Company's credit facility. Under the Company's
credit facility "adjusted EBITDA" means generally net income or loss,
excluding extraordinary items, plus interest expense and income taxes
and adjusted for non-cash items and gains or losses on dispositions,
"senior debt" means generally the indebtedness, liabilities and
obligations of the Company to the lenders under the credit facility
and certain other secured indebtedness, liabilities and obligations
of the Company ("bank debt"), "total debt" means generally bank debt
plus any other indebtedness of the Company, and "total
capitalization" means generally the sum of the Company's
shareholders' equity and all other indebtedness of the Company
including bank debt, all determined on a consolidated basis in
accordance with GAAP.  
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
                                       December 31,              31,        
                                   -----------------------------------------
(000s)                                   2013     2012        2013      2012
----------------------------------------------------------------------------
Cash flow from operating activities                                         
 (per GAAP)                         $ 128,852 $104,671   $ 479,239 $ 273,477
Change in non-cash working capital     31,880  (10,864)     47,522     6,802
----------------------------------------------------------------------------
Cash flow                           $ 160,732 $ 93,807   $ 526,761 $ 280,279
----------------------------------------------------------------------------

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)                                  2013      2012      2013      2012 
----------------------------------------------------------------------------
Revenue, excluding processing income $  29.69  $  27.18  $  28.90  $  24.19 
Royalties                               (1.70)    (2.05)    (2.11)    (1.63)
Transportation costs                    (2.25)    (1.86)    (2.07)    (1.87)
Operating expenses                      (4.44)    (4.10)    (4.35)    (4.43)
----------------------------------------------------------------------------
Operating netback (1)                $  21.29  $  19.17  $  20.37  $  16.27 
----------------------------------------------------------------------------
(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    December 
(000s)                                                 31, 2013    31, 2012 
----------------------------------------------------------------------------
Working capital (deficit)                            $ (245,314) $  (98,913)
Fair value of financial instruments - short-term                            
 (asset) liability                                        2,691      (4,814)
----------------------------------------------------------------------------
Working capital (deficit) (adjusted for the fair                            
 value of financial instruments)                     $ (242,623) $ (103,727)
----------------------------------------------------------------------------

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


 
 
                                                          As at       As at 
                                                       December    December 
(000s)                                                 31, 2013    31, 2012 
----------------------------------------------------------------------------
Bank debt                                            $ (590,319) $ (360,573)
Working capital (deficit)                              (245,314)    (98,913)
Fair value of financial instruments - short-term                            
 (asset) liability                                        2,691      (4,814)
----------------------------------------------------------------------------
Net debt                                             $ (832,942) $ (464,300)
----------------------------------------------------------------------------
 
SELECTED QUARTERLY INFORMATION                                              
 
                                                    2013                    
                                --------------------------------------------
($000s, unless otherwise noted)         Q4         Q3         Q2         Q1 
----------------------------------------------------------------------------
PRODUCTION                                                                  
Natural gas (mcf)               41,062,993 36,486,443 34,477,391 33,055,857 
Oil and NGL(bbls)                1,076,395    735,727    640,001    667,907 
Oil equivalent (boe)             7,920,228  6,816,800  6,386,233  6,177,216 
Natural gas (mcf/d)                446,337    396,592    378,872    367,287 
Oil and NGL (bbls/d)                11,700      7,997      7,033      7,421 
Oil equivalent (boe/d)              86,089     74,096     70,178     68,636 
----------------------------------------------------------------------------
FINANCIAL                                                                   
Revenue, net of royalties          219,069    167,138    180,505    161,124 
Cash flow from operating                                                    
 activities                        128,852    128,192    128,432     93,763 
Cash flow (1)                      160,732    120,560    128,870    116,599 
 Per diluted share                    0.83       0.64       0.68       0.64 
Net earnings (loss)                 56,763      9,163     30,004     52,184 
 Per basic share                      0.30       0.05       0.16       0.29 
 Per diluted share                    0.29       0.05       0.16       0.29 
Total assets                     4,696,471  4,210,171  3,811,192  3,735,641 
Working capital (deficit)         (245,314)  (206,250)   (50,851)  (165,385)
Working capital                                                             
 (deficit)(adjusted for the fair                                            
 value of financial instruments)                                            
 (1)                              (242,623)  (204,507)   (53,676)  (166,049)
Cash capital expenditures          497,941    468,261    158,751    190,463 
Total outstanding shares (000s)    189,805    184,621    184,175    183,408 
----------------------------------------------------------------------------
PER UNIT                                                                    
Natural gas ($/mcf)                   3.84       3.30       3.92       3.50 
Oil and NGL ($/bbl)                  71.83      91.65      87.06      88.75 
Revenue ($/boe)                      29.69      27.58      29.88      28.33 
Operating netback ($/boe) (1)        21.29      18.59      21.28      20.20 
----------------------------------------------------------------------------
 
SELECTED QUARTERLY INFORMATION                                              
 
                                                    2012                    
                                --------------------------------------------
($000s, unless otherwise noted)         Q4         Q3         Q2         Q1 
----------------------------------------------------------------------------
PRODUCTION                                                                  
Natural gas (mcf)               27,879,639 23,501,484 24,276,149 22,430,621 
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 
Natural gas (mcf/d)                303,040    255,451    266,771    246,490 
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 (deficit)          (98,913)   (98,184)   (15,311)  (176,029)
Working capital                                                             
 (deficit)(adjusted for the fair                                            
 value of financial instruments)                                            
 (1)                              (103,727)  (101,577)   (19,809)  (175,696)
Cash capital expenditures          296,108    175,277     53,831    216,424 
Total outstanding shares (000s)    174,813    165,678    160,459    158,807 
----------------------------------------------------------------------------
PER UNIT                                                                    
Natural gas ($/mcf)                   3.29       2.52       2.23       2.54 
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 
----------------------------------------------------------------------------
(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 50,804 boe per day in 2012 to 74,796
boe per day in 2013. The production growth can be attributed
primarily to the Company's exploration and development activities, as
well as from acquisitions of producing properties.  
The Company's cash flows from operating activities were $273.5
million in 2012 and $479.2 million in 2013. Cash flows have increased
with higher production and strengthening natural gas prices in 2013
over 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)                 2013        2012        2011 
----------------------------------------------------------------------------
PRODUCTION                                                                  
Natural gas (mcf)                       145,082,684  98,087,893  60,577,481 
Oil and NGL (bbls)                        3,120,030   2,246,040   1,221,268 
Oil equivalent (boe)                     27,300,477  18,594,022  11,317,515 
Natural gas (mcf/d)                         397,487     268,000     165,966 
Oil and NGL (bbls/d)                          8,548       6,137       3,346 
Oil equivalent (boe/d)                       74,796      50,804      31,007 
----------------------------------------------------------------------------
FINANCIAL                                                                   
Revenue, net of royalties                   727,836     427,075     346,104 
Cash flow from operating activities         479,239     273,477     228,421 
Cash flow (1)                               526,761     280,279     241,352 
  Per diluted share                            2.80        1.68        1.58 
Net earnings                                148,114      15,519      42,681 
  Per basic share                              0.81        0.10        0.29 
  Per diluted share                            0.79        0.09        0.28 
Total assets                              4,696,471   3,580,253   2,711,024 
Working capital (deficit)                  (245,314)    (98,913)   (146,317)
Working capital (deficit) (adjusted for                                     
 the fair value of financial                                                
 instruments) (1)                          (242,623)   (103,727)   (146,593)
Cash capital expenditures                 1,315,416     741,640     828,956 
Basic outstanding shares (000s)             189,805     174,813     158,578 
----------------------------------------------------------------------------
PER UNIT                                                                    
Natural gas ($/mcf)                            3.65        2.67        4.17 
Oil and NGL ($/bbl)                           83.25       83.71       90.24 
Revenue ($/boe)                               28.90       24.19       32.07 
Operating netback ($/boe)                     20.37       16.27       22.35 
----------------------------------------------------------------------------
(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. 
MANAGEMENT'S REPORT 
To the Shareholders of Tourmaline Oil Corp.: 
The accompanying consolidated financial statements of Tourmaline Oil
Corp. and all the information in the Annual Report are the
responsibility of management and have been approved by the Board of
Directors. The financial statements have b
een prepared by management
in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board. When
alternative accounting methods exist, management has chosen those it
deems most appropriate in the circumstances. Financial statements are
not precise since they include certain amounts based on estimates and
judgments. Management has determined such amounts on a reasonable
basis in order to ensure that the financial statements are presented
fairly, in all material respects. The financial information contained
elsewhere in this report has been reviewed to ensure consistency with
the financial statements. 
Management has established systems of internal controls, which are
designed to provide reasonable assurance that assets are safeguarded
from loss or unauthorized use and to produce reliable accounting
records for the preparation of financial information. The Board of
Directors is responsible for ensuring that management fulfills its
responsibilities for financial reporting and internal control. It
exercises its responsibilities primarily through the Audit Committee,
with some assistance from the Reserves Committee regarding the annual
evaluation of the Company's petroleum and natural gas reserves. The
Audit Committee has reviewed the financial statements with management
and the auditors, and has reported to the Board of Directors. The
external auditors have access to the Audit Committee without the
presence of management.  
The financial statements have been audited on behalf of the
shareholders by KPMG LLP, the external auditors. Their examination
included such tests and procedures, as they considered necessary, to
provide reasonable assurance that the consolidated financial
statements are presented fairly in accordance with International
Financial Reporting Standards. The Board of Directors has approved
the financial statements. 
Michael L. Rose, President and Vice-President, Finance and Chief
Executive Officer  
Calgary, Alberta 
Brian G. Robinson, Chief Financial Officer  
Calgary, Alberta  
March 17, 2014 
AUDITOR'S REPORT 
To the Shareholders of Tourmaline Oil Corp.:  
We have audited the accompanying consolidated financial statements of
Tourmaline Oil Corp., which comprise the consolidated statements of
financial position as at December 31, 2013 and December 31, 2012 and
the consolidated statements of income and comprehensive income,
changes in equity and cash flows for the years then ended, and notes,
comprising a summary of significant accounting policies and other
explanatory information. 
Management's Responsibility for the Consolidated Financial Statements 
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error. 
Auditors' Responsibility  
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material
misstatement.  
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant
to the entity's preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.  
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion. 
Opinion  
In our opinion, the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of
Tourmaline Oil Corp. as at December 31, 2013 and December 31, 2012
and its consolidated financial performance and its consolidated cash
flows for the years then ended in accordance with International
Financial Reporting Standards. 
KPMG LLP, Chartered Accountants, March 17, 2014 
Calgary, Canada 


 
 
CONSOLIDATED FINANCIAL STATEMENTS                                           
 
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                               
 
                                                 December 31,   December 31,
(000s)                                                   2013           2012
----------------------------------------------------------------------------
Assets                                                                      
Current assets:                                                             
  Accounts receivable                           $     136,041  $      83,868
  Assets held for sale                                      -         33,007
  Prepaid expenses and deposits                         6,918          5,309
  Fair value of financial instruments (notes 4                              
   and 5)                                                 166          4,814
----------------------------------------------------------------------------
Total current assets                                  143,125        126,998
Fair value of financial instruments (notes 4                                
 and 5)                                                   663              -
Long-term asset                                         2,373          2,580
Exploration and evaluation assets (note 6)            700,525        639,933
Property, plant and equipment (note 7)              3,849,785      2,810,742
----------------------------------------------------------------------------
Total Assets                                    $   4,696,471  $   3,580,253
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity                                        
Current liabilities:                                                        
  Accounts payable and accrued liabilities      $     385,582  $     225,911
  Fair value of financial instruments (notes 4                              
   and 5)                                               2,857              -
----------------------------------------------------------------------------
Total current liabilities                             388,439        225,911
Bank debt (note 9)                                    590,319        360,573
Long-term obligation                                    3,414          7,139
Fair value of financial instruments (notes 4                                
 and 5)                                                 5,216          2,012
Deferred premium on flow-through shares                     -          8,755
Decommissioning obligations (note 8)                   76,037         64,757
Deferred taxes (note 12)                              265,025        176,391
Shareholders' equity:                                                       
  Share capital (note 11)                           3,062,432      2,599,614
  Non-controlling interest (note 10)                   17,877         16,298
  Contributed surplus                        
          91,718         70,923
  Retained earnings                                   195,994         47,880
----------------------------------------------------------------------------
Total shareholders' equity                          3,368,021      2,734,715
----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity      $   4,696,471  $   3,580,253
----------------------------------------------------------------------------
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                         2013           2012 
----------------------------------------------------------------------------
Revenue:                                                                    
  Oil and natural gas sales                    $     759,153  $     441,888 
  Royalties                                          (57,504)       (30,304)
----------------------------------------------------------------------------
  Net revenue from oil and natural gas sales         701,649        411,584 
  Realized gain on financial instruments              29,710          7,955 
  Unrealized gain (loss) on financial                                       
   instruments(note 5)                               (10,046)         2,497 
  Other income (note 15)                               6,523          5,039 
----------------------------------------------------------------------------
Total net revenue                                    727,836        427,075 
Expenses:                                                                   
  Operating                                          118,671         82,312 
  Transportation                                      56,634         34,707 
  General and administration                          20,242         14,619 
  Share-based payments                                19,307         14,946 
  (Gain) on divestitures                             (76,990)        (7,634)
  Depletion, depreciation and amortization           356,239        242,528 
----------------------------------------------------------------------------
Total expenses                                       494,103        381,478 
----------------------------------------------------------------------------
Income from operations                               233,733         45,597 
Finance expenses (note 16)                            15,358         12,958 
----------------------------------------------------------------------------
Income before taxes                                  218,375         32,639 
Deferred taxes (note 12)                              68,682         15,901 
----------------------------------------------------------------------------
Net income and comprehensive income before                                  
 non-controlling interest                            149,693         16,738 
----------------------------------------------------------------------------
Net income and comprehensive income                                         
 attributable to:                                                           
  Shareholders of the Company                        148,114         15,519 
  Non-controlling interest (note 10)                   1,579          1,219 
----------------------------------------------------------------------------
                                               $     149,693  $      16,738 
----------------------------------------------------------------------------
 
Net income per share attributable to common                                 
 shareholders (note 13)                                                     
----------------------------------------------------------------------------
  Basic                                        $        0.81  $        0.10 
----------------------------------------------------------------------------
  Diluted                                      $        0.79  $        0.09 
----------------------------------------------------------------------------
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,                                                               
 2012            $ 2,599,614 $     70,923 $  47,880 $     16,298 $2,734,715 
Issue of common                                                             
 shares (note 11)    411,099            -         -            -    411,099 
Share issue                                                                 
 costs, net of                                                              
 tax                 (13,123)           -         -            -    (13,123)
Share-based                                                                 
 payments                  -       19,307         -            -     19,307 
Capitalized                                                                 
 share-based                                                                
 payments                  -       19,307         -            -     19,307 
Options exercised                                                           
 (note 11)       -    64,842      (17,819)        -            -     47,023 
Income                                                                      
 attributable to                                                            
 common                                                                     
 shareholders              -            -   148,114            -    148,114 
Income                                                                      
 attributable to                                                            
 non-controlling                                                            
 interest                  -            -         -        1,579      1,579 
----------------------------------------------------------------------------
Balance at                                                                  
 December 31,                                                               
 2013            $ 3,062,432 $     91,718 $ 195,994 $     17,877 $3,368,021 
----------------------------------------------------------------------------
 
(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 
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.            
 
CONSOLIDATED STATEMENTS OF CASH FLOW                                        
 
                                                 Years Ended December 31,   
----------------------------------------------------------------------------
(000s)                                                  2013           2012 
----------------------------------------------------------------------------
Cash provided by (used in):                                                 
Operations:                                                                 
  Net income                                   $     148,114  $      15,519 
  Items not involving cash:                                                 
    Depletion, depreciation and amortization         356,239        242,528 
    Accretion                                          2,038          1,328 
    Share-based payments                              19,307         14,946 
    Deferred taxes                                    68,682         15,901 
    Unrealized (gain) loss on financial                                     
     instruments (note 5)                             10,046         (2,497)
    Realized gain on sale of investments                   -            (38)
    (Gain) on divestitures                           (76,990)        (7,634)
    Non-controlling interest                           1,579          1,219 
  Decommissioning expenditures                        (2,254)          (993)
  Changes in non-cash operating working                                     
   capital (note 18)                                 (47,522)        (6,802)
----------------------------------------------------------------------------
Total cash flow from operating activities            479,239        273,477 
Financing:                                                                  
  Issue of common shares                             473,830        231,367 
  Share issue costs                                  (17,633)        (9,497)
  Increase in bank debt                              229,746        246,607 
----------------------------------------------------------------------------
Total cash flow from financing activities            685,943        468,477 
Investing:                                                                  
  Exploration and evaluation                        (154,431)       (79,295)
  Property, plant and equipment                   (1,012,128)      (586,408)
  Property acquisitions                             (226,926)       (88,619)
  Proceeds from divestitures                          78,069         12,682 
  Proceeds from sale of investments                        -            168 
  Net repayment of long-term obligation               (3,462)        (3,725)
  Changes in non-cash investing working                                     
   capital (note 18)                                 153,696          3,243 
----------------------------------------------------------------------------
Total cash flow from investing activities         (1,165,182)      (741,954)
Changes in cash                                            -              - 
Cash, beginning of year                                    -              - 
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Cash, end of year                              $           -  $           - 
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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, 2013 and 2012 
(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, Canada 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").  
Certain prior year amounts have been reclassified for consistency
with the current period presentation. These reclassifications had no
effect on the reported results of operations.   
The consolidated financial statements were authorized for issue by
the Board of Directors on March 17, 2014. 
(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 measure 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 int
o 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 forecasted
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 of 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. and Exshaw Oil Corp., of which the Company owns
90.6% (note 10). 
(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, substantive 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. 
(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) Business Combinations: 
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.
Acquisition costs incurred are expensed. 
(c) 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. 
(d) 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.  
(e) 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. 
(f) 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 net cost
of continuing with the contract. Before a provision is established,
the Company recognizes any impairment loss on associated assets. 
(g) 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. 
(h) 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. 
(i) 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. 
(j) 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. 
(k) 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. 
(l) 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. 
(m) 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. ACCOUNTING CHANGES 
(a) Changes in Accounting Policies: 
The following new accounting standards and amendments to existing
standards, as issued by the International Accounting Standards Board
("IASB"), have been adopted by the Company effective January 1, 2013: 
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. 
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, 2013 and
December 31, 2012, 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, 2013 and December
31, 2012. 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. 


 
 
                                                     Carrying               
December 31, 2013 (000s)                               Amount     Fair Value
----------------------------------------------------------------------------
Financial Assets:                                                           
  Commodity price risk contracts(1)            $          829 $          829
Financial Liabilities:                                                      
  Bank debt                                           590,319        590,319
  Commodity price risk contracts(1)                     8,073          8,073
----------------------------------------------------------------------------
 
                                                     Carrying               
December 31, 2012 (000s)                               Amount     Fair Value
----------------------------------------------------------------------------
Financial assets:                                                           
  Commodity price risk contracts(1)            $        4,814 $        4,814
Financial liabilities:                                                      
  Bank debt                                           360,573        360,573
  Commodity price risk contracts(1)                     2,012          2,012
----------------------------------------------------------------------------
(1) Commodity price contracts are fair valued using Level 2 information.    

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, 2013, Tourmaline's receivables
consisted of $19.5 million (December 31, 2012 - $22.7 million) from
joint venture partners, $99.9 million (December 31, 2012 - $52.8
million) from petroleum and natural gas marketers and $16.6 million
(December 31, 2012 - $8.4 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 2013, Tourmaline had three
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,
2013, the Company had $0.8 million (December 31, 2012 - $1.1 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, 2013 (December 31, 2012 - nil) and did
not provide for any doubtful accounts nor was it required to
write-off any receivables during the year ended December 31, 2013
(December 31, 2012 - 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, 2013 is approximately $385.6 million (December 31, 2012
- $225.9 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, 2013, 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,
2013: 


 
 
                                                                        More
                                                      One -    Two -    Than
                    Carrying Contractual  Less Than     Two     Five    Five
(000s)                Amount   Cash Flow   One Year   Years    Years   Years
----------------------------------------------------------------------------
Non-derivative                                                              
 financial                                                                  
 liabilities:                                                               
 Trade and other                                                            
  payables        $  381,857 $   381,857 $  381,857 $     - $      - $     -
 Bank debt (1)       590,319     639,271          -       -  639,271       -
 Transportation                                                             
  liability            7,139       7,139      3,725   3,414        -       -
Derivative                                                                  
 financial                                                                  
 liabilities:                                                               
 Financial                                                                  
  commodity                                                                 
  contracts            8,073       8,073      2,857       -    5,216       -
----------------------------------------------------------------------------
                  $  987,388 $ 1,036,340 $  388,439 $ 3,414 $644,487 $     -
----------------------------------------------------------------------------
(1) Includes interest expense at 3.06% being the rate applicable at December
    31, 2013.                                                               

(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, 2013. 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 for
the year ended December 31, 2013 would have decreased or increased
shareholders' equity and net income by $2.5 million (December 31,
2012 - $1.8 million). 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 or
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, 2013, 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 not offset any financial assets and
liabilities, in the consolidated statements of financial position.  
The Company has the following financial derivative contracts in place
as at December 31, 2013(1): 


 
 
                                                                       Fair 
                                   2014    2015   2016   2017   2018  Value 
----------------------------------------------------------------------------
Gas                                                                         
Fixed Price        mmbtu/d       36,753       -      -      -      -  $(609)
                   USD$/mmbtu     $4.12                                     
 
Nymex Call Options                                                          
 (Writer)          mmbtu/d            -       -      - 20,000 20,000 (4,535)
                   USD$/mmbtu                           $5.00  $5.00        
----------------------------------------------------------------------------
Oil                                                                         
Financial Swaps    bbls/d           773     400      -      -      -    273 
                   USD$/bbl      $95.49  $91.10                             
 
Costless Collars   bbls/d         1,100       -      -      -      -   (962)
                   USD$/bbl    $80.91 -                                     
                                 $97.57                                     
 
Financial Call                                                              
 Swaptions(2)      bbls/d           226     674    400      -      -   (730)
                   USD$/bbl     $100.00 $104.43 $91.10                      
----------------------------------------------------------------------------
Total fair value                                                            
 (000s)                                                             $(6,563)
----------------------------------------------------------------------------
(1) The volumes and prices reported are the weighted average volumes and    
    prices for the period.                                                  
(2) This is a European swaption whereby the Company provides the option to  
    extend an oil swap into the period subsequent to the call date.         

The Company has entered in to the following financial derivative
contracts subsequent to December 31, 2013: 


 
 
-----------------------------------------------------------------------
-----
Type of Contract    Quantity      Time Period               Contract Price  
----------------------------------------------------------------------------
Fixed Price - Nymex 5,000 mmbtu/d April 2014 - October 2014 USD$4.33/mmbtu  
Fixed Price - Nymex 5,000 mmbtu/d January - December 2015   USD$4.205/mmbtu 
----------------------------------------------------------------------------

The Company has entered into four interest rate swap
arrangements: 


 
 
(000s)                                                                      
----------------------------------------------------------------------------
Term                            Type    Amount   Company     Counter   Fair 
                           (Floating               Fixed       Party  Value 
                           to Fixed)            Interest    Floating        
                                                Rate (%)  Rate Index        
----------------------------------------------------------------------------
May 29, 2012 - May 29, 2014     Swap  $150,000      1.35%   Floating   $(86)
                                                                Rate        
May 29, 2014 - May 29, 2015     Swap  $150,000      1.72%   Floating   (740)
                                                                Rate        
May 29, 2014 - May 29, 2015     Swap  $100,000      1.27%   Floating    (48)
                                                                Rate        
May 29, 2015 - May 29, 2016     Swap  $250,000     1.645%   Floating    193 
                                                                Rate        
----------------------------------------------------------------------------
Total fair value (000s)                                               $(681)
----------------------------------------------------------------------------

The following table provides a summary of the unrealized gains and
losses on financial instruments for the years ended December 31, 2013
and 2012: 


 
 
                                                             Years Ended    
                                                            December 31,    
                                                        --------------------
(000s)                                                        2013      2012
----------------------------------------------------------------------------
Unrealized gain (loss) on financial instruments          $(10,046) $   2,600
Unrealized (loss) on investments held for trading                -     (103)
----------------------------------------------------------------------------
Total                                                    $(10,046) $   2,497
----------------------------------------------------------------------------

As at December 31, 2013, 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, after-tax earnings would have
been $3.8 million (December 31, 2012 - $1.3 million) lower. An equal
and opposite impact would have occurred to after-tax earnings 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. 
The Company has the following physical contracts in place at December
31, 2013(1): 


 
 
                                       2014    2015    2016    2017    2018 
----------------------------------------------------------------------------
Gas                                                                         
Fixed Price - AECO      mcf/d        69,960   4,741       -       -       - 
                        CAD$/mcf      $3.81   $4.22                         
 
Costless Collars        mcf/d         4,676       -       -       -       - 
                        CAD$/mcf    $3.23 -                                 
                                      $4.08                                 
 
Basis Differentials(2)  mmbtu/d      84,932  50,000  48,333  20,000  20,000 
                        USD$/mmbtu   $(0.49) $(0.49) $(0.48) $(0.49) $(0.49)
 
AECO Call Options       mcf/d        36,889  35,577  11,597  14,223       - 
 (Writers)/Call                                                             
 Swaptions(3)                                                               
                        CAD$/mcf      $4.16   $4.39   $5.41   $4.90         
----------------------------------------------------------------------------
(1) Transactions with common terms have been aggregated and presented at the
    weighted average price.                                                 
(2) Tourmaline also has 20 mmcf/d of Nymex-AECO basis differentials at $0.40
    from 2019-2022.                                                         
(3) A Financial call swaption is a European swaption whereby the Company    
    provided the option to extend a gas swap into the period subsequent to  
    the call date.                                                          

The Company has entered into the following physical contracts
subsequent to December 31, 2013(1): 


 
 
Type of                                                                     
 Contract      Quantity       Time Period          Contract Price           
----------------------------------------------------------------------------
Fixed Price -  35,000 GJs/d   April - October 2014 CAD$3.93/gj average      
 AECO                                                                       
Fixed Price -  30,000 GJs/d   April 2014 - March   CAD$4.11/gj average      
 AECO                         2015                                          
Fixed Price -  10,000 GJs/d   February 2014 -      CAD$3.78/gj average      
 AECO                         March 2015                                    
Fixed Price -  10,000 GJs/d   January - December   CAD$3.76/gj average      
 AECO                         2014                                          
Fixed Price -  5,000 GJs/d    January - December   CAD$3.86/gj average      
 AECO                         2015                                          
Fixed Price -  5,000 GJs/d    March - December     CAD$4.84/gj average      
 AECO                         2014                                          
Fixed Price -  5,000 GJs/d    April - December     CAD$4.43/gj average      
 AECO                         2014                                          
Call Writer(2) 10,000 GJs/d   January - December   CAD$4.15/gj              
                              2016                                          
Call Writer(3) 10,000 GJs/d   January - December   CAD$4.15/gj              
                              2017                                          
Basis          5,000 mmbtu/d  November 2014 -      Nymex less USD$0.22/mmbtu
 Differential                 March 2015                                    
----------------------------------------------------------------------------
(1) Transactions with common terms have been aggregated and presented as the
    weighted average price.                                                 
(2) This option can be called on December 31, 2015.                         
(3) This option can be called on December 31, 2016.                         

(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 annualized cash flow, which is defined as
long-term bank debt plus working capital (adjusted for the fair value
of financial instruments), to annualized cash flow (based on the most
recent quarter), 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, 2013, the
Company's ratio of net debt to annualized cash flow was 1.3 to 1.0
(December 31, 2012 - 1.24 to 1.0). 


 
 
                                                        As at         As at 
                                                     December      December 
(000s)                                               31, 2013      31, 2012 
----------------------------------------------------------------------------
Net debt:                                                                   
 Bank debt                                        $  (590,319)  $  (360,573)
 Working capital (deficit)                           (245,314)      (98,913)
 Fair value of financial instruments - short-                               
  term (asset) liability                                2,691        (4,814)
----------------------------------------------------------------------------
Net debt                                          $  (832,942)  $  (464,300)
----------------------------------------------------------------------------
Annualized cash flow:                                                       
 Cash flow from operating activities for Q4       $   128,852   $   104,671 
 Change in non-cash working capital                    31,880       (10,864)
----------------------------------------------------------------------------
 Cash flow for Q4                                 $   160,732   $    93,807 
Annualized cash flow (based on most recent                                  
 quarter annualized)                              $   642,928   $   375,228 
----------------------------------------------------------------------------
Net debt to annualized cash flow                         1.30          1.24 
----------------------------------------------------------------------------

The Company has not paid or declared any dividends since the date of
incorporation, nor are any contemplated in the foreseeable future.
There have been no changes in the Company's approach to capital
management since December 31, 2012. 
6. EXPLORATION AND EVALUATION ASSETS  


 
 
(000s)                                                                      
----------------------------------------------------------------------------
As at January 1, 2012                                         $     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 
----------------------------------------------------------------------------
  Capital expenditures                                              158,264 
  Transfers to property, plant and equipment (note 7)               (96,594)
  Acquisitions                                                       35,405 
  Divestitures                                                       (3,356)
  Expired mineral leases                                            (33,127)
----------------------------------------------------------------------------
As at December 31, 2013                                       $     700,525 
----------------------------------------------------------------------------

Exploration and evaluation ("E&E") assets consist of the Company's
exploration projects which are pending the determination of proven
and/or probable reserves. Additions represent the Company's share of
costs on E&E assets during the year. 
General and administrative expenditures for the year ended December
31, 2013 of $3.9 million (December 31, 2012 - $5.2 million) have been
capitalized and included as exploration and evaluation assets.
Non-cash share-based payment expense in the amount of $3.8 million
(December 31, 2012, $5.8 million) were also capitalized and included
in exploration and evaluation assets. Expired mineral lease expenses
have been included in the "Depletion, depreciation and amortization"
line item on the consolidated statements of income and comprehensive
income. 
7. PROPERTY, PLANT AND EQUIPMENT  


 
 
Cost                                                                        
 
(000s)                                                                      
----------------------------------------------------------------------------
As at January 1, 2012                                         $   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 
----------------------------------------------------------------------------
  Capital expenditures                                            1,027,602 
  Transfers from exploration and evaluation (note 6)                 96,594 
  Change in decommissioning liabilities (note 8)                      5,109 
  Acquisitions                                                      287,512 
  Divestitures                                                      (57,702)
----------------------------------------------------------------------------
As at December 31, 2013                                       $   4,664,800 
----------------------------------------------------------------------------
 
Accumulated Depletion, Depreciation and Amortization                        
 
(000s)                                                                      
----------------------------------------------------------------------------
As at January 1, 2012                                         $     252,415 
  Depletion, depreciation and amortization                          242,528 
----------------------------------------------------------------------------
As at December 31, 2012                                       $     494,943 
----------------------------------------------------------------------------
  Depletion, depreciation and amortization                          323,112 
  Divestitures                                                       (3,040)
----------------------------------------------------------------------------
As at December 31, 2013                                       $     815,015 
----------------------------------------------------------------------------
 
Net Book Value                                                              
 
(000s)                                                                      
----------------------------------------------------------------------------
As at December 31, 2012                                       $   2,810,742 
As at December 31, 2013                                       $   3,849,785 
----------------------------------------------------------------------------

General and administrative expenditures for the year ended December 31,
2013 of $11.1 million (December 31, 2012 - $6.1 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 $15.5 million (December 31, 2012 -
$9.1 million). 
Future development costs for the year ended December 31, 2013 of
$3,197 million (December 31, 2012 - $2,233 million) were included in
the depletion calculation. 
Impairment Assessment  
The Company has performed an impairment assessment of its property,
plant, and equipment on a CGU basis and has determined that there are
no indicators of impairment at December 31, 2013; therefore an
impairment test was not performed. For the year ended December 31,
2012 the Company identified impairment triggers due to weak natural
gas prices. The Company tested for and did not identify any
impairment.  
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 operations 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 as
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: 


 
 
                                                                Huron Energy
(000s)                                                           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
----------------------------------------------------------------------------

Acquisition of Oil and Natural Gas Properties 
For the year ended December 31, 2013, the Company completed property
acquisitions for total cash consideration of $226.9 million (December
31, 2012 - $88.6 million) and an additional $88.6 million in non-cash
consideration (December 31, 2012 - $5.3 million). The Company also
assumed $7.3 million in decommissioning liabilities (December 31,
2012 - $4.2 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 $118.9 million (December
31, 2012 - $92.7 million), with some abandonments expected to
commence in 2021. A risk-free rate of 3.24% (December 31, 2012 -
2.49%) and an inflation rate of 2.0% (December 31, 2012 - 2.0%) were
used to calculate the fair value of the decommissioning obligations.
The decommissioning obligations at December 31, 2013 have been
adjusted by approximately $5.1 million due to changes in estimates
during the year (December 31, 2012 - nil). 


 
 
(000s)                                             Years Ended December 31, 
----------------------------------------------------------------------------
                                                        2013           2012 
----------------------------------------------------------------------------
Balance, beginning of year                     $      64,757  $      50,463 
  Obligation incurred                                 10,193          5,685 
  Obligation incurred on corporate                                          
   acquisitions                                            -          4,643 
  Obligation incurred on property acquisitions         7,347          4,235 
  Obligation divested                                   (960)          (319)
  Obligation settled                                  (2,254)          (993)
  Reclassification of obligation associated                                 
   with assets held for sale                               -           (285)
  Accretion expense                                    2,038          1,328 
  Change in future estimated cash outlays             (5,084)             - 
----------------------------------------------------------------------------
Balance, end of year                           $      76,037  $      64,757 
----------------------------------------------------------------------------

9. BANK DEBT  
The Company has a covenant-based bank credit facility in place with a
syndicate of bankers. This facility is a three-year extendible
revolving facility in the amount of $875 million plus a $25 million
operating revolver with an initial maturity date of June 2016. 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 4.00
percent over bankers' acceptance rates depending on the Company's
senior debt to adjusted 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
adjusted EBITDA to interest expense shall equal or exceed 3.5:1, (ii)
the ratio of senior debt to adjusted EBITDA shall not exceed 3:1,
(iii) the ratio of total debt to adjusted EBITDA shall not exceed
4:1, and (iv) the ratio of senior debt to total capitalization shall
not exceed 0.5:1. At December 31, 2013, adjusted EBITDA for the
purposes of the above noted covenant calculations was $540.4 million
(December 31, 2012 - $289.8 million), on a rolling four quarter
basis. As at, and for the periods ending December 31, 2013 and
December 31, 2012 the Company is in compliance with all debt
covenants.  
As at December 31, 2013, Tourmaline's bank debt balance was $590.3
million (December 31, 2012 - $360.6 million). In addition, Tourmaline
has outstanding letters of credit of $2.2 million (December 31, 2012
- $4.4 million), which reduce the credit available on the facility.
The effective interest rate on the Company's borrowings under the
bank facility for the year ended December 31, 2013 was 3.06%
(December 31, 2012 - 3.31%).  
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,
----------------------------------------------------------------------------
                                                         2013           2012
----------------------------------------------------------------------------
Balance, beginning of year                     $       16,298 $       15,079
  Share of subsidiary's net income for the                                  
   year                                                 1,579          1,219
----------------------------------------------------------------------------
Balance, end of year                           $       17,877 $       16,298
----------------------------------------------------------------------------

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 December    Year Ended December 
                                            31, 2013               31, 2012 
----------------------------------------------------------------------------
                                Number of              Number of            
(000s) except share amounts        Shares     Amount      Shares     Amount 
----------------------------------------------------------------------------
Balance, beginning of year    174,813,059 $2,599,614 158,577,586 $2,140,660 
For cash on public offering of                                              
 common shares(2)(4)(5)         9,275,000    343,881   4,639,000    134,531 
For cash on public offering of                                              
 flow-through common                                                        
 shares(1)(3)(4)(5)             1,760,000     67,218   2,452,000     62,685 
Issued on corporate                                                         
 acquisitions                           -          -   7,401,682    244,404 
For cash on exercise of stock                                               
 options                        3,956,805     47,023   1,742,791     17,712 
Contributed surplus on                                                      
 exercise of stock options              -     17,819           -      6,745 
Share issue costs                       -    (17,633)          -     (9,497)
Tax effect of share issue                                                   
 costs                                  -      4,510           -      2,374 
----------------------------------------------------------------------------
Balance, end of year          189,804,864 $3,062,432 174,813,059 $2,599,614 
----------------------------------------------------------------------------
(1) 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, 2013, the Company had spent   
    the full committed amount. The expenditures were renounced to investors 
    in February 2013 with an effective renunciation date of December 31,    
    2012.                                                                   
 
(2) 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.                    
 
(3) 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 50,000 shares were       
    purchased by insiders. As at December 31, 2013, the Company had spent   
    the full committed amount. The expenditures were renounced to investors 
    in February 2013 with an effective renunciation date of December 31,    
    2012.                                                                   
 
(4) 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. The implied premium on the flow-through common shares was      
    determined to be $6.6 million or $7.90 per share. A total of 30,000     
    common shares and 85,000 flow-through common shares were purchased by   
    insiders. As at December 31, 2013, the Company had spent the full       
    committed amount. The expenditures were renounced to investors in       
    February 2014 with an effective renunciation date of December 31, 2013. 
 
(5) On October 8, 2013, the Company issued 3.495 million common shares at a 
    price of $41.75 per share and 0.925 million flow-through common shares  
    at a price of $51.60 per share, for total gross proceeds of $193.6      
    million. The implied premium on the flow-through common shares was      
    determined to be $9.1 million or $9.85 per share. A total of 45,000     
    common shares and 75,000 flow-through common shares were purchased by   
    insiders. As at December 31, 2013, the Company had spent the full       
    committed amount. The expenditures were renounced to investors in       
    February 2014 with an effective renunciation date of December 31, 2013. 

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,   
----------------------------------------------------------------------------
                                                        2013           2012 
----------------------------------------------------------------------------
Income before taxes                            $     218,375  $      32,639 
----------------------------------------------------------------------------
Canadian statutory rate(1)                             25.14%          25.0%
----------------------------------------------------------------------------
Expected income taxes at statutory rates              54,906          8,160 
Effect on income tax of:                                                    
  Share-based payments                                 4,865          3,736 
  Flow-through shares                                  7,161          3,809 
  Effect of change in corporate tax rate and                                
   other                                               1,750            196 
----------------------------------------------------------------------------
Deferred income tax                            $      68,682  $      15,901 
----------------------------------------------------------------------------
(1) The statutory rate consists of the combined statutory tax rate for the  
    Company and its subsidiary for the year ended December 31, 2013. The    
    Company's combined statutory tax rate increased from 25% to 25.14%      
    because the Province of British Columbia increased their tax rate from  
    10% to 11% effective April 1, 2013.                                     

The movement in deferred tax balances during the years ended December
31, 2013 and 2012 are as follows: 


 
 
                        Balance                                             
                        January Recognized  Recognized               Balance
                             1,     in Net          in Recognized   December
(000s)                     2013   Earnings Liabilities  in Equity   31, 2013
----------------------------------------------------------------------------
Deferred tax                                                                
 liabilities:                                                               
 Exploration and                                                            
  evaluation and                                                            
  property, plant and                                                       
  equipment           $269,606 $  128,649 $     24,462 $       -  $ 422,717 
 Assets held for sale    8,181     (8,181)           -         -          - 
 Long-term asset           645        (47)           -         -        598 
Deferred tax assets:                                 -                      
 Decommissioning                                                            
  obligations          (16,189)    (2,969)           -         -    (19,158)
 Short-term obligation     (37)        37            -         -          - 
 Risk management                                                            
  contracts                700     (2,525)           -         -     (1,825)
 Long-term obligations  (2,716)       917            -         -     (1,799)
 Non-capital losses    (75,056)   (51,996)           -         -   (127,052)
 Share issue costs      (8,743)     4,797            -    (4,510)    (8,456)
----------------------------------------------------------------------------
Deferred tax liability                                                      
 (asset)              $176,391 $   68,682 $     24,462 $  (4,510) $ 265,025 
----------------------------------------------------------------------------
 
                                          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 
----------------------------------------------------------------------------

As at December 31, 2013, the Company has estimated federal tax pools of
$3.4 billion (2012 - $2.7 billion) available for deduction against
future taxable income. The Company has $505 million of unused tax
losses expiring between 2023 and 2033.  
13. EARNINGS PER SHARE  
Basic earnings-per-share was calculated as follows: 


 
 
                                                 Years Ended December 31,   
                                              ------------------------------
                                                         2013           2012
----------------------------------------------------------------------------
Net earnings for the year (000s)                $     148,114  $      15,519
Weighted average number of common shares -                                  
 basic                                            183,710,423    162,559,931
----------------------------------------------------------------------------
Earnings per share - basic                      $        0.81  $        0.10
----------------------------------------------------------------------------

Diluted earnings-per-share was calculated as follows: 


 
 
                                                 Years Ended December 31,   
                                              ------------------------------
                                                         2013           2012
----------------------------------------------------------------------------
Net earnings for the year (000s)                $     148,114  $      15,519
Weighted average number of common shares -                                  
 diluted                                          188,244,300    167,028,522
----------------------------------------------------------------------------
Earnings per share - fully diluted              $        0.79  $        0.09
----------------------------------------------------------------------------

There were 4,703,000 options excluded from the weighted-average share
calculation for the year ended December 31, 2013 because they were
anti-dilutive (December 31, 2012 - 6,147,524). 
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
18,980,486 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,           
                              ----------------------------------------------
                                        2013                   2012         
                              ----------------------------------------------
                                             Weighted               Weighted
                                              Average                Average
                                 Number of   Exercise   Number of   Exercise
                                   Options      Price     Options      Price
----------------------------------------------------------------------------
Stock options outstanding,                                                  
 beginning of year              15,325,232  $   19.87  14,213,523  $   16.82
 Granted                         4,843,000      40.47   2,907,000      29.16
 Exercised                      (3,956,805)     11.88  (1,742,791)     10.16
 Forfeited                        (182,776)     28.69     (52,500)     30.39
----------------------------------------------------------------------------
Stock options outstanding, end                                              
 of year                        16,028,651  $   27.95  15,325,232  $   19.87
----------------------------------------------------------------------------

The weighted average trading price of the Company's common shares was
$39.28 during the year ended December 31, 2013 (December 31, 2012 -
$26.19). 
The following table summarizes stock options outstanding and
exercisable at December 31, 2013: 


 
 
                                  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      1,211,499         0.39  $    9.79   1,211,499  $    9.79
$12.00 - $18.35     3,809,290         1.29      16.61   3,809,290      16.61
$20.68 - $29.93     3,784,196         2.89      26.89   2,123,393      27.36
$30.76 - $32.78     2,520,666         3.62      31.66     948,666      31.57
$38.07 - $41.89     4,703,000         4.65      40.67           -          -
----------------------------------------------------------------------------
                   16,028,651         2.95  $   27.95   8,092,848  $   20.16
----------------------------------------------------------------------------

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,   
                                              ------------------------------
                                                        2013           2012 
----------------------------------------------------------------------------
Fair value of options granted (weighted                                     
 average)                                      $       14.22  $       10.01 
Risk-free interest rate                                 2.88%          2.33%
Estimated hold period prior to exercise              4 years        4 years 
Expected volatility                                       40%            40%
Forfeiture rate                                            2%             2%
Dividend per share                             $        0.00  $        0.00 
----------------------------------------------------------------------------

15. OTHER INCOME  


 
 
                                                 Years Ended December 31,   
                                              ------------------------------
(000s)                                                  2013           2012 
----------------------------------------------------------------------------
Processing income                              $       6,400  $       4,310 
Interest income                                          193            138 
Other                                                    (70)           591 
----------------------------------------------------------------------------
Total other income                             $       6,523  $       5,039 
----------------------------------------------------------------------------

16. FINANCE EXPENSES  


 
 
                                                 Years Ended December 31,   
                                              ------------------------------
(000s)                                                   2013           2012
----------------------------------------------------------------------------
Finance expenses:                                                           
  Interest on loans and borrowings             $       12,220 $       10,484
  Transaction costs on corporate and property                               
   acquisitions                                         1,100          1,146
  Accretion of decommissioning obligations              2,038          1,328
----------------------------------------------------------------------------
Total finance expenses                         $       15,358 $       12,958
----------------------------------------------------------------------------

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)                                                   2013           2012
----------------------------------------------------------------------------
Operating                                      $       16,275 $       12,032
General and administration                             11,640          7,952
----------------------------------------------------------------------------
Total employee compensation costs              $       27,915 $       19,984
----------------------------------------------------------------------------

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


 
 
                                                 Years Ended December 31,   
(000s)                                                  2013           2012 
----------------------------------------------------------------------------
Source/(use) of cash:                                                       
  Trade and other receivables                  $     (52,173) $     (23,069)
  Deposit and prepaid expenses                        (1,609)             4 
  Trade and other payables                           159,956         12,921 
----------------------------------------------------------------------------
                                                     106,174        (10,144)
  Working capital (deficiency)/surplus                                      
   acquired                                                -          6,585 
----------------------------------------------------------------------------
                                               $     106,174  $      (3,559)
----------------------------------------------------------------------------
Related to operating activities                $     (47,522) $      (6,802)
Related to investing activities                $     153,696  $       3,243 
----------------------------------------------------------------------------

Cash interest paid was $8.9 million for the year ended December 31,
2013 (December 31, 2012 - $11.8 million). 
19. COMMITMENTS  
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: 


 
 
                                                         Greater            
Payments Due by Year                                        Than            
 (000s)                   1 Year  2-3 Years  4-5 Years   5 Years       Total
----------------------------------------------------------------------------
Operating leases         $ 3,591 $    9,552 $   10,163 $   6,168 $    29,474
Firm transportation and                                                     
 processing agreements    55,539    262,358    143,562   344,206     805,665
Bank debt(1)                   -    639,271          -         -     639,271
----------------------------------------------------------------------------
                         $59,130 $  911,181 $  153,725 $ 350,374 $ 1,474,410
----------------------------------------------------------------------------
(1) Includes interest expense at an annual rate of 3.06% being the rate     
    applicable at December 31, 2013.                                        

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, 2013 and 2012. Non-executive directors do not receive
short-term compensation. 
Compensation of Key Management 


 
 
                                                 Years Ended December 31,   
                                              ------------------------------
(000s)                                                   2013           2012
----------------------------------------------------------------------------
Short-term compensation(1)                      $       3,463  $       1,511
Share-based payments(2)                                 6,968          5,302
----------------------------------------------------------------------------
Total compensation paid to key management       $      10,431  $       6,813
----------------------------------------------------------------------------
(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 2013 is based on a weighted average fair value        
    estimated to be $14.45 per option (2012- $7.99 per option).             

21. SUBSEQUENT EVENTS 
On February 12, 2014 the Company issued 4.615 million common shares
at a price of $47.50 per share for total gross proceeds of $219.2
million. A total of 15,198 common shares were purchased by insiders.  
On March 4, 2014, Tourmaline entered into an agreement with Santonia
Energy Inc. ("Santonia"), pursuant to which Tourmaline will acquire
all of the issued and outstanding shares of Santonia. The transaction
is expected to close on or prior to April 30, 2014. The deal is
subject to approval by the regulators and shareholders of Santonia. 
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
info@tourmalineoil.com 
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
 
 
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