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Press release from CNW Group

Tourmaline Oil Corp. Announces Q3 Results

Tuesday, November 08, 2011

Tourmaline Oil Corp. Announces Q3 Results17:00 EST Tuesday, November 08, 2011CALGARY, Nov. 8, 2011 /CNW/ - Tourmaline Oil Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to announce record results for the three months ended September 30, 2011 and provide an update on its 2011 financial outlook and EP program.  The results will be discussed on a conference call to be held Thursday, November 10th at 10:00 am MST.  Dial-in numbers are (416) 340-8530 or (877) 240-9772.Q3 2011 HighlightsRecord quarterly average production of 34,347 boepd, an 82% increase over the same quarter in 2010.2011 Exit Production Guidance of 44,500 boepd.2012 Production Guidance increased to 47,000 boepd.2011 EP Capital Program increased to $600.0 million.High deliverability Deep Basin Wilrich horizontal well results and disclosure of a 1,500 well Wilrich horizontal inventory.Strong Q3 Operating Costs of $5.77/boe.Strong quarterly earnings of $8.7 million with corresponding year-to-date earnings of $26.7 million despite a 7% drop in natural gas prices.Drilled 28 wells, bringing 19 on-stream adding over 7,000 boepd of new net production.Closed the Cinch Energy Corp. acquisition on attractive reserve and production metrics.ProductionThird quarter 2011 average production was 34,347 boepd, an 82% increase over third quarter 2010 production of 18,823 boepd and a 22% increase over second quarter 2011.  Third quarter 2011 oil and liquids production of 3,444 boepd was 114% higher than third quarter of 2010.  Production down time related to unscheduled third party outages, primarily at Spirit River, reduced third quarter average production by approximately 575 boepd.  Current daily production is ranging between 38,000 and 39,000 boepd and the Company remains on track to achieve the upwards-revised full year 2011 average production of 31,125 boepd.  The Company has approximately 50.0 mmcfpd of production awaiting tie-in; the majority of this production will come on-stream through the Sunrise, B.C. and Musreau, Alberta facility projects.  Construction of these two facilities is underway with an early December completion date anticipated for both plants.  Start-up of these two facility projects coupled with on-going tie-ins in the Alberta Deep Basin and Spirit River are expected to yield 2011 exit production volumes of approximately 44,500 boepd.  Consequently, the 2012 average production guidance has been raised to 47,000 boepd, representing 50% growth over the anticipated 2011 average.2011 - 2012 Capital ProgramThe Company has expanded the 2011 EP Capital program to $600.0 million as both drilling and facility programs have been increased.  A ninth rig will be added to the operated fleet until Spring break-up 2012 primarily to accelerate follow-up drilling to the highly successful Deep Basin horizontal program.  Accelerated outside operated drilling will add an additional five horizontal wells in both fourth quarter 2011 and first quarter 2012.  Tourmaline will await drilling and completion results from these outside operated wells prior to adjusting 2012 production forecasts.The principal facility projects in the second half of 2011 are the new gas plant at Musreau and the major expansion at Sunrise.  Additional facility projects in Q4 2011 and Q1 2012 include expansion of the gathering system on the Western margin of the Deep Basin asset base to accommodate the high deliverability vertical successes at Cabin, Solomon, Hinton and Lovett.  The Company has ordered equipment to allow for an additional expansion of the new Musreau gas plant should strong drilling results continue and natural gas prices support the expansion.  Additional capital is also being directed towards expansion of liquid handling capabilities at both the Musreau and Sunrise facilities.  Land expenditures to date in 2011 are more than forecast at $22 million, as the Company responds to ongoing postings in the Alberta Deep Basin.The 2012 EP Capital program of $490 million has been approved and includes $360 million for drilling and completion, $30 million for land and seismic and $100 million for facilities projects.  The Company plans to maintain a debt-to-cash- flow ratio of six months or less through 2012.EP UpdateDuring the third quarter of 2011, Tourmaline operated or participated in 25 gas wells and three oil wells, more than originally anticipated.  The Company plans to employ nine drilling rigs from November 2011 through until March 2012.Alberta Deep BasinTourmaline is currently operating six drilling rigs in the Alberta Deep Basin, increasing to seven rigs during the next week.  It is anticipated that approximately five rigs will be drilling horizontal wells and two rigs will be employed drilling verticals.  The main emphasis of the Deep Basin program over the next two quarters will be on the expanding Deep Basin horizontal opportunity and the high rate verticals on the western margin of the asset base.Deep Basin Horizontal Program:The Deep Basin horizontal program targets Cretaceous Cardium, Notikewin-Falher and Wilrich formations, with strong results continuing at all three levels.  The results in the Wilrich formation, in particular, have been very encouraging with high deliverability horizontal liquids-rich gas wells at Musreau (19.0 mmcfpd), Greater Minehead (12.2 mmcfpd) and a high rate western margin vertical at Lovett River (6.0 mmcfpd) all tested during the third quarter.  The Company will complete two additional horizontals during November that have already been drilled and expects to drill and complete an additional 10-12 Wilrich horizontals by Spring break-up 2012 as the Company continues to delineate this regional opportunity.  These upcoming Wilrich horizontals will be located at Musreau, Resthaven, Ansel, Wildhay-Wild River and Lovett-Hinton.  The Company has captured and operates approximately 760 sections of highly prospective Wilrich rights in the Deep Basin yielding a potential future Wilrich drilling inventory of over 1,500 horizontal wells.An additional eight to ten Notikewin/Falher horizontals and four Cardium horizontals are also planned by Spring break-up, bringing Tourmaline's total Deep Basin drilled horizontal well count to approximately 50 at that time.Western Margin Vertical Wells:Tourmaline has an ongoing follow-up program to the three high deliverability vertical wells on the western margin of the Deep Basin announced during first quarter of 2011.  Four successful delineation wells have been drilled since July and an additional six are planned by Spring break-up 2012.  These vertical wells are production testing at rates of between 5.0 and 10.0 mmcfpd and are highly economic in the current price environment.  The Company has identified several hundred follow-up locations on existing 3D seismic on Company-interest lands, on a trend that extends from Cabin Creek to Lovett River.  Tourmaline has a complimentary regional facility plan to maximize deliverability and production on-times and to minimize operating cost along this prospective trend.Sunrise-Dawson, B.C.The Sunrise 3-18 facility expansion from 35.0 to 75.0 mmcfpd has received all approvals and construction is underway with an early December 2011 target start-up date.  The Company will have approximately 14 new Montney horizontals to fill the expanded plant capacity - ten horizontals are already drilled and/or completed.  A further 20-25 horizontals are planned in the complex in 2012 as the Company will continue to operate one drilling rig in the area (realized drilling times are now consistently 12-13 days per well).  Production test rates of the new wells continue to exceed expectations with the most recent well, A12-13, testing at 15.2 mmcfpd.  Liquids content is ranging between 15 and 50 bbls per million cubic feet.  Tourmaline has a future inventory of over 300 horizontals in the greater Sunrise-Dawson complex.Spirit River, AlbertaAt Spirit River, Alberta, the Company has now drilled 11 horizontals into the light oil charged Charlie Lake formation.  Seven of these wells are now on production, one is being equipped and two are in the process of being completed.  The Company is planning to have 14 horizontals on production by year-end 2011.  Light oil production levels of 2,500-3,000 bopd are anticipated in 2012 at Spirit River.CORPORATE SUMMARY - THIRD QUARTER 2011                        Three Months Ended September 30 Nine Months Ended September 30  2011 2010 Change  2011 2010 ChangeOPERATIONS             Production              Natural gas (mcf/d) 185,414 103,286 80%  154,360 86,611 78% Crude oil & liquids (bbl/d) 3,444 1,609 114%  2,953 1,703 73% Oil equivalent (boepd) 34,347 18,823 82%  28,680 16,138 78%              Product prices              Natural gas ($/mcf)$4.25 $4.36 (3)% $4.35$4.69 (7)% Crude oil & liquids ($/bbl)$87.01 $70.49 23% $88.80$73.57 21% Operating expenses ($/boe)$5.77$6.24 (8)% $5.76 $6.75 (15)% Transportation costs ($/boe)$2.06$1.78 16% $1.99 $1.71 16%              Operating netback ($/boe)$21.21 $19.12 11% $22.77 $21.31 7%Cash general & administrative expenses ($/boe)$0.94 $1.22 (23)% $1.10 $1.27 (13)%              FINANCIAL ($000, EXCEPT PER SHARE)             Revenue 100,068 51,843 93%  255,048 145,186 76%Royalties 8,313 4,846 72%  16,043 13,996 15%              Funds from operations 62,686 31,250 101%  168,041 88,278 90%Funds from operations per share$0.40$ 0.25 60% $1.13 $0.73 55%              Net income 8,688  428  1,930%  26,607 2,948 803%Net income per share$0.06 $0.00 - $0.18 $0.02 800%              Capital expenditures 249,162 151,944 64%  596,789 597,270 (0)% Forward-Looking InformationThis press release contains forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this press release contains forward looking information concerning Tourmaline's anticipated petroleum and natural gas production, cash flows, net debt levels, capital efficiency and capital spending, as well as Tourmaline's future drilling prospects and plans, business strategy, future development and growth opportunities, prospects and asset base. The forward-looking information is based on certain key expectations and assumptions made by Tourmaline, including expectations and assumptions concerning: prevailing commodity prices and exchange rates; applicable royalty rates and tax laws; future well production rates and reserve volumes; the timing of receipt of regulatory approvals; the performance of existing wells; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; and the availability and cost of labour and services. Although Tourmaline believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Tourmaline can give no assurances that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; marketing and transportation; loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions ; failure to realize the anticipated benefits of acquisitions ; ability to access sufficient capital from internal and external sources; failure to obtain required regulatory and other approvals; and changes in legislation, including but not limited to tax laws, royalties and environmental regulations.Also included in this press release are estimates of Tourmaline's 2011 and 2012 production levels which are based on the various assumptions as to commodity prices, capital expenditures, capital efficiency, drilling inventories and other assumptions disclosed in this press release. Tourmaline has included the above estimates in order to provide readers with a more complete perspective on Tourmaline's future operations and such information may not be appropriate for other purposes. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Tourmaline, or its operations or financial results, are included in the Management's Discussion and Analysis forming part of this press release (See "Forward-Looking Statements" therein) and reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Tourmaline's website (www.tourmalineoil.com).The forward-looking information contained in this press release is made as of the date hereof and Tourmaline undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless expressly required by applicable securities laws.Additional Reader AdvisoriesSee also "Forward-Looking Statements", "Boe Conversions" and "Non-IFRS Financial Measures" in the attached Management's Discussion and Analysis."Funds from operations" and "operating netback" as used in this press release are financial measures commonly used in the oil and gas industry, which do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). See "Non-IFRS Financial Measures" in the attached Management's Discussion and Analysis for the definition and description of these terms.MANAGEMENT'S DISCUSSION AND ANALYSISThis management's discussion and analysis ("MD&A") should be read in conjunction with Tourmaline's consolidated financial statements and related notes for the period ended September 30, 2011 and the consolidated financial statements for the year ended December 31, 2010.  Both the consolidated financial statements and the MD&A can be found at www.sedar.com.  This MD&A is dated November 8, 2011.The financial information contained herein has been prepared in accordance with International Financial Reporting Standards ("IFRS").  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 or previous Canadian generally accepted accounting principles ("GAAP").  See "Non-IFRS Financial Measures" for information regarding the following Non-IFRS financial measures used in this MD&A: "funds from operations", "operating netback", "working capital (adjusted for the fair value of financial instruments)" and "net debt".Additional information relating to Tourmaline can be found at www.sedar.com.Forward-Looking Statements - Certain information regarding Tourmaline set forth in this document, including management's assessment of the Company's future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words "anticipate", "continue", "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, production, 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 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.PRODUCTIONProduction for the three months ended September 30, 2011, averaged 34,347 Boe/d, an 82% increase over the third quarter 2010 average production of 18,823 Boe/d.  For the nine months ended September 30, 2011, production increased 78% to 28,680 Boe/d from 16,138 Boe/d in 2010.  The Company's significant production growth can be attributed to new wells that have been brought on-stream, as well as property and corporate acquisitions in the second and third quarters of 2011. Production was 90% natural gas weighted in the third quarter of 2011, which is consistent with the third quarter of 2010. Three Months Ended Nine Months Ended September 30, 2011 September 30,2010 Change September 30, 2011 September 30,2010 ChangeNatural Gas (mcf)17,058,132 9,502,337 80% 42,140,402 23,644,803 78%Crude oil and NGL (bbl)316,890 147,997 114% 806,194 464,852 73%Oil equivalent (boe)3,159,912 1,731,720 82% 7,829,594 4,405,661 78%Oil equivalent (boepd)34,347 18,823 82% 28,680 16,138 78%REVENUEFor the three months ended September 30, 2011, revenue totalled $100.1 million compared to $51.8 million for the same period in 2010.  Revenue for the nine months ended September 30, 2011, increased 76% to $255.0 million from $145.2 million in the same period of 2010.  Revenue growth for the three and nine months ended September 30, 2011, is consistent with the increased production over the same period.  Revenue includes all petroleum, natural gas and NGL sales and realized gains on financial instruments.The realized average natural gas price for the third quarter of 2011 was $4.25/Mcf compared to $4.36/Mcf for the quarter ended September 30, 2010.  Realized crude oil and NGL prices increased 23% to $87.01/Bbl for the third quarter of 2011 compared to $70.49/Bbl for the same quarter of 2010. The natural gas price for the quarter ended September 30, 2011 was 16% (September 30, 2010 - 24%) higher than the AECO benchmark due to a combination of higher heat content in the Company's Alberta Deep Basin natural gas production and positive commodity contracts.For the nine months ended September 30, 2011, the realized average natural gas price was 7% lower in 2011 at $4.35/Mcf compared to $4.69/Mcf in 2010.  Realized crude oil and NGL prices averaged $88.80/Bbl compared to $73.57/Bbl in 2010.  Realized prices exclude the effect of unrealized gains or losses. Once these gains and losses are realized they are included in the per unit amounts.Tourmaline's revenue is analyzed as follows: Three Months Ended Nine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Revenue from:                 Natural Gas$    72,494$    41,408$183,458$110,980 Oil and NGL     27,574     10,435 71,590 34,206Total revenue from oil, NGL and gas sales$    100,068$    51,843$255,048$145,186TOURMALINE PRICES:  Three Months EndedNine Months Ended  September 30, 2011 September 30,2010Change September 30, 2011 September 30,2010ChangeNatural Gas ($/Mcf)$    4.25    $    4.36    (3)%    $4.35$4.69(7)%Oil and NGL ($/Bbl)$    87.01    $    70.49    23%    $88.80$73.5721%Oil equivalent ($/Boe)$    31.67    $    29.94    6%    $32.57$32.95(1)%BENCHMARK OIL AND GAS PRICES:  Three Months Ended  September 30, 2011 September 30,2010ChangeNatural Gas                          NYMEX Henry Hub (US$/mcf)    $    4.06    $    4.21    (4)% AECO (Cdn$/mcf)    $    3.67    $    3.53    4%Oil                          NYMEX (US$/bbl)    $    89.54    $    75.92    18% Edmonton Par (Cdn$/bbl)    $    92.35    $    74.90    23%RECONCILIATION OF AECO INDEX TO TOURMALINE'S REALIZED GAS PRICES: Three Months Ended($/mcf) September 30, 2011 September 30,2010ChangeAECO index    $            3.67    $    3.53    4%Heat/quality differential                 0.24         0.24    -Realized gain                 0.34         0.59    (42)%Tourmaline realized natural gas price    $            4.25    $    4.36    (3)%CURRENCY - EXCHANGE RATES: Three Months Ended  September 30, 2011 September 30,2010ChangeCdn/US$         1.0201         0.9615    6%RoyaltiesTourmaline's royalties are analyzed as follows: Three Months EndedNine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Natural Gas    $    3,270    $    2,433    $4,879$5,993Oil and NGL    $    5,043    $    2,413    $11,164$8,003Total royalties    $    8,313    $    4,846    $16,043$13,996For the quarter ended September 30, 2011, the average effective royalty rate was 8.3% compared to 9.3% for the quarter ended September 30, 2010.  The Company has benefited from Provincial Government incentive programs including the Natural Gas Deep Drilling Program and the New Well Royalty Reduction Program in Alberta and the Royalty Relief Program and the Deep Royalty Credit Program in British Columbia.  Tourmaline also benefitted from the government incentive programs during the nine months ended September 30, 2011, resulting in a similar decrease in the average effective royalty rate to 6.3% for the nine months ended September 30, 2011 from 9.6% for the same period of 2010.OTHER INCOMEFor the three and nine months ended September 30, 2011, other income was $1.4 million and $3.4 million, respectively, compared to $0.4 million and $0.8 million for the same periods in 2010.  Tourmaline continues to build and acquire interests in facilities which have helped to generate increased third party processing income.OPERATING EXPENSESOperating expenses include all periodic lease and field level expenses and exclude income recoveries from processing third party volumes. Operating expenses for the third quarter of 2011 were $18.2 million or $5.77/Boe compared to $10.8 million or $6.24/Boe for the same quarter in 2010. Tourmaline's operating expenses in the third quarter of 2011 include third party processing, gathering and compression fees of approximately $5.5 million or 30.1% of total operating costs.  During the third quarter of 2011, Tourmaline's owned-and-operated gas processing facilities in N.E. British Columbia were at capacity, resulting in the redirection of excess natural gas volumes to third party facilities.  This situation is expected to be alleviated by the end of 2011 as Tourmaline completes the gas plant expansion on its operated facility.Operating expenses for the nine months ended September 30, 2011 were $45.1 million or $5.76/Boe compared to $29.7 million or $6.75/Boe for the same period of 2010.The Company continues to focus on reducing per unit operating costs and expects to achieve further reductions in the fourth quarter of 2011 as production continues to increase and a higher percentage of Tourmaline's production base is redirected through Company owned-and-operated natural gas processing facilities.GENERAL & ADMINISTRATIVE EXPENSES ("G&A")G&A expenses for the third quarter of 2011 were $6.2 million including $3.3 million related to share-based payments (September 30, 2010 - $4.7 million and $2.6 million, respectively). The Company also capitalized direct G&A costs of $3.1 million and share-based payments of $3.3 million in the third quarter of 2011 (September 30, 2010 - $2.6 million and $2.6 million, respectively). Cash G&A expenses per Boe, excluding interest and financing charges, were $0.94/Boe for the third quarter of 2011, compared to $1.22/Boe for the same quarter in 2010.For the nine months ended September 30, 2011, G&A expenses totalled $17.2 million including $8.6 million related to share-based payments (September 30, 2010 - $12.5 million and $6.9 million, respectively). During the same period, direct G&A costs of $9.0 million and share-based payments of $8.6 million were capitalized (September 30, 2010 - $7.8 million and $6.9 million, respectively).  The increase in G&A expenses for the first nine months of 2011 compared to the same period in 2010 are primarily due to office staff additions and higher rent expense as the Company increased its head office space. The higher total G&A expenses allow the Company to manage the commensurately larger production, reserve and land base.  Notwithstanding this, the Company's G&A expenses per Boe continue to trend downward as Tourmaline's production base continues to grow faster than its accompanying G&A costs.  G&A costs, excluding interest and financing charges, for the nine months ended September 30, 2011 were $1.10 per Boe, compared to $1.27 per Boe for the first nine months of 2010.  This decrease in per Boe G&A costs is consistent with a growing production base.G&A expenses are summarized as follows: Three Months EndedNine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010G&A expenses  $    6,082    $    4,724    $17,587$13,404Administrative and capital recovery         (939)     (1,334)     (2,527) (3,300)Capitalized G&A         (2,167)         (1,275)     (6,436) (4,491)Total G&A expense         2,976         2,115     8,624 5,613Share-based payments         6,516         5,183     17,104 13,747Capitalized share-based payments         (3,258)         (2,591)     (8,552) (6,873)Total share-based payments         3,258         2,592     8,552 6,874Total G&A and share-based payments   $    6,234    $    4,707    $    17,176    $    12,487SHARE-BASED COMPENSATIONTourmaline uses the fair value method for the determination of all non-cash related share-based payments. During the third quarter of 2011, 555,000 stock options were granted to employees, officers, directors and key consultants at an exercise price of $30.76, and 327,167 options were exercised, bringing $3.9 million cash into treasury.  The Company recognized $3.3 million of share-based compensation expense in the third quarter of 2011 compared to $2.6 million in the third quarter of 2010.  For the nine months ended September 30, 2011, the Company recognized $8.6 million of share-based compensation expense compared to $6.9 million for the nine months ended September 30, 2010.DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A")DD&A expense was $48.1 million for the third quarter of 2011 compared to $26.2 million for the same period in 2010 due to higher production volumes, as well as, a larger capital asset base being depleted.  The per-unit DD&A rate for the third quarter was $15.21/Boe compared to $15.10/Boe for the third quarter of 2010.For the nine months ended September 30, 2011, DD&A expense was $116.9 million (September 30, 2010 - $67.4 million) with an effective rate of $14.93/Boe (September 30, 2010 - $15.30/Boe).  The lower DD&A rate in 2011 reflects increased reserve additions due to positive drilling results partially offset by an increased capital asset base.FINANCE EXPENSESFinance expenses for the third quarter of 2011 totalled $3.0 million and are comprised of interest expense, accretion of provisions, as well as transaction costs incurred on the corporate acquisition of Cinch Energy Corp.  Finance expenses for the third quarter of 2010 were $0.5 million.For the nine months ended September 30, 2011, finance expenses were $5.1 million compared to $1.6 million for the same period of 2010.  The increased finance expenses are largely due to a $2.9 million increase in interest expense resulting from a higher balance drawn on the credit facility in 2011.CASH FLOW FROM OPERATIONS, FUNDS FROM OPERATIONS AND NET EARNINGSFunds from operations for the three and nine months ended September 30, 2011 were $62.7 million and $168.0 million, respectively, or $0.40 and $1.13, respectively, on a per-diluted-share basis. The Company had after tax earnings of $8.7 million ($0.06 per diluted share) for the quarter ended September 30, 2011, compared to after tax earnings of $0.4 million ($0.00 per diluted share) in the previous year.  For the nine months ended September 30, 2011, Tourmaline had after-tax earnings of $26.6 million ($0.18 per diluted share) compared to $2.9 million ($0.02 per diluted share) for the same period in 2010. Three Months EndedNine Months Ended  September 30,2011 September 30,2010Change September 30, 2011 September 30,2010ChangeCash flow fromoperations per share (1)    $    0.49    $    0.32    53%    $1.12$0.8040%Funds fromoperations per share (1) (2)    $    0.40    $    0.25    60%    $1.13$0.7355%Earnings per share (1)    $    0.06    $    0.00    -    $0.18$0.02800%Operating netbackper boe (2)    $    21.21    $    19.12    11%    $22.77$21.317%(1) Fully diluted(2) See "Non-IFRS Financial Measures"                        CAPITAL EXPENDITURESDuring the third quarter of 2011, the Company invested $249.2 million of cash consideration, net of dispositions, compared to $151.9 million for the same period in 2010.  Expenditures on exploration and production were $181.2 million compared to $145.8 million in the same quarter of 2010, which is consistent with the Company's aggressive growth strategy.  During the third quarter of 2011, the Company drilled 28 gross (21.7 net) wells, completed 20 gross (18.7 net) wells and tied-in 19 gross (17.6 net) wells.  The Company also acquired properties in the Alberta Deep Basin, as well as at Sunrise, BC totalling $65.5 million (net of dispositions). Three Months EndedNine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Land and seismic    $10,508    $16,993    $34,768$29,365Drilling and completions     119,574     89,121     285,391 207,312Facilities     51,081     39,702     168,413 85,952Property acquisitions     65,894     17,116     108,642 289,400Corporate acquisitions     -     -     - 3,156Property dispositions     (357)     (11,971)     (7,366) (21,834)Other     2,462     983     6,941 3,919Total cash capital expenditures    $249,162    $151,944    $596,789$597,270During the third quarter of 2011, the Company acquired all of the issued and outstanding shares of Cinch Energy Corp. in exchange for Tourmaline common shares. The acquisition resulted in an increase to Property, Plant and Equipment ("PP&E") of approximately $182.8 million and an increase to Exploration and Evaluation ("E&E") assets of $87.1 million.LIQUIDITY AND CAPITAL RESOURCESAt September 30, 2011, Tourmaline had negative working capital of $123.9 million, after adjusting for the fair value of financial instruments (the unadjusted working capital deficiency was $120.1 million).  Management believes the Company has sufficient liquidity and capital resources to fund the remainder of its 2011 and 2012 exploration and development program through expected cash flow from operations and its unutilized bank credit facilities.On May 17, 2011, Tourmaline issued 6.8 million common shares at $25.50 per share in a public offering for gross proceeds of approximately $174.0 million, with net proceeds of approximately $166.5 million.  In October 2011, the Company issued 4.9 million common shares at $33 per share for gross proceeds of $161.7 million, with net proceeds of $155.3. The proceeds of the above noted financings are being used to temporarily reduce bank debt and to conduct the Company's remaining 2011 exploration and development program which has been increased from $470 million to $600 million (excluding acquisitions), as well as the 2012 capital expenditure program.On September 8, 2011, the Company increased its credit facility for an extendible revolving term loan to $350 million from $275 million with three Canadian chartered banks, in addition to its already existing $25 million operating line.  The facility bears interest on a variable grid currently 250 basis points over the prevailing banker's acceptance rate.  Security for the facility includes a general security agreement and a $500 million demand loan debenture secured by a second floating charge over all assets.  On July 31, 2012, at the Company's discretion, the facility is available on a non-revolving basis for a period of 365 days, at which time the facility would be due and payable.  Alternatively, the facility may be extended for a further 364-day period at the request of the Company and subject to approval by the banks.A subsidiary of the Company also has a financing arrangement with a Canadian chartered bank for an extendible revolving term loan in the amount of $5 million in addition to a $5 million operating line.  The interest rate charged varies based on the amount outstanding.  Security for the facility includes a general security agreement and a demand loan debenture secured by a second floating charge over all of the subsidiary's assets.  The revolving term credit facility has a 364-day extendible period plus a one-year maturity.The Company is required to meet certain financial-based covenants to maintain the facilities.  The financial covenants include a requirement to ensure the total amount drawn on the facility does not exceed the total borrowing base as defined in each facility's agreement, and that the ratio of earnings adjusted for interest, taxes and other non-cash items to interest expense does not exceed a predetermined amount, as determined by each facility's agreement.  As at September 30, 2011, the Company was in compliance with these covenants.As at September 30, 2011, the Company had $159.8 million drawn on existing facilities (December 31, 2010 - nil), and net debt of $283.7 million (December 31, 2010 - $49.2 million).SHARES OUTSTANDINGAs at November 8, 2011, the Company has 156,901,086 common shares outstanding and 12,572,499 stock options granted and outstanding.COMMITMENTS AND CONTRACTUAL OBLIGATIONSIn the normal course of business, Tourmaline is obligated to make future payments.  These obligations represent contracts and other commitments that are known and non-cancellable.Payments Due by Year (000s) 2011 2012 2013 2014 2015 andthereafter TotalOperating leases$735$2,823$2,502$2,338$526$8,924Flow-through obligations     -     7,250     -     -     -     7,250Firm transportation agreements     5,793     25,917     24,237     15,737     7,831 79,515Bank debt     -     165,441     -     -     - 165,441 $6,528$201,431$26,739$18,075$8,357$261,130FINANCIAL RISK MANAGEMENTThe 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 September 30, 2011, Tourmaline's receivables consisted of $12.7 million (December 31, 2010 - $21.1 million) from joint venture partners, $35.7 million (December 31, 2010 - $23.6 million) from petroleum and natural gas marketers and $8.8 million (December 31, 2010 - $13.9 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's policy to mitigate credit risk associated with these balances is to establish marketing relationships with creditworthy purchasers.  The Company 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 is 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 relating to its receivables that have been past due for over 90 days.  At September 30, 2011, the Company had $1.3 million (December 31, 2010 - $1.0 million) over 90 days.  The Company is satisfied that these amounts are substantially collectible.The carrying amount of accounts receivable and cash and cash equivalents and commodity risk management contracts represents the maximum credit exposure.  The Company does not have an allowance for doubtful accounts as at September 30, 2011 (September 30, 2010 - nil) and did not provide for any doubtful accounts nor was it required to write-off any receivables during the nine-month period ended September 30, 2011 (September 30, 2010 - 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 and bank credit facilities.The Company's accounts payable and accrued liabilities balance at September 30, 2011 is approximately $186.2 million (December 31, 2010 - $178.1 million).  It is the Company's policy to pay suppliers within 45-75 days.  These terms are consistent with industry practice.  As at September 30, 2011, 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 the collection of petroleum and natural gas revenues on the 25th of each month.(c) Market risk:Market risk is the risk that changes in market conditions, such as commodity prices, interest rates or 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 statement of financial position at September 30, 2011.  Changes in the US to Canadian exchange rate, however, could influence future petroleum and natural gas prices which could impact the value of certain derivative contracts.  This influence cannot be accurately quantified.Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates.  The Company is exposed to interest rate risk to the extent that changes in market interest rates will impact the Company's bank debt which is subject to a floating interest rate.  Assuming all other variables remain constant, an increase or decrease of 1% in market interest rates in the nine-month period ended September 30, 2011 would have decreased or increased shareholders' equity and net income by $0.5 million.  As at September 30, 2011, the Company had entered into one interest rate swap included in the table below:(000s)    Three Months EndedSeptember 30, 2011Nine Months EndedSeptember 30, 2011TermType(Floatingto Fixed)AmountCompanyFixedInterestRate (%)CounterPartyFloatingRate IndexRealizedGain/(Loss)UnrealizedGain/ (Loss)RealizedGain/(Loss)UnrealizedGain/ (Loss)September 29, 2011- September 29, 2013      Swap$150,0001.15%Floating Rate$ -$ (543)$ -$ (543)The unrealized loss reflects the change between the fixed rate of the contract of 1.15% and the two-year fixed interest rate at September 30, 2011.  Realized gains/losses will be recorded in subsequent quarters as the difference between the fixed rate paid of 1.15% and the floating rate received, which for the fourth quarter of 2011 is set at 1.28%.  The unrealized loss on the interest rate swap has been included on the consolidated statement of financial position with changes in the fair value included in the unrealized gain/(loss) on financial instruments on the consolidated statement of income and comprehensive income.Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices.  As at September 30, 2011, 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 financially-settled commodity contracts are recorded on the consolidated statement of financial position at fair value, with changes in the fair value being recognized as an unrealized gain or loss on the consolidated statement of income and comprehensive income.The Company has entered into the following contracts as at September 30, 2011:Type of ContractQuantityTime PeriodContract PriceFinancial Swap100 bbls/dJuly 2011 - December 2012US$90.00/bblFinancial Swap100 bbls/dJuly 2011 - December 2011US$100.10/bblFinancial Swap100 bbls/dJuly 2011 - June 2012US$101.40/bblFinancial Swap100 bbls/dSeptember 2011 - December 2012US$101.00/bblFinancial Swap100 bbls/dJanuary 2012 - December 2012US$104.00/bblFinancial Swap100 bbls/dJanuary 2011 - December 2011US$87.85/bblCostless Collar100 bbls/dSeptember 2010 - August 2012US$75.00/bbl floor - US$96.00/bbl ceilingFinancial Swap100 bbls/dJanuary 2012 - June 2013US$99.70/bblFinancial Swap100 bbls/dJanuary 2012 - December 2012US$108.00/bblThe following table provides a summary of the unrealized gains and losses on financial instruments for the period ended September 30, 2011: Three Months EndedNine Months Ended(000s) September 30,2011 September 30,2010 September 30,2011 September 30,2010Unrealized gain/(loss) on financial instruments$5,139$(583)$5,510$16Unrealized gain/(loss) on investments held for trading (64) (9) (150) 73Total$5,075$(592)$5,360$89The unrealized gain/(loss) on derivative contracts has been included on the consolidated statement of financial position with changes in the fair value included in the unrealized gain/(loss) on financial instruments on the consolidated statement of income and comprehensive income.  As at September 30, 2011, if the future strip prices for oil were $1.00 per bbl higher, with all other variables held constant, before-tax earnings for the period would have been $0.3 million lower.  An equal and opposite impact would have occurred to before tax earnings and the fair value of the derivative contracts liability had oil prices been $1.00 per bbl 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 entered into the following physical contracts as at September 30, 2011:    Type of ContractQuantityTime PeriodContract PriceAECO Fixed Price3,000 gjs/dJanuary 2011 - December 2011Cdn$5.75/gjAECO Fixed Price3,000 gjs/dJanuary 2011 - December 2011Cdn$5.84/gjAECO Fixed Price4,000 gjs/dFebruary 2010 - December 2011Cdn$5.68/gjAECO Fixed Price2,000 gjs/dFebruary 2010 - December 2011Cdn$5.72/gjAECO Fixed Price2,000 gjs/dMarch 2010 - March 2012Cdn$5.72/gjAECO Fixed Price2,000 gjs/dMarch 2010 - December 2011Cdn$5.705/gjAECO Call Option3,000 gjs/dJanuary 2011 - December 2011Cdn$6.50/gj strike priceAECO Call Option3,000 gjs/dJanuary 2011 - December 2012Cdn$6.00/gj strike priceAECO Fixed Price3,000 gjs/dJanuary 2011 - December 2012Cdn$5.53/gjAECO Fixed Price3,000 gjs/dFebruary 2011 - April 2012Cdn$4.00/gjAECO Fixed Price3,000 MMbtu/dMay 2011 - October 2011USD$4.135/MMbtuAECO Fixed Price5,000 MMbtu/dMay 2011 - October 2011USD$3.61/MMbtuAECO/Nymex Differential Swap5,000 MMbtu/dOctober 2011 - October 2012Nymex less USD$0.62/MMbtuAECO Fixed Price2,000 MMbtu/dMay 2011 - October 2011USD$3.745/MMbtuAECO Fixed Price3,000 MMbtu/dMay 2011 - October 2011USD$4.045/MMbtuAECO Fixed Price3,000 MMbtu/dMay 2011 - October 2011USD$3.695/MMbtuAECO/Nymex Differential Swap3,000 MMbtu/dNovember 2011 - October 2012Nymex less USD$0.535/MMbtuAECO Fixed Price5,000 MMbtu/dJune 2011 - October 2011USD$4.125/MMbtuAECO/Nymex Differential Swap5,000 MMbtu/dNovember 2011 - December 2011Nymex less USD$0.475/MMbtuAECO Fixed Price5,000 gjs/dJuly 2011 - October 2011Cdn$4.16/gjAECO/Nymex Differential Swap5,000 Mmbtu/dJanuary 2012 - December 2012Nymex less USD$0.4325/MMbtu    The following contracts were entered into subsequent to September 30, 2011:Type of ContractQuantityTime PeriodContract PriceAECO/Nymex Differential Swap2,000 Mmbtu/dJanuary 2012 - December 2012Nymex less USD$0.42/MMbtuAECO/Nymex Differential Swap3,000 Mmbtu/dDecember 2011 - March 2012Nymex less USD$0.30/MMbtuAECO Fixed Price3,000 gjs/dJanuary 2012 - December 2014Cdn$4.45/gjAECO Call Option3,000 gjs/dJanuary 2012 - December 2014Cdn$4.50/gj strike priceAECO Call Option3,000 gjs/dJanuary 2015 - December 2016Cdn$6.00/gj strike price(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 measures that the Company utilizes in evaluating its capital structure are net debt, which is defined as long-term bank debt plus working capital (adjusted for the fair value of financial instruments), to annualized funds from operations, defined as cash flow from operating activities before changes in non-cash working capital, and the current credit available from its creditors in relation to the Company's budgeted capital program.  Net debt to annualized funds from operations 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 funds from operations 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 September 30, 2011, the Company's ratio of net debt to annualized funds from operations was 1.27 to 1.0.  In October 2011, the Company issued 4.9 million common shares for net proceeds of $155.3 million, resulting in a reduction of the undernoted ratio to approximately 0.57 to 1.0 (assuming all other balances remained the same).(000s) As atSeptember 30, 2011 As atDecember 31, 2010Net debt:             Bank debt    $(159,846)    $- Working capital/(deficit)     (120,080)     (49,642) Fair value of financial instruments - short-term (asset)/liability     (3,778)     472Net debt    $(283,704)    $(49,170)Annualized funds from  operations:             Cash flow from operating activities    $166,620    $144,237 Change in non-cash working capital     1,421     (9,517) Funds from operations to end of period    $168,041    $134,720Annualized funds from operations    $224,055    $134,720Net debt to annualized funds from operations     1.27     0.36The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.  There were no changes in the Company's approach to capital management since December 31, 2010.APPLICATION OF CRITICAL ACCOUNTING ESTIMATESCertain 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.DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTINGThe 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") 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") 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 IFRS.Although DC&P and ICFR were in place as of September 30, 2011, the Company was not required to evaluate the effectiveness of DC&P and ICFR, as the Company only became a reporting issuer in November 2010.  Management has certified the design of the Company's DC&P and ICFR as of September 30, 2011, and will be required to certify the effectiveness of DC&P and ICFR as of December 31, 2011.   The evaluation of ICFR will be based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations.  Tourmaline will continue to work to complete the project to support the certification of operating effectiveness by December 31, 2011.  There were no changes to ICFR as a result of the transition to IFRS.It should be noted that while the Company's management including the Chief Executive Officer and Chief Financial Officer believe that the Company's DC&P and ICFR provide a reasonable level of assurance that they are effective, they do not expect that these controls will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.BUSINESS RISKS AND UNCERTAINTIESTourmaline 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 REGULATIONSEnvironmental legislation, including the Kyoto Accord, the federal government's "EcoACTION" plan and Alberta's Bill 3 - Climate Change and Emissions Management Amendment Act, is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Given the evolving nature of the debate related to climate change and the resulting requirements, it is not possible to determine the operational or financial impact of those requirements on Tourmaline.INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")The Company's IFRS accounting policies are provided in note 2 of the March 31, 2011 unaudited interim consolidated financial statements.  In addition, note 22 to the March 31, 2011 unaudited interim consolidated financial statements presents reconciliations between the Company's 2010 previous GAAP results and its 2010 results under IFRS.  The reconciliations in the September 30, 2011 unaudited interim consolidated financial statements include the consolidated statement of financial position as at September 30, 2010, consolidated statements of earnings and comprehensive income and cash flow for the three and nine months ended September 30, 2011.The following provides summary reconciliations of Tourmaline's 2010 previous GAAP and IFRS results, along with a discussion of the significant IFRS accounting policy changes.SUMMARY STATEMENT OF FINANCIAL POSITION RECONCILIATIONSAs at January 1, 2010($000s)PreviousGAAPE&EDecommissioningObligationsShare-BasedPaymentsOther (1)IFRSCurrent assets248,452-  -            - (204)248,248Investments632-            -            -            -  632Exploration and evaluation assets-250,972            -            -            -250,972Property, plant and equipment754,798 (250,972)            -            -            -503,826Deferred taxes- -            -            -138   138       Total assets 1,003,882  -            -            - (66)1,003,816                    Current liabilities86,938   -            -            -            - 86,938Decommissioning obligations7,208  -  11,945            -            - 19,153Deferred premium on flow-through shares-  -            -            - 3,8333,833Deferred taxes780    -            -            -(780)            -Share capital895,095   -            -            -  (4,143)890,952Non-controlling interest13,526   -            -            -            - 13,526Contributed surplus2,018      -            -  6,529            - 8,547Retained earnings/(deficit)(1,683)     -  (11,945) (6,529)1,024(19,133)Total liabilities and shareholders' equity1,003,882     -            -            -  (66) 1,003,816(1) Other includes adjustments for share issue costs, the deferred premium on flow-through shares, the impact of the fact that Tourmaline's forward gas sales contracts no longer meet the definition of a derivative and the deferred tax impact related thereto.As at December 31, 2010($000s)PreviousGAAPE&EDepletionDecommissioningObligationsShare-BasedPaymentsOther (1)IFRSCurrent assets143,356----(14,413)128,943Investments3,932-----3,932Fair value of financial instruments1,601----(1,601)-Exploration and evaluation assets-479,067----479,067Property, plant and equipment1,637,960(479,067)29,1849,8446,531(351)1,204,101Total assets1,786,849-29,1849,8446,531(16,365)1,816,043        Current liabilities180,945----(2,360)178,585Decommissioning obligations13,628--21,776-(125)35,279Long-term obligation14,589-----14,589Fair value of financial instruments---- -270270Deferred premium on flow-through shares---- -348348Deferred taxes25,457---(964)21,57646,069Share capital1,517,675---(128)(9,495)1,508,052Non-controlling interest13,767----14213,909Contributed surplus7,919---21,343-29,262Retained earnings/(deficit)12,869-29,184(11,932)(13,720)(26,721)(10,320)Total liabilities and shareholders' equity1,786,849-29,1849,8446,531(16,365)1,816,043(1) Other includes adjustments for share issue costs, the deferred premium on flow-through shares, the impact of the fact that Tourmaline's forward gas sales contracts no longer meet the definition of a derivative, gains and losses on divestitures and the deferred tax impact related thereto.SUMMARY NET EARNINGS RECONCILIATION2010     ($000s)AnnualQ4Q3Q2Q1Net earnings/(loss) - previous GAAP14,552(2,593)4,463(672)13,354After-tax addition/(deduction):      Unrealized gain/(loss) on financial instruments(16,553)4,995(7,410)3,676(17,814) General and administrative(1,561)(749)(478)(90)(244) Share-based payments(7,191)(2,324)(1,855)(1,702)(1,310) Depletion and depreciation29,18412,1084,7916,2626,023 Decommissioning obligation accretion131013(8)(2) Gain/(loss) on divestitures2,0821,6063,534(3,058)- Deferred taxes(11,010)(7,135)(2,662)(2,620)1,407 Transaction costs on corporate acquisition(561)---(561) Non-controlling interest(142)(53)32(88)(33)Net earnings - IFRS8,8135,8654281,700820Accounting Policy Changes and the Impact of Transition to IFRSExploration and Evaluation ("E&E") assets - On transition to IFRS Tourmaline reclassified $251.0 million of PP&E assets to E&E assets on the consolidated statement of financial position.  This consisted of the book value of undeveloped land that relates to exploration properties, geological and geophysical costs and drilling and completion costs of wells in progress.  E&E assets are not depleted and must be assessed for impairment at the transition date and when indicators of impairment exist.  There was no transitional impairment of the E&E assets.  The cost of any impairment recognized during a period, is charged as additional depletion and depreciation expense.Property, plant and equipment ("PP&E") - This includes oil and gas assets in the development and production phases. The Company has allocated the amount recognized under the previous GAAP as at January 1, 2010 to CGUs using reserve values.Divestitures - Under previous GAAP, proceeds from divestitures were deducted from the full cost pool without recognition of a gain or loss unless the deduction resulted in a change in the depletion rate of 20 percent or greater, in which case a gain or loss was recorded.  Under IFRS, gains and losses are recorded on divestitures and are calculated as the difference between the proceeds and the net book value of the asset disposed. For the year ended December 31, 2010, Tourmaline recognized a $2.1 million net gain on divestitures under IFRS compared to nil under the previous GAAP.Impairment of PP&E assets - Under IFRS, impairment tests of PP&E must be performed at the CGU level as opposed to the entire PP&E balance which was required under the previous GAAP through the full cost ceiling test.  An impairment is recognized if the carrying value exceeds the recoverable amount for a CGU. The recoverable amount is determined using fair value less costs to sell based on discounted future cash flow of proved plus probable reserves using forecast prices and costs.  PP&E impairments can be reversed in the future if the recoverable amount increases.Tourmaline performed and passed its impairment tests on its PP&E assets on transition to IFRS at January 1, 2010 as well as for the year ended December 31, 2010.Decommissioning Obligations - Under the previous GAAP, a credit adjusted risk free rate was used to measure the obligation.  Under IFRS, Tourmaline has used a risk free rate given the expected cash flow is risked.  The result of using a lower discount rate was an increase to the obligation on transition of $11.9 million with an offsetting charge to the opening deficit, net of the deferred income tax effect of $3.0 million.Depletion and depreciation expense - Under IFRS, Tourmaline has chosen to base the depletion calculation using proved-plus-probable reserves.  This resulted in a decrease to depletion and depreciation expense in 2010 as compared to the previous GAAP.Share-based compensation - The major differences from the previous GAAP are the treatment of graded vesting awards as multiple separate awards with different lives, an adjustment to the measure of volatility used in the calculation to value those options that were issued while the Company was private and estimating forfeiture rates in advance as opposed to recognizing the impact when the forfeiture occurs.RECENT PRONOUNCEMENTS ISSUEDThe following pronouncements from the IASB will become effective for financial reporting periods beginning on or after January 1, 2013 and have not yet been adopted by the Company. All of these new or revised standards permit early adoption with transitional arrangements depending upon the date of initial application.IFRS 9 - Financial Instruments addresses the classification and measurement of financial assets.IFRS 10 - Consolidated Financial Statements builds on existing principles and standards and identifies the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company.IFRS 11 - Joint Arrangements establishes the principles for financial reporting by entities when they have an interest in arrangements that are jointly controlled.IFRS 12 - Disclosure of Interest in Other Entities provides the disclosure requirements for interests held in other entities including joint arrangements, associates, special purpose entities and other off balance sheet entities.IFRS 13 - Fair Value Measurement defines fair value, requires disclosure about fair value measurements and provides a framework for measuring fair value when it is required or permitted within the IFRS standards.IAS 19 - Employee Benefits revises the existing standard to eliminate options to defer the recognition of gains and losses in defined benefit plans, requires re-measurements of a defined benefit plan's assets and liabilities to be presented in other comprehensive income and increases disclosure.IAS 27 - Separate Financial Statements revised the existing standard which addresses the presentation of parent company financial statements that are not consolidated financial statements.IAS 28 - Investments in Associate and Joint Ventures revised the existing standard and prescribes the accounting for investments and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.The IASB also issued Presentation of Items of Other Comprehensive Income, an amendment to IAS 1 Financial Statement Presentation. The amendment addresses the presentation of other comprehensive income and requires the grouping of items within other comprehensive income that might eventually be reclassified to the profit and loss section of the income statement. The change becomes effective for financial years after July 1, 2012 with earlier adoption permitted.The Company has not completed its evaluation of the effect of adopting these standards on its financial statements.NON-IFRS FINANCIAL MEASURESThis MD&A includes references to financial measures commonly used in the oil and gas industry such as "funds from operations", "operating netback", "working capital (adjusted for the fair value of financial instruments)" and "net debt", which do not have any standardized meaning prescribed by IFRS.   Management believes that in addition to net income, funds from operations, operating netback, net debt and working capital (adjusted for the fair value of financial instruments) are useful supplemental measures as they demonstrate Tourmaline's ability to generate the cash necessary to repay debt or fund future growth through capital investment.  Readers are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with IFRS as an indication of Tourmaline's performance.  Tourmaline's method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies.  For these purposes, Tourmaline defines funds from operations as cash provided by operations before changes in non-cash operating working capital, defines operating netback as revenue less royalties and operating expenses and defines working capital (adjusted for the fair value of financial instruments) as working capital adjusted for the fair value of financial instruments.  Net debt is defined as long-term bank debt plus working capital (adjusted for the fair value of financial instruments).Funds from OperationsA summary of the reconciliation of funds from operations to cash flow from operating activities is set forth below: Three Months EndedNine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Cash flow from operating activities (per IFRS)    $77,622    $    40,685    $166,620    $97,187Change in non-cash working capital     (14,936)         (9,435)     1,421     (8,909)Funds from operations    $62,686    $    31,250    $168,041    $88,278Operating NetbackOperating netback is calculated on a per-boe basis and is defined as revenue less royalties, transportation costs and operating expenses, as shown below: Three Months EndedNine Months Ended($/Boe) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Revenue, excluding processing fee income$31.67    $    29.94    $32.57    $32.95Royalties         (2.63)         (2.80)     (2.05)     (3.18)Transportation costs         (2.06)         (1.78)     (1.99)     (1.71)Operating expenses         (5.77)         (6.24)     (5.76)     (6.75)Operating netback$    21.21    $    19.12    $22.77    $21.31Working 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:(000s) As atSeptember 30, 2011 As atDecember 31, 2010Working capital/(deficit)    $(120,080)    $(49,642)Fair value of financial instruments - short-term (asset)/liability     (3,778)     472Working capital/(deficit) (adjusted for the fair value of financial instruments)    $(123,858)    $(49,170)Net DebtA summary of the reconciliation of net debt is set forth below:(000s) As atSeptember 30, 2011 As atDecember 31, 2010Bank debt    $(159,846)    $-Working capital/(deficit)     (120,080)     (49,642)Fair value of financial instruments - short-term (asset)/liability     (3,778)     472Net debt    $(283,704)    $(49,170)SELECTED QUARTERLY INFORMATION  2011 2010 2009 -PreviousGAAP(2)($000s, unless otherwise noted)Q3Q2Q1 Q4Q3Q2Q1 Q4PRODUCTION          Crude oil and NGL(bbls)316,890272,184217,121 236,502147,997178,787138,068 90,978Gas (mcf)17,058,13213,798,65311,283,617 11,251,067 9,502,3378,693,4925,449,027  3,454,934Oil equivalent (boe)3,159,9122,571,9592,097,724 2,111,680 1,731,7201,627,7021,046,239   666,800Crude oil and NGL (bbls/d) 3,4442,9912,412 2,5711,6091,9651,534 989Gas (mcf/d) 185,414151,634125,374 122,294103,28695,53360,545 37,554Oil equivalent (boe/d) 34,34728,26323,308 22,95318,82317,88711,625  7,248FINANCIAL           Gross revenue, net of royalties 98,22587,55162,019 63,34046,82250,31034,935  22,765Cash flow from operating activities  77,62242,11246,886 46,10840,68534,62321,879 (9,388)Funds from operations (1)62,68660,41544,940 44,93931,25033,92523,103 14,569Per diluted share0.400.410.32 0.340.250.270.21 0.12Net earnings/(loss) 8,688 15,1922,727 5,8654281,700820 (369)Per diluted share0.060.100.02 0.040.000.010.01 0.00Total assets2,517,6072,030,2851,936,836  1,816,0431,546,8201,412,776 1,366,481  1,003,882Working capital  (120,080) (31,963) (139,138) (49,642) (78,205)(21,672)234,339 161,514Working capital (adjusted for the fair value of financial instruments) (1) (123,858) (31,592)(136,933) (49,170)(78,314)(22,075)234,362 161,514Capital expenditures 249,162130,075217,553 217,063 151,944286,808158,518 125,946Basic outstanding shares (000s)151,906 145,215 138,124 136,191123,841122,691120,191 101,809PER UNIT          Gas ($/mcf)4.254.384.48 4.174.364.615.41 5.08Crude oil and NGL ($/bbl)87.01 95.54  83.00 75.94  70.4972.49 78.29 68.02Revenue ($/boe) 31.6733.61 32.68  30.74 29.9432.5838.53 35.59Operating netback ($/boe) 21.21 24.52 22.99 22.66 19.1221.8224.16 22.72(1) See Non-IFRS Financial Measures(2) As Tourmaline's IFRS transition date was January 1, 2010, the 2009 comparative information has not been restated.The changes to the financial information summarized above are due primarily to the continuing growth in the Company's crude oil, natural gas and NGL production over the periods, from the acquisition of producing properties and from the Company's exploration and development activities.CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF FINANCIAL POSITION(000s) (unaudited)September 30, 2011December 31,2010Assets  Current assets:     Cash and cash equivalents$            -$            65,160 Accounts receivable                 57,174                 58,669 Prepaid expenses and deposits                 5,120                 5,114 Fair value of financial instruments (note 4)                 3,778                 -                  66,072                 128,943Investments (note 9)                 3,444                 3,932Fair value of financial instruments (note 4)                 990                 -Exploration and evaluation assets (note 5)                 640,727                 479,067Property, plant and equipment (note 6)                 1,806,374                 1,204,101 $            2,517,607$            1,816,043Liabilities and Shareholders' Equity                         Current liabilities:                          Accounts payable and accrued liabilities$            186,152$            178,113 Fair value of financial instruments (note 4)             -             472                  186,152                 178,585Bank debt (note 8)                 159,846                 -Decommissioning obligations (note 7)                 46,952                 35,279Long-term obligation (note 10)                 11,795                 14,589Fair value of financial instruments (note 4)                 -                 270Deferred premium on flow-through shares                 1,184                 348Deferred taxes                 101,207                 46,069Shareholders' equity:                          Share capital (note 12)                 1,936,933                 1,508,052 Non-controlling interest (note 11)                 14,534                 13,909 Contributed surplus                 42,717                 29,262 Retained earnings/(deficit)                 16,287                 (10,320)                  2,010,471                 1,540,903 $            2,517,607$            1,816,043Commitments (note 18)Subsequent events (notes 4 and 19)See accompanying notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months EndedNine Months Ended(000s) except per-share amounts (unaudited)September 30, 2011September 30,2010September 30, 2011September 30,2010Revenue:         Oil and natural gas sales$            94,299$            46,144$            241,285$            134,304 Royalties                     (8,313)                     (4,846)                 (16,043)                 (13,996)                      85,986                     41,298                 225,242                 120,308 Realized gain on financial instruments                     5,769                     5,699                 13,763                 10,882 Unrealized gain/(loss) on financial instruments(note 4)                     5,075                     (592)                 5,360                 89 Other income (note 15)                     1,395                     417                 3,430                 788                  98,225         46,822                 247,795                 132,067Expenses:                                 Operating             18,239             10,802             45,101                 29,719 Transportation                     6,503                     3,078                 15,586                 7,554 General and administration                     2,976                     2,115                 8,624                 5,613 Share-based payments             3,258             2,592             8,552                 6,874 (Gain)/loss on divestitures             -             (3,534)             3,630                 (476) Depletion, depreciation and amortization                     48,059                     26,156                 116,928                 67,395                      79,035                     41,209                 198,421                 116,679Results from Operating Activities                     19,190                     5,613                 49,374                 15,388Finance expenses (note 16)                     3,048                     452                 5,081                 1,586Income before taxes                     16,142                     5,161                 44,293                 13,802 Deferred taxes                     7,275                     4,705                 17,061                 10,611Net income and comprehensive income for the period before non-controlling interest                     8,867                     456                 27,232                 3,191Net income and comprehensive income attributable to:                                 Shareholders of the Company                     8,688                     428                  26,607                 2,948 Non-controlling interest (note 11)                     179                     28                 625                 243 $                8,867$                456$            27,232$            3,191         Income per share attributable to common shareholders (note 13)                                 Basic$                0.06    $            0.00$                0.19$            0.03 Diluted$                0.06$            0.00$                0.18$            0.02See accompanying notes to the consolidated financial statements.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(000s) except per-share amounts (unaudited)          ShareCapital ContributedSurplus RetainedEarnings/(Deficit) Non-ControllingInterest Total EquityBalance at January 1, 2010$            890,952$            8,547$            (19,133)$13,526$            893,892Issue of common shares (note 12)                 636,727                 -             -             -             636,727Share issue costs, net of tax                 (19,848)                 -             -             -             (19,848)Share-based payments                 -                 10,388             -             -             10,388Capitalized share-based payments                 -                 10,388             -             -             10,388Options exercised (note 12)                 221                 (61)             -             -             160Income attributable to common shareholders                 -                 -             8,813       -             8,813Income attributable to non-controlling interest                 -                 -             - 383       383Balance at December 31, 2010                 1,508,052                 29,262             (10,320) 13,909       1,540,903Issue of common shares (note 12)             423,819                 -             -             -             423,819Share issue costs, net of tax             (7,994)                 -             -             -             (7,994)Share-based payments             -                 8,552             -             -             8,552Capitalized share-based payments     -                 8,552 -             -             8,552Options exercised (note 12)                13,056                 (3,649)             -             -             9,407Income attributable to common shareholders                 -                 -             26,607       -             26,607Income attributable to non-controlling interest                 -                 -             - 625 625Balance at September 30, 2011$            1,936,933$            42,717$            16,287$14,534$            2,010,471(000s) except per-share amounts (unaudited)          ShareCapital ContributedSurplus RetainedEarnings/(Deficit) Non-ControllingInterest Total EquityBalance at January 1, 2010$            890,952$            8,547$            (19,133)$13,526$            893,892Issue of common shares                 377,377                -             -             -             377,377Share issue costs, net of tax                 (7,913)                 -             -             -             (7,913)Share-based payments                 -                 6,874             -             -             6,874Capitalized share-based payments                 -                 6,873             -             -             6,873Options exercised                 221                 (61)             -             -             160Income attributable to common shareholders                 -                 -             2,948       -             2,948Income attributable to non-controlling interest                 -                 -             - 243             243Balance at September 30, 2010    $1,260,637    $            22,233$            (16,185)$13,769$            1,280,454See accompanying notes to the consolidated financial statements.CONSOLIDATED STATEMENTS OF CASH FLOW Three Months EndedNine Months Ended(000s) (unaudited)September 30, 2011September 30,2010September 30, 2011September 30,2010Cash provided by (used in):        Operations:         Net income$            8,688$            428$            26,607$            2,948 Items not involving cash:                                  Depletion and depreciation                     48,059                     26,156                 116,928                 67,395  Accretion                     335                     283                 1,009                 817  Share-based payments                     3,258                     2,592                 8,552                 6,874  Deferred taxes                     7,275                     4,705                 17,061                 10,611  Unrealized (gain)/loss on financial instruments(note 4)                     (5,075)                     592                 (5,360)                 (89)  (Gain)/Loss on divestitures                     -                     (3,534)                 3,630                 (476)  Non-controlling interest                     179                     28                 625                 243 Realized (gain)/loss on sale of investments                     -                     -                 -                 (45) Decommissioning expenditures                     (33)                     -                 (1,011)                 - Changes in non-cash operating working capital (note17) 17)                     14,936                     9,435                 (1,421)                 8,909                      77,622                     40,685                 166,620                 97,187Financing:                                              Issue of common shares             3,862             25,300             230,846                 249,380 Share issue costs                     (529)                     (1,098)                 (10,583)                 (10,536) Increase in bank debt                     95,705                     41,186                 140,150                 34,636                      99,038                     65,388                 360,413                 273,480Investing:                                 Exploration and evaluation                     (56,396)                     (51,369)                 (164,324)                 (150,945) Property, plant and equipment                     (127,229)                     (95,430)                 (331,189)                 (175,603) Property acquisitions                     (65,894)                     (17,116)                 (108,642)                 (289,400) Proceeds from divestitures                     357                     11,971                 7,366                 21,834 Corporate acquisitions           -                    -                 -                 (3,156) Proceeds from sale of investments                     -                     -                 338                 255 Repayment of long-term obligation                     (931)                     (621)                 (2,794)                 (621) Change in non-cash investing working capital (note 17)                     73,433                     51,717                 7,052                 27,180                      (176,660)                     (100,848)                 (592,193)                 (570,456)Changes in cash                     -                     5,225                 (65,160)                 (199,789)Cash, beginning of period             -             (5,225)             65,160             199,789Cash/ (bank indebtedness), end of period$            -$            -$            -$            -Cash is defined as cash and cash equivalents.See accompanying notes to the consolidated financial statements.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended September 30, 2011 and 2010(tabular amounts in thousands of dollars, unless otherwise noted) (unaudited)Incorporation: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.  The Company is engaged in the exploration for, and development and production of, oil and natural gas and conducts many of its activities jointly with others. These consolidated financial statements reflect only the Company's proportionate interest in such activities.1. BASIS OF PREPARATIONThese unaudited interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting".  These unaudited interim consolidated financial statements form part of the period covered by the first IFRS annual financial statements and IFRS 1, "First-time Adoption of International Financial Reporting Standards" has been applied.  These unaudited interim consolidated financial statements do not include all of the information required for full annual financial statements.Canadian Generally Accepted Accounting Principles ("GAAP"), as issued by the Canadian Institute of Chartered Accountants, were converted to International Financial Reporting Standards ("IFRS") effective for fiscal years beginning on or after January 1, 2011. In order to prepare comparative information, the Company applied IFRS as of January 1, 2010 (the "Transition Date") and the accounting, estimation and valuation policies adopted on conversion to IFRS have been consistently applied to all periods presented herein.  Tourmaline's IFRS accounting policies and significant accounting judgments, estimates, and assumptions are described in Note 1 and Note 2 to the Company's March 31, 2011 unaudited Interim Consolidated Financial Statements. Reconciliations of IFRS amounts for the three and nine months ended September 30, 2010 to amounts previously published in accordance with Previous GAAP are provided in Note 20 to these unaudited Interim Consolidated Financial Statements.2. FUTURE ACCOUNTING CHANGESThe following pronouncements from the IASB will become effective for financial reporting periods beginning on or after January 1, 2013 and have not yet been adopted by the Company. All of these new or revised standards permit early adoption with transitional arrangements depending upon the date of initial application.IFRS 9 - Financial Instruments addresses the classification and measurement of financial assets.IFRS 10 - Consolidated Financial Statements builds on existing principles and standards and identifies the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company.IFRS 11 - Joint Arrangements establishes the principles for financial reporting by entities when they have an interest in arrangements that are jointly controlled.IFRS 12 - Disclosure of Interest in Other Entities provides the disclosure requirements for interests held in other entities including joint arrangements, associates, special purpose entities and other off balance sheet entities.IFRS 13 - Fair Value Measurement defines fair value, requires disclosure about fair value measurements and provides a framework for measuring fair value when it is required or permitted within the IFRS standards.IAS 19 - Employee Benefits revises the existing standard to eliminate options to defer the recognition of gains and losses in defined benefit plans, requires re-measurements of a defined benefit plan's assets and liabilities to be presented in other comprehensive income and increases disclosure.IAS 27 - Separate Financial Statements revised the existing standard which addresses the presentation of parent company financial statements that are not consolidated financial statements.IAS 28 - Investments in Associate and Joint Ventures revised the existing standard and prescribes the accounting for investments and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.The IASB also issued Presentation of Items of Other Comprehensive Income, an amendment to IAS 1 Financial Statement Presentation. The amendment addresses the presentation of other comprehensive income and requires the grouping of items within other comprehensive income that might eventually be reclassified to the profit and loss section of the income statement. The change becomes effective for financial years after July 1, 2012 with earlier adoption permitted.The Company has not completed its evaluation of the effect of adopting these standards on its consolidated financial statements.3. DETERMINATION OF FAIR VALUEA 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, trade and other receivables, bank debt and trade and other payables:The fair value of cash and cash equivalents, trade and other receivables, bank debt and trade and other payables is estimated as the present value of future cash flow, discounted at the market rate of interest at the reporting date. At September 30, 2011 and December 31, 2010, 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 balance sheet 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)Stock options:The fair value of employee stock 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 September 30, 2011 and December 31, 2010.  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.September 30, 2011 CarryingAmount Fair Value Level 1 Level 2 Level 3Financial Assets:                   Investments    $3,444$3,444    $-$3,444$- Commodity price risk contracts     4,768 4,768     - 4,768 -Financial liabilities:                   Bank debt    $159,846$159,846    $159,846$-$-           December 31, 2010 CarryingAmount Fair Value Level 1 Level 2 Level 3Financial Assets:           Investments$3,932$3,932$-$3,932$-Financial liabilities:           Commodity price risk contracts$742$742$-$742$-4. FINANCIAL RISK MANAGEMENTThe 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 September 30, 2011, Tourmaline's receivables consisted of $12.7 million (December 31, 2010 - $21.1 million) from joint venture partners, $35.7 million (December 31, 2010 - $23.6 million) from petroleum and natural gas marketers and $8.8 million (December 31, 2010 - $13.9 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's policy to mitigate credit risk associated with these balances is to establish marketing relationships with creditworthy purchasers.  The Company 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 September 30, 2011, the Company had $1.3 million (December 31, 2010 - $1.0 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 September 30, 2011 (December 31, 2010 - nil) and did not provide for any doubtful accounts nor was it required to write-off any receivables during the period ended September 30, 2011 (September 30, 2010 - 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, as far as possible, 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 and credit facilities.The Company's accounts payable and accrued liabilities balance at September 30, 2011 is approximately $186.2 million (December 31, 2010 - $178.1 million).  It is the Company's policy to pay suppliers within 45-75 days.  These terms are consistent with industry practice.  As at September 30, 2011, 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 September 30, 2011:  CarryingAmount ContractualCash Flow Less ThanOne  Year One - TwoYears Two - FiveYears More ThanFive YearsNon-derivative financial liabilities:                     Trade and other payables    $182,427    $182,427    $182,427    $-    $-    $- Bank debt (1)     159,846     165,441     165,441     -     -     - Transportation liability     15,520     15,520     3,725     3,725     8,070     -     $357,793    $363,388    $351,593    $3,725    $8,070    $-(1) Includes interest expense at 3.5% being the rate applicable at September 30, 2011.(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 September 30, 2011.  Changes in the US to Canadian exchange rate, however, could influence future petroleum and natural gas prices which could impact the value of certain derivative contracts.  This influence cannot be accurately quantified.Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates.  The Company is exposed to interest rate risk to the extent that changes in market interest rates will impact the Company's bank debt which is subject to a floating interest rate.  Assuming all other variables remain constant, an increase or decrease of 1% in market interest rates in the nine-month period ended September 30, 2011 would have decreased or increased shareholders' equity and net income by $0.5 million.The following table outlines the realized and unrealized gains on interest rate contracts for the three and nine months ended September 30, 2011:(000s)    Three Months EndedSeptember 30, 2011Nine Months EndedSeptember 30, 2011TermType(Floatingto Fixed)AmountCompanyFixedInterestRate (%)CounterPartyFloatingRate Index RealizedGain/(Loss) UnrealizedGain/ (Loss) RealizedGain/(Loss) UnrealizedGain/ (Loss)September 29, 2011-September 29, 2013Swap$150,0001.15%Floating Rate$-$ (543)$-$(543)The unrealized loss on the interest rate swap has been included on the consolidated statement of financial position with changes in the fair value included in the unrealized gain/(loss) on financial instruments on the consolidated statement of income and comprehensive income.Commodity price risk is the risk that the fair value or future cash flow will fluctuate as a result of changes in commodity prices. Commodity prices for oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar but also world economic events that dictate the levels of supply and demand.  As at September 30, 2011, the Company has entered into certain financial derivative and physical delivery sales contracts in order to manage commodity risk.  These instruments are not used for trading or speculative purposes.  The Company has not designated its financial derivative contracts as effective accounting hedges, even though the Company considers all commodity contracts to be effective economic hedges.  As a result, all such commodity contracts are recorded on the consolidated statement of financial position at fair value, with changes in the fair value being recognized as an unrealized gain or loss on the consolidated statement of income and comprehensive income.The Company has entered into the following derivative contracts as at September 30, 2011:Type of Contract QuantityTime PeriodContract Price Fair ValueFinancial Swap100 bbls/dJuly 2011 - December 2012US$90.00/bbl$440Financial Swap100 bbls/dJuly 2011 - December 2011US$100.10/bbl 198Financial Swap100 bbls/dJuly 2011 - June 2012US$101.40/bbl 609Financial Swap100 bbls/dSeptember 2011 - December 2012US$101.00/bbl 962Financial Swap100 bbls/dJanuary 2012 - December 2012US$104.00/bbl 869Financial Swap100 bbls/dJanuary 2012 - December 2012US$108.00/bbl 1,020Financial Swap100 bbls/dJanuary 2011 - December 2011US$87.85/bbl 81Costless Collar100 bbls/dSeptember 2010 - August 2012US$75/bbl floor - US$96/bbl ceiling 115Financial Swap100 bbls/dJanuary 2012 - June 2013US$99.70/bbl 1,017Total fair value   $5,311The following table provides a summary of the unrealized gains and losses on financial instruments for the period ended September 30, 2011: Three Months Ended Nine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Unrealized gain/(loss) on financial instruments$            5,139 $            (583)$            5,510 $            16Unrealized gain/(loss) on investments held for trading                 (64)                 (9)                 (150)             73Total$            5,075$            (592)$            5,360$            89The unrealized gain/(loss) on derivative contracts has been included on the consolidated statement of financial position with changes in the fair value included in the unrealized gain/(loss) on financial instruments on the consolidated statement of income and comprehensive income.As at September 30, 2011, if the future strip prices for oil were $1.00 per bbl higher, with all other variables held constant, before-tax earnings for the period would have been $0.3 million lower.  An equal and opposite impact would have occurred to before-tax earnings and the fair value of the derivative contracts liability oil prices $1.00 per bbl 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 entered into the following physical contracts as at September 30, 2011:    Type of ContractQuantityTime PeriodContract PriceAECO Fixed Price3,000 gjs/dJanuary 2011 - December 2011Cdn$5.75/gjAECO Fixed Price3,000 gjs/dJanuary 2011 - December 2011Cdn$5.84/gjAECO Fixed Price4,000 gjs/dFebruary 2010 - December 2011Cdn$5.68/gjAECO Fixed Price2,000 gjs/dFebruary 2010 - December 2011Cdn$5.72/gjAECO Fixed Price2,000 gjs/dMarch 2010 - March 2012Cdn$5.72/gjAECO Fixed Price2,000 gjs/dMarch 2010 - December 2011Cdn$5.705/gjAECO Call Option3,000 gjs/dJanuary 2011 - December 2011Cdn$6.50/gj strike priceAECO Call Option3,000 gjs/dJanuary 2011 - December 2012Cdn$6.00/gj strike priceAECO Fixed Price3,000 gjs/dJanuary 2011 - December 2012Cdn$5.53/gjAECO Fixed Price3,000 gjs/dFebruary 2011 - April 2012Cdn$4.00/gjAECO Fixed Price3,000 MMbtu/dMay 2011 - October 2011USD$4.135/MMbtuAECO Fixed Price5,000 MMbtu/dMay 2011 - October 2011USD$3.61/MMbtuAECO/Nymex Differential Swap5,000 MMbtu/dOctober 2011 - October 2012Nymex less USD$0.62/MMbtuAECO Fixed Price2,000 MMbtu/dMay 2011 - October 2011USD$3.745/MMbtuAECO Fixed Price3,000 MMbtu/dMay 2011 - October 2011USD$4.045/MMbtuAECO Fixed Price3,000 MMbtu/dMay 2011 - October 2011USD$3.695/MMbtuAECO/Nymex Differential Swap3,000 MMbtu/dNovember 2011 - October 2012Nymex less USD$0.535/MMbtuAECO Fixed Price5,000 MMbtu/dJune 2011 - October 2011USD$4.125/MMbtuAECO/Nymex Differential Swap5,000 MMbtu/dNovember 2011 - December 2011Nymex less USD$0.475/MMbtuAECO Fixed Price5,000 gjs/dJuly 2011 - October 2011Cdn$4.16/gjAECO/Nymex Differential Swap5,000 Mmbtu/dJanuary 2012 - December 2012Nymex less USD$0.4325/MMbtuThe following contracts were entered into subsequent to September 30, 2011:    Type of ContractQuantityTime PeriodContract Price    AECO/Nymex Differential Swap2,000 Mmbtu/dJanuary 2012 - December 2012Nymex less USD$0.42/MMbtuAECO/Nymex Differential Swap3,000 Mmbtu/dDecember 2011 - March 2012Nymex less USD$0.30/MMbtuAECO Fixed Price3,000 gjs/dJanuary 2012 - December 2014Cdn$4.45/gjAECO Call Option3,000 gjs/dJanuary 2012 - December 2014Cdn$4.50/gj strike priceAECO Call Option3,000 gjs/dJanuary 2015 - December 2016Cdn$6.00/gj strike price(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, which is defined as long-term bank debt plus working capital (adjusted for the fair value of financial instruments), to annualized funds from operations, defined as cash flow from operating activities before changes in non-cash working capital.  Net debt to annualized funds from operations 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 funds from operations 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 September 30, 2011, the Company's ratio of net debt to annualized funds from operations was 1.27 to 1.0.(000s) As atSeptember 30, 2011 As atDecember 31, 2010Net debt:             Bank debt    $            (159,846)    $            - Working capital/(deficit)                 (120,080)                 (49,642) Fair value of financial instruments - short-term (asset)/liability                 (3,778)                 472Net debt    $            (283,704)    $            (49,170)Annualized funds from  operations:             Cash flow from operating activities    $            166,620    $            144,237 Change in non-cash working capital                 1,421                 (9,517) Funds from operations to end of period    $            168,041    $            134,720Annualized funds from operations    $            224,055    $            134,720Net debt to annualized funds from operations                 1.27                 0.36The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.  There were no changes in the Company's approach to capital management since December 31, 2010.5. EXPLORATION AND EVALUATION ASSETS(000s) As at January 1, 2010    $            250,972 Capital expenditures                 200,816 Capitalized share-based payments                 10,388 Transfers to property, plant and equipment (note 6)                 (178,012) Acquisitions                 206,876 Divestitures                 (11,973)As at December 31, 2010    $            479,067 Capital expenditures                 164,324 Capitalized share-based payments                 6,779 Transfers to property, plant and equipment (note 6)                 (135,682) Acquisitions                 131,042 Divestitures                 (4,803)As at September 30, 2011    $            640,727General and administrative expenditures for the nine-month period ended September 30, 2011 of $11.4 million (September 30, 2010 — $10.2 million) have been capitalized and included as exploration and evaluation assets.  Included in this amount are non-cash related share-based payments of $6.8 million (September 30, 2010 - $6.9 million).6. PROPERTY, PLANT AND EQUIPMENTCost(000s) As at January 1, 2010$            503,826Capital expenditures             617,764Transfers from exploration and evaluation (note 5)             178,012Change in decommissioning liabilities (note 7)             15,963Divestitures             (15,983)As at December 31, 2010$            1,299,582Capital expenditures             331,189Capitalized share-based payments             1,773Transfers from exploration and evaluation (note 5)             135,682Change in decommissioning liabilities (note 7)             12,082Acquisitions             245,075Divestitures             (7,834)As at September 30, 2011$            2,017,549Accumulated Depletion, Depreciation and Amortization(000s) As at January 1, 2010$            -Depletion, depreciation and amortization             96,660Divestitures             (1,179)As at December 31, 2010$            95,481Depletion, depreciation and amortization             116,928Divestitures             (1,234)As at September 30, 2011$            211,175Net Book Value(000s) As at January 1, 2010$503,826As at December 31, 2010 1,204,101As at September 30, 2011$1,806,374General and administrative expenditures for the nine-month period ended September 30, 2011 of $3.0 million (September 30, 2010 - nil) have been capitalized and included as costs of oil and natural gas properties.  Included in this amount are non-cash related share-based payments of $1.8 million (September 30, 2010 - nil).For the nine months ended September 30, 2011, the Company completed property acquisitions for total cash consideration of $108.6 million.  The Company also assumed $2.0 million in decommissioning liabilities.Future development costs for the period ended September 30, 2011 of $1,191 million (September 30, 2010 - $726 million) were included in the depletion calculation.Corporate AcquisitionOn July 12, 2011, the Company acquired all of the issued and outstanding shares of Cinch Energy Corp. ("Cinch").  As consideration, the Company issued 6,363,523 common shares at a price of $33.02 per share. Total transaction costs incurred by the Company of $1 million associated with this acquisition were expensed in the consolidated statement of income and comprehensive income.Results from operations for Cinch are included in the Company's unaudited interim consolidated financial statements from the closing date of the transaction.  The acquisition has been accounted for using the purchase method based on fair values as follows:(000s)      Cinch Energy Corp.Fair value of net assets acquired:         Property, plant and equipment      $182,770 Exploration and evaluation       87,136 Working capital deficiency       (3,897) Bank debt       (19,696) Decommissioning obligations       (2,430) Deferred income tax liabilities       (33,759)Total      $210,124Consideration:         Common shares issued      $210,124The above noted amounts are estimates based on information available to the Company at the time of preparation of the September 30, 2011 consolidated financial statements.  Accordingly, the estimates used to derive the fair values in the purchase price include accruals and deferred tax liabilities. A future change in estimates could have an impact on the above-noted purchase equation.7. DECOMMISSIONING OBLIGATIONSThe 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 $68.7 million (2010 - $40.0 million), which will be incurred between 2023 and 2028.  A risk-free rate of 2.77% (2010 - 3.5%) and an inflation rate of 3% (2010 - 3%) were used to calculate the fair value of the decommissioning obligations.  The decommissioning obligations at September 30, 2011, have been increased by approximately $4.0 million to reflect a decrease in the risk-free rate previously used of 3.5% to 2.77%. (000s)Nine Months Ended September 30, 2011Year EndedDecember 31, 2010Balance, beginning of period    $            35,279$            19,153 Obligation incurred                 3,607             4,411 Obligation incurred on corporate acquisitions (note 6)                 2,430             1,452 Obligation incurred on property acquisitions                 2,011             7,936 Obligation divested                 (407)             (965) Obligation settled                 (1,011)             - Accretion expense                 1,009             1,128 Change in future estimated cash outlays                 4,034             2,164Balance, end of period    $            46,952$            35,2798. BANK DEBTOn September 8, 2011, the Company increased its credit facility for an extendible revolving term loan to $350 million from $275 million with three Canadian chartered banks, in addition to its already existing $25 million operating line.  The facility bears interest on a variable grid currently 250 basis points over the prevailing banker's acceptance rate.  Security for the facility includes a general security agreement and a $500 million demand loan debenture secured by a second floating charge over all assets.  On July 31, 2012, at the Company's discretion, the facility is available on a non-revolving basis for a period of 365 days, at which time the facility would be due and payable.  Alternatively, the facility may be extended for a further 364-day period at the request of the Company and subject to approval by the banks.A subsidiary of the Company also has a financing arrangement with a Canadian chartered bank for an extendible revolving term loan in the amount of $5 million in addition to a $5 million operating line.  The interest rate charged varies based on the amount outstanding.  Security for the facility includes a general security agreement and a demand loan debenture secured by a second floating charge over all of the subsidiary's assets.  The revolving term credit facility has a 364-day extendible period plus a one-year maturity.The Company is required to meet certain financial-based covenants to maintain the facilities.  The financial covenants include a requirement to ensure the total amount drawn on the facility does not exceed the total borrowing base as defined in each facility's agreement, and that the ratio of earnings adjusted for interest, taxes and other non-cash items to interest expense does not exceed a predetermined amount, as determined by each facility's agreement.  As at September 30, 2011, the Company was in compliance with these covenants.Tourmaline has drawn down on existing facilities in the amount of $159.8 million.  The effective interest rate for the nine months ended September 30, 2011 was 3.5% (September 30, 2010- nil).  In addition, Tourmaline has outstanding letters of credit of $4.0 million, which reduce the credit available on the facility.9. INVESTMENTSTourmaline owns common shares of public and private junior oil and gas companies which have been fair valued at $3.4 million based on the quoted market prices at September 30, 2011.A reconciliation of the investments is provided below: (000s) Nine Months EndedSeptember 30, 2011 Year EndedDecember 31, 2010Balance, beginning of period$            3,932$            632 Proceeds on disposition of shares (net of realized gain/( loss))             (338)             (210) Acquired on asset disposition             -             3,250 Unrealized gain/(loss) on investments             (150)             260Balance, end of period$            3,444$            3,93210. LONG TERM OBLIGATIONAs part of an acquisition of petroleum and natural gas properties in June 2010, the Company acquired a firm transportation agreement.  A liability of $19.9 million was recorded to account for the fair value of the agreement at the time of the acquisition. This amount was accounted for as part of the acquisition cost and will be charged as a reduction to transportation expenses over the life of the agreement as the obligation is met.  The reduction to transportation expense for the period ended September 30, 2011 was $2.8 million.  The outstanding balance is $15.5 million of which $3.7 million has been included in accounts payable and accrued liabilities.11. NON-CONTROLLING INTERESTOn November 10, 2009, Tourmaline acquired 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) Nine Months EndedSeptember 30, 2011 Year EndedDecember 31, 2010Balance, beginning of period$13,909$13,526Share of subsidiary's net income for the period 625 383Balance, end of period$14,534$13,90912. SHARE CAPITAL(a) AuthorizedUnlimited number of Common Shares without par value.Unlimited number of non-voting Preferred Shares, issuable in series.(b) Common Shares Issued Nine Months EndedSeptember 30, 2011 Year EndedDecember 31, 2010($000s)Number of Shares Amount Number ofShares AmountBalance, beginning of period136,191,061$            1,508,052 101,809,391$            890,952For cash on Initial Public Offering (includes over-allotment option)-             - 11,500,000             241,500For cash on public offering6,825,000             174,037 -             -For cash on private placement of common shares-             - 10,350,000             188,850For cash on private placement of flow-through common shares(1)(2)1,580,000             39,658 3,600,000             65,202Issued for the acquisition of properties-             - 2,500,000             45,000Issued on corporate acquisitions6,363,523             210,124 6,411,670             96,175For cash on exercise of stock options946,502             9,408 20,000             160Contributed surplus on exercise of stock options-             3,648 -             61Share issue costs-             (10,583) -             (26,502)Tax effect of share issue costs-             2,589 -             6,654Balance, end of period151,906,086$            1,936,933 136,191,061$            1,508,052(1)On March 8, 2011, the Company issued 1.58 million flow-through shares at $30.00 per share for total gross proceeds of $47.4 million.  The implied premium on the flow-through shares was determined to be $7.74 million or $4.90 per share.  A total of 0.38 million shares were purchased by insiders.  As at September 30, 2011, the Company is committed to spending an additional $7.25 million on qualified exploration and development expenditures by December 31, 2012.  (2)On March 19, 2010, the Company issued 2.45 million flow-through shares at $21.60 per share for total gross proceeds of $52.92 million.  The implied premium on the flow-through shares was $8.8 million or $3.60/share.  On August 12, 2010 the Company issued 1.15 million flow-through shares at $22.00 per share for total gross proceeds of $25.3 million.  The implied premium on the flow-through shares was $4.2 million or $3.65 per share.  13. EARNINGS PER SHAREBasic earnings-per-share was calculated as follows: Three Months Ended Nine Months Ended  September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Net earnings for the period (000s)    $8,688    $428    $26,607$2,948Weighted average number of common shares - basic     151,044,426     123,303,560     143,230,945 117,839,772Earnings per share - basic    $0.06    $0.00    $0.19$0.03Diluted earnings-per-share was calculated as follows: Three Months Ended Nine Months Ended  September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Net earnings for the period (000s)    $8,688    $428    $26,607$2,948Weighted average number of common shares - diluted     157,562,227     126,871,561     148,999,440 121,106,729Earnings per share - fully diluted    $0.06    $0.00    $0.18$0.02There were 1,340,000 options excluded from the weighted-average share calculation for the three months ended September 30, 2011 because they were anti-dilutive (1,640,000 - nine months).14. SHARE-BASED PAYMENTSThe Company has a rolling stock option plan.  Under the employee stock option plan, the Company may grant options to its employees up to 15,190,609 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. Number of OptionsWeighted AverageExercise PriceStock options outstanding, December 31, 2009            8,610,000$9.99 Granted            3,407,000 17.88 Exercised            (20,000) 8.00Stock options outstanding, December 31, 2010            11,997,000$12.24 Granted            1,730,000 28.74 Exercised            (946,502) 9.94 Forfeited            (179,999) 13.64Stock options outstanding, September 30, 2011            12,600,499$14.66The following table summarizes stock options outstanding and exercisable at September 30, 2011:Range of Exercise PriceNumberOutstanding atPeriod EndWeightedAverageRemainingContractual Life WeightedAverageExercise PriceNumberExercisable atPeriod End WeightedAverageExercisePrice$7.00 - $8.003,366,1672.15$7.082,027,834$7.08$10.00 - $15.004,755,4992.95 12.782,173,832 11.88$16.68 - $30.764,478,8334.18 22.34809,166 18.19 12,600,4993.17$14.665,010,832$10.96The fair value of options granted were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and resulting values:  September 30, 2011 September 30, 2010Fair value of options granted (weighted average)$ 10.92$6.82Risk-free interest rate 2.12% 2.43%Estimated hold period prior to exercise 5 years 5 yearsExpected volatility 40% 40%Forfeiture rate 2% 2%Dividend per share$0.00$0.0015. OTHER INCOME Three Months Ended Nine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Processing income    $1,286    $99    $2,892$269Interest income     88     15     254 124Other     21     303     284 395Total other income    $1,395    $417    $3,430$78816. FINANCE EXPENSES Three Months Ended Nine Months Ended(000s) September 30, 2011 September 30,2010 September 30, 2011 September 30,2010Finance expenses:                     Interest on loans and borrowings    $1,722    $169    $3,081$208 Transaction costs on corporate acquisitions     991     -     991 561 Accretion of provisions     335     283     1,009 817Total finance expenses    $3,048    $452    $5,081$1,58617. SUPPLEMENTAL CASH FLOW INFORMATIONChanges in non-cash working capital is comprised of: Nine Months Ended(000s) September 30, 2011 September 30, 2010Source/(use) of cash:             Trade and other receivables    $            1,495    $            (7,859) Deposit and prepaid expenses                 (6)                 412 Trade and other payables                 8,039                 43,536                  9,528                 36,089 Working capital deficiency acquired                 (3,897)                 -     $            5,631    $            36,089Related to operating activities    $            (1,421)    $            8,909Related to investing activities    $            7,052    $            27,180Cash interest paid was $1.6 million for the nine months ended September 30, 2011 (September 30, 2010 - nil).18. COMMITMENTSOn March 8, 2011, the Company issued 1.58 million common shares, including 0.38 million common shares to insiders in a non-brokered component of the issuance, on a flow-through basis at a price of $30.00 per share for total gross proceeds of $47.4 million.  As of September 30, 2011, the Company has spent $40.2 million on eligible expenditures and is committed to spend the remainder of $7.2 million before December 31, 2012.In the normal course of business, Tourmaline is obligated to make future payments.  These obligations represent contracts and other commitments that are known and non-cancellable:Payments Due by Year (000s) 2011 2012 2013 2014 2015 andthereafter TotalOperating leases$735$2,823$2,502$2,338$526$8,924Flow-through obligations     -     7,250     -     -     -     7,250Firm transportation agreements     5,793     25,917     24,237     15,737     7,831 79,515Bank debt     -     165,441     -     -     - 165,441 $6,528$201,431$26,739$18,075$8,357$261,13019. SUBSEQUENT EVENTSOn October 12, 2011, the Company issued 4.3 million common shares at $33 per share, as well as on October 19, 2011, an additional 0.6 million common shares pursuant to the exercise of the underwriters' overallotment were also issued at $33 per share for total gross proceeds of $161.7 million before total issue costs of approximately $6.4 million.  Included in the above noted issuance are 0.3 million common shares which were issued to insiders in a non-brokered private placement component of the issuance. The proceeds will be used to temporarily reduce bank debt, which will then be available to fund the Company's accelerated and expanded 2011 capital expenditure program.20. RECONCILIATION OF THE FINANCIAL STATEMENTS FROM CANADIAN GAAP TO IFRSThese unaudited interim consolidated financial statements have been prepared under IFRS which the Company adopted on January 1, 2011. The adoption of IFRS requires the application of IFRS 1. IFRS 1 generally requires that an entity retrospectively apply all IFRS effective at the end of its first IFRS reporting period; however, IFRS 1 provides certain mandatory exceptions and permits limited optional exemptions. Certain IFRS 1 optional exemptions have been applied as described in the following notes.The unaudited interim consolidated financial statements for the three and nine months ended September 30, 2011 and 2010 follow the same accounting policies and method of computation as outlined in note 2 of the Company's unaudited interim consolidated financial statements for the three months ended March 31, 2011.In preparing its comparative information for the three and nine months ended September 30, 2010, the Company has adjusted amounts previously reported in its financial statements prepared in accordance with former Canadian GAAP. An explanation of how the transition from former Canadian GAAP to IFRS has affected the Company's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.Reconciliation of consolidated statement of financial position as at September 30, 2010:(000s)Canadian GAAPEffect ofTransition to IFRSNote IFRSAssets     Current assets:        Accounts receivable$            52,988$            - $            52,988 Prepaid expenses and deposits                 2,797                 -                  2,797 Fair value of financial instruments                 16,633                 (16,524)(j)                 109                  72,418                 (16,524)                  55,894Investments                 3,745                 -                  3,745Fair value of financial instruments                 5,255                 (5,227)(j)                 28Exploration and evaluation assets                 -                 442,691(a)                 442,691Property, plant and equipment                 1,458,818                 (414,356)(a,f)                 1,044,462 $            1,540,236$            6,584 $            1,546,820Liabilities and Shareholders' Equity                   Current liabilities:                    Accounts payable and accrued liabilities$            134,099$            - $            134,099 Deferred taxes                 3,473                 (3,473)(h)                 -                  137,572                 (3,473)                  134,099Decommissioning obligations                 12,189                 19,684(c)                 31,873Bank debt             41,186             -              41,186Long-term obligation                 15,520                 -                  15,520Deferred premium on flow-through shares                 -                 5,518(k)                 5,518Deferred taxes                 28,930                 9,240(h,k)                 38,170Shareholders' equity:                    Share capital                 1,270,156                 (9,519)(d,k)                 1,260,637 Non-controlling interest                 13,680                 89                  13,769 Contributed surplus                 5,541                 16,692(d)                 22,233 Retained earnings/ (deficit)                 15,462                 (31,647)(c,d,e,f,h,i,k)                 (16,185)                  1,304,839                 (24,385)                  1,280,454 $            1,540,236$            6,584 $            1,546,820Reconciliation of consolidated statement of income for the nine months ended September 30, 2010:(000s)Canadian GAAPEffect ofTransition to IFRSNote IFRSRevenue:      Oil and natural gas sales$            134,304$            - $            134,304 Royalties                 (13,996)                 -              (13,996)                  120,308                 -              120,308 Realized gain on financial instruments                 10,882                 -              10,882 Unrealized gain/ (loss) on financial instruments                 21,637                 (21,548)(j)             89 Other income                 788                 -              788                  153,615                 (21,548)              132,067Expenses:                Operating             29,719                 -              29,719 Transportation                 7,554                 -              7,554 General and administration                 4,801                 812(l)             5,613 Share-based payments             2,007                 4,867(d)             6,874 Gain on divestiture             -                 (476)(g)             (476) Depletion, depreciation and amortization                 85,291                 (17,896)(e)             67,395Results from operating activities                 24,243                 (8,855)              15,388Finance expenses                 208                 1,378(f),(i)             1,586Income/(loss) before taxes                 24,035                 (10,233)              13,802 Deferred taxes                 6,736                 3,875(h)             10,611Net income/(loss) and net comprehensive income/(loss) before non-controlling interest                 17,299                 (14,108)              3,191Net income/(loss)  and comprehensive income/(loss) attributable to:                Shareholders of the Company                 17,145                 (14,197)              2,948 Non-controlling interest                 154                 89              243     $            17,299$            (14,108) $            3,191Reconciliation of consolidated statement of income for the three months ended September 30, 2010:(000s)Canadian GAAPEffect ofTransition to IFRSNote IFRSRevenue:      Oil and natural gas sales$            46,144$            - $            46,144 Royalties                 (4,846)                 -              (4,846)                  41,298                 -              41,298 Realized gain on financial instruments                 5,699                 -              5,699 Unrealized gain/(loss) on financial instruments                 6,818                 (7,410)(j)             (592) Other income                 417                 -              417                  54,232                 (7,410)              46,822Expenses:                Operating             10,802                 -              10,802 Transportation                 3,078                 -              3,078 General and administration                 1,637                 478(l)             2,115 Share-based payments             737                 1,855(d)             2,592 Gain on divestitures             -                 (3,534)(g)             (3,534) Depletion, depreciation and amortization                 31,243                 (5,087)(e)             26,156Results from operating activities                 6,735                 (1,122)              5,613Finance expenses                 169                 283(i)             452Income/(loss) before taxes                 6,566                 (1,405)              5,161 Deferred taxes (recovery)                 2,043                 2,662(h)             4,705Net income/(loss) and net comprehensive income/(loss) before non-controlling interest                 4,523                 (4,067)              456Net income/(loss) and comprehensive income/(loss) attributable to:                Shareholders of the Company                 4,463                 (4,035)              428 Non-controlling interest                 60                 (32)              28     $            4,523$            (4,067) $            456NOTES TO THE RECONCILIATIONS(a) IFRS 1 election for full cost oil and gas entities:The Company elected to use an IFRS 1 exemption whereby the previous GAAP full cost pool was used to measure exploration and evaluation assets and development and production assets on transition to IFRS as follows:(i) exploration and evaluation assets were reclassified from the full cost pool to intangible exploration assets at the amount that was recorded under previous GAAP; and(ii) the remaining full cost pool was allocated to the producing/development assets and components pro rata using reserve values.This resulted in a transfer of $251.0 million to exploration and evaluation assets and a corresponding decrease in property, plant and equipment on transition. As at September 30, 2010, the transfer was $442.7 million, which included undeveloped land acquired in 2010, geological and geophysical costs and costs related to wells in progress.(b) Impairment of property, plant and equipment ("PP&E"):In accordance with IFRS, impairment tests of PP&E must be performed at the CGU level as opposed to the entire PP&E balance which was required under the previous GAAP through the full cost ceiling test.  An impairment is recognized if the carrying value exceeds the recoverable amount for a CGU.  For Tourmaline, the recoverable amount is determined using fair value less cost to sell based on discounted future cash flow of proved plus probable reserves using forecast prices and costs. There was no impairment to PP&E on transition on January 1, 2010 or for the year ended December 31, 2010.(c) Decommissioning obligations:Under the previous GAAP, decommissioning obligations were discounted at a credit adjusted risk-free rate of ten percent. Under IFRS, the estimated cash flow to abandon and remediate the wells and facilities has been risk adjusted therefore the provision is discounted at the risk-free rate in effect at the end of each reporting period. The change in the decommissioning obligations each period as a result of changes in the discount rate will result in an offsetting charge to PP&E. Upon transition to IFRS, the impact of this change was an $11.9 million increase in the decommissioning obligations with a corresponding increase to the deficit on the statement of financial position. As at September 30, 2010, the decommissioning obligations were $19.7 million higher than under the previous GAAP due to the change in discount rate and its impact on the liabilities incurred or acquired during 2010.  In addition, under the previous GAAP, accretion of the discount was included in depletion and depreciation expense. Under IFRS it is included in finance expenses.(d) Share-based compensation:Under the previous GAAP, the Company recognized an expense related to share-based compensation on a straight-line basis through the date of full vesting and did not incorporate a forfeiture rate at the grant date.Under IFRS, the Company is required to calculate a volatility factor, recognize the expense over the individual vesting periods for the graded vesting awards and estimate a forfeiture rate at the date of grant and update it throughout the vesting period.(e) Depletion policy:Upon transition to IFRS, the Company adopted a policy of depleting oil and natural gas interests on a unit of production basis over proved-plus-probable reserves. The depletion policy under the previous GAAP was based on units of production over proved reserves. In addition, depletion was done on the Canadian cost centre under the previous GAAP.  IFRS requires depletion and depreciation to be calculated based on individual components.There was no impact of this difference on adoption of IFRS at January 1, 2010 as a result of the IFRS 1 election as discussed in note (a) above.Depleting the oil and natural gas interests over proved-plus-probable reserves resulted in a decrease to depletion and depreciation for the three months ended September 30, 2010 of $5.1 million ($17.9 million - nine months).  For the year ended December 31, 2010, depletion and depreciation was reduced by $30.25 million as a result of changes to the depletion calculation.(f) Business combinations:In accordance with IFRS, internal transaction costs incurred on a business combination are expensed. Under the previous GAAP, these costs were capitalized as part of the acquisition. As a result, $0.6 million was charged to other expenses for transaction costs incurred on the corporate acquisition for the nine months ended September 30, 2010, (three months ended September 30, 2011- nil) and $0.6 million for the year ended December 31, 2010.  In addition, the decommissioning obligations were re-measured under IFRS requirements.(g) Gains and losses on divestitures:Under previous GAAP, proceeds from divestitures were deducted from the full cost pool without recognition of a gain or loss unless the deduction resulted in a change in the depletion rate of 20 percent or greater, in which case a gain or loss was recorded. Under IFRS, gains and losses are recorded on divestitures and are calculated as the difference between the proceeds and the net book value of the asset disposed. For the nine months ended September 30, 2010, Tourmaline recognized a $0.5 million net gain on divestitures under IFRS compared to nil under the previous GAAP (three months ended September 30, 2011 - $3.5 million net gain).(h) Deferred income taxes:The adjustment to deferred income taxes on transition relates to the opening adjustment to the decommissioning obligations, the adjustment to the unrealized gain or loss on financial instruments and the treatment of flow-through shares.  Adjustments to deferred income taxes have been made in regards to the adjustments resulting in a change to the temporary difference between tax and accounting values.  The deferred income tax impact of the opening adjustments was a deferred income tax asset of $0.9 million.Under IFRS there is no requirement to separate the portion of deferred income taxes related to current assets or liabilities. The amounts previously classified as current have be reclassified to long-term.(i) Finance expenses:Under IFRS, a separate line item is required in the statement of income and comprehensive income for finance expenses. The items under the previous GAAP that were reclassified to finance expenses were interest and financing expense, which included the accretion on the decommissioning obligations.(j) Fair value of financial instruments:Under previous GAAP, Tourmaline recognized the fair value of its futures contracts for physical delivery.  Those contracts do not meet the definition of a financial instrument under IFRS, resulting in the removal of the asset, liability and related charges to the income statement.(k) Flow-through shares:Under IFRS, proceeds from the issuance of flow-through shares are allocated between the sale of the shares, which are recorded in share capital, and the sale of the tax benefits, which are initially recorded as an accrued liability. The allocation is made based on the difference between the issue price of flow-through shares and the market price of the common shares on the date the offering is priced. The liability related to the sale of the tax benefits is reversed as qualifying expenditures intended for renunciation to subscribers are incurred, and a deferred tax liability is recorded. The difference between the deferred tax liability recorded and the liability related to the sale of tax benefits is recognized as deferred tax expense. Under previous GAAP, when flow-through shares were issued, they were recorded in share capital based on proceeds received. Upon filing the renunciation documents with the tax authorities, a future tax liability was recognized and share capital was reduced for the tax effect of expenditures renounced to subscribers.The IFRS adjustment on transition date associated with flow-through shares was to decrease share capital by $4.0 million, decrease retained earnings by $1.9 million with $3.8 million going to the liability account "Deferred premium on flow-through shares" and to increase the deferred tax liability by $2.1 million.   For the nine months ended September 30, 2010 IFRS adjustments were made to decrease share capital by $5.1 million, reduce retained earnings by $5.7 million as a result of the increase to deferred income tax expense, increase the liability account "Deferred premium on flow-through shares" by $1.7 million, and increase the deferred tax liability balance by $9.1 million.(l) Capitalized general and administrative costs:Under IFRS, the criteria for which general and administrative expenses ("G&A") can be capitalized are different than previous GAAP and as a result a greater portion of G&A costs have been expensed.  This resulted in an additional $1.5 million of G&A expenses for the year ended December 31, 2010 (three and nine months ended September 30, 2010 - $0.5 and $0.8 million, respectively).(m)  Cash flow statement:The transition from former Canadian GAAP to IFRS has had no material effect upon the reported cash flows generated by the Company.  For the nine months ended September 30, 2010, transaction costs of $0.6 million and general and administrative costs of $0.8 million were included in net income rather than capitalized and as such are now included in cash provided from operating activities.  These reconciling items between former Canadian GAAP presentation and the IFRS presentation have no net impact on the cash flow generated.     For further information: Tourmaline Oil Corp. Michael Rose Chairman, President and Chief Executive Officer (403) 266-5992; rose@tourmalineoil.com OR Tourmaline Oil Corp. Brian Robinson Vice President, Finance and Chief Financial Officer (403) 767-3587; robinson@tourmalineoil.com OR Tourmaline Oil Corp. Scott Kirker Secretary and General Counsel (403) 767-3593; kirker@tourmalineoil.com OR Tourmaline Oil Corp. Suite 3700, 250 - 6th Avenue S.W. Calgary, Alberta  T2P 3H7 Phone:  (403) 266-5992 Facsimile:  (403) 266-5952 www.tourmalineoil.com