TP&H 09:49 AM EDT, 07/16/2021 (MT Newswires) -- Tudor, Pickering & Holt on Friday reiterated its buy rating on the shares of Tourmaline Oil (TOU.TO) with a C$44.00 target price after the Western Canadian natural-gas producer said it will no longer make big acquisitions and renewed its share buyback program through a normal-course issuer bid (NCIB).
"We expect the update to be positive for shares, with the renewal of the NCIB a signal that shareholder returns are shifting towards the forefront in the capital allocation framework, in our view, as large-scale M&A is signaled as in the rearview despite an accretive track record of M&A over the past couple of years," the investment bank said in a note. "Additionally, with the closing of the Black Swan transaction, TOU entered into a C$145MM GORR on acquired volumes (50mboepd, growing to 60mboepd H1'22 with the plant expansion completed) as well as the 2,400 boepd tuck-in acquired from POU CN (C$88M) to block up the Aitken area (105 T1 locations in addition to PDP), in-line with recent transactions with TPZ. Outside of the transactions, the inked gas marketing deal with Cheniere is sure to garner interest, with the company locking up 140mmbtu/d on a 15-year term beginning in January 2023 for JKM-linked pricing; on our math, ~$4.36/mmbtu in fixed costs, inclusive of tolls, firm transport, and shipping to Asia, we expect a healthy pricing uplift for volumes, but the transaction also builds on the strategy of supplying feedgas for other LNG projects. On the NCIB, while we don't expect the company to be active in the very near-term, we expect an update in H2'21 on the company's capital return strategy, with the 5% NCIB sure to be a piece of the framework in 2022, in our view, albeit still leaving a healthy amount of free cash for further allocation at ~C$500MM vs. our 2022 forecast free cash flow of ~C$1.8B on strip pricing (16% FCF-to-EV with nil leverage)."
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