Have an $82.50 target. GLTA
TOURMALINE OIL CORP.
Q3/23: Solid Print And 2024 Budget Largely As Expected
Our Conclusion
Tourmaline reported Q3/23 results, with production slightly above
expectations while cash flow topped estimates. The company provided an
updated five-year plan that demonstrates a stronger free cash flow outlook
than prior, which we take as a positive. Management is estimating ~$2.2B in
FCF in 2024 under recent strip pricing, which computes to ~$6.15/sh.
Tourmaline indicated that cash flow will largely be returned to shareholders
through quarterly special dividends in 2024, as expected. The slightly higher
spend for 2023 and 2024, combined with a slightly leaner production outlook,
could be a minor drag on Street cash flow assumptions, but we see that
offset by a stronger free cash flow outlook. On recent strip, the stock is
trading at 2024E EV/DACF of 5.9x and a FCF yield of 8%, versus large-cap
peers at 4.9x and 13%, respectively.
Key Points
Headline metrics ahead of consensus. Production of 503 MBoe/d was
slightly above our estimate of 501 MBoe/d and Street at 500 MBoe/d. Cash
flow of $2.54/sh came in ahead of our estimate of $2.46/sh and consensus of
$2.42/sh. Capital spending of $565MM was below our estimate of $588MM
and consensus of $572MM. Tourmaline increased 2023 capital spending by
$150MM to $1.825B to reflect additional spending on the Bonavista assets,
inflation of 5%, and accelerating capital into Q4/23 from Q1/24.
2024 budget largely as expected, but likely screens conservative
versus expectations. Tourmaline announced a 2024 total capital budget of
$2.35B, slightly above our estimate of $2.28B and consensus of $2.23B.
Production guidance of 600-610 MBoe/d (midpoint 605 MBoe/d) is lighter
than our estimate of 614 MBoe/d and consensus of 610 MBoe/d. The top
end of guidance at 610 MBoe/d is largely aligned with estimates, which
increased due to the recently acquired Bonavista volumes (60 MBoe/d). The
company also increased its net debt target by $200MM to $1.2B-$1.4B pro
forma the Bonavista acquisition, which we still see as conservative.
Updated five-year plan defers Conroy Phase 2 by a year; however, free
cash flow outlook improves versus prior iteration. Tourmaline indicated
that the deferral allows the company to optimize facility spending and
enhances free cash flow generation in 2026-2028. The company also plans
to build a new facility on the recently acquired Bonavista assets that it
expects will add 15 MBoe/d of production in 2025/2026. The shift is in
anticipation of a tailwind for Western Canadian natural gas prices concurrent
with the commissioning of LNG Canada Phase 1.
New joint venture intriguing, but very early days. Tourmaline has joined
the NeeStaNan venture which aims to create a multi-product utility corridor
from Alberta to Manitoba, with the goal of having an electrified LNG facility
on Hudson Bay.