TOURMALINE OIL CORP. Q4/23 First Look: Revised 2024 Spending Plans Yield Similar
Liquids Volumes Versus Prior Guide
Our Conclusion
We take this as a characteristically strong update out of Tourmaline, which
we believe should be supportive for the share price. Positive points include: a
6% cash flow beat versus consensus for Q4/23; 2024 capital spending
revised 9% lower yielding a 2.5% lower production that primarily impacts
2024 gas volumes; a 7% increase to the base dividend; and a $0.50/sh
special dividend announced for Q1/24. The stock currently trades at 6.3x
2024E EV/DACF and a free cash flow yield of 5% versus peers at 5.5x and
1%, respectively.
Key Points
Cash flow comes in better than expected for Q4/23: Cash flow of
$2.62/sh beat our estimate of $2.51/sh and Street at $2.48/sh. Production
volumes of 557 MBoe/d were slightly above our production estimate of 554
MBoe/d and in line with consensus of 557 MBoe/d. Capital spending of
$636MM was also in line with Street at $630MM.
Capital efficiencies were competitive in 2023: PDP, Proved (1P), and
Total (2P) reserve additions were added at a finding, development, and
acquisition (FD&A) cost of $8.94/Boe, $10.71/Boe, and $9.80/Boe. This
drove recycle ratios of 2.2x, 1.8x, and 2.0x, respectively, versus Tourmaline’s
2023 funds flow netback of $19.52/Boe. This screens well versus the gas-
weighted peer average of 2.0x, 1.7x, and 1.9x, respectively. On the evaluator
price deck, 2P NAV, net of debt, is down 19% to $116.48/sh, but still
demonstrates considerable resource value versus the current share price.
PDP NAV, net of debt, is $44.70/sh.
2024 capital spending guidance reduced by $220MM: Capital spending
was guided to $2,130MM from $2,350MM prior, versus our estimate of
$2,350MM and Street at $2,325MM. The spending revision includes reduced
exploratory drilling capital of $40MM along with a reduced rig count and
deferral of select facility projects. Production was guided to a midpoint of 585
MBoe/d (1.49 Bcf/d of gas), down from 600 MBoe/d (1.57 Bcf/d of gas) prior.
Positively, liquids production guidance of 144 MBbl/d was ahead of TOU’s
original forecast of 143 MBbl/d due to strong Montney well performance in
NEBC. We are forecasting 605 MBoe/d for 2024 (141 MBbl/d liquids), versus
Street at 602 MBoe/d (139 MBbl/d liquids). We note the 2025 program has
also been reduced by 15 MBoe/d, on similar spending to prior of $2.5B.
Special dividend of $0.50/sh announced in addition to 7% base dividend
increase: The special dividend of $0.50/sh is at the top end of our prior
expectations and we believe likely to be taken favourably. Tourmaline also
increased its base dividend to $1.20/sh annually ($1.12/sh prior) and
maintained its guidance for quarterly special dividends through 2024.