Tourmaline Oil Corp (Alberta) TRMLF

RBC 3

[retiredcf]

Their upside scenario target is $100.00. GLTA

March 7, 2024

Tourmaline Oil Corp.
Q4/23 Results - Course Management

Outperform

TSX: TOU; CAD 63.06

Price Target CAD 80.00

Our view: Tourmaline's Q4/23 results were slightly ahead of Street expectations and featured an 11% increase to 2P reserves, driven largely by the acquisition of Bonavista Energy. Capex and volumes were trimmed for 2024, though notably the liquids profile remains static on better well performance in the BC Montney (natural gas was revised down). Our 2024 estimates are largely unchanged, as margin improvements offset the lower volume outlook. TOU remains on RBC's Energy Best Ideas List.

Key points:

• Q4 results - slightly ahead. Q4/23 production of 556,957 boe/d (24% liquids) compared to RBCe at 556,180 (Street: 556,600 boe/d) and drove AFFO of $2.62 slightly ahead of our estimate of $2.59/sh (Street: $2.48/ sh). Capital investment of $636 million compared to Street expectations at $630 million as $282 million in FCF was generated in the quarter. Margins were better than expected, largely on a higher liquids weighting than forecast as detailed within Exhibit 1.

• Dividend +7%, $0.50/share special. The company increased its base dividend by 7% to $1.20/sh (annualized, from $1.12/sh) and announced a $0.50/sh special dividend to shareholders of record on March 14, 2024.

• Guidance-trimmedongasprices.2024guidancewasrevisedat580-590 mboe/d on $2bn of EP capital from 600 mboe/d at the midpoint on $2.15bn of capital spend, resulting in +5% YoY growth and $1.1 billion in FCF (though the reduction was driven by gas, as liquids were largely static). The 5-year plan was also updated and details the company now reaching 715,000 boe/d by 2028 (previously 720,000 boe/d). 2024 reductions include rig count and deferral of select exploration and facility projects.

• Reserves +11%. TOU’s 2P reserve book increased by 11% to 5,008 mmboe (2022: 4,500 mmboe), while PDP reserves also increased by 20% to 1,204 mmboe. The Bonavista acquisition (see more - here) was the main driver of reserve adds. 2P reserves were added at an FD&A cost of $9.80/boe (2022: $10.59/boe), which when combined with field netbacks of $19.80/boe yields a respectable recycle ratio of 2.0x.

• Operations remain in good shape. Recent operational highlights include (1) The company now expects to drill ~271 net wells in 2024; (2) The Horse 10-26 three well Wilrich C pad tested 29.3 mmcf/d over a 70 hour test in January; (3) The Kakwa 10-2 three-well Wilrich pad had a rate of 20 mmcf/d over a 112 hour test period and brought onstream in February; (4) The Caroline 16-35 two-well Glauconite pad had an average IP30 of 5.1 mmcf/d and 166 bbl/d of liquids; (5) Tested two down-dip Glauconite wells (7.7 mmcf & 946 bbl/d liquids; 8 mmcf/d & 2020 bbl/d liquids) over a 134 hour flow test (now onstream) and IP7; (6) Drilled its first monobore design within the Glauconite which it expects to reduce drilling costs by 15-20%. For more details on the Montney please see our report here.