TD- $34 target price Tourmaline Oil Corp.
(TOU-T) C$24.82
Deal Supports Balance Sheet; Working on AECO
Diversification
Event
We are resuming coverage of Tourmaline following the close of its $281
million bought deal financing. The company issued 10.4 million shares at
$27.11/share. Our new estimates also reflect our updated commodity deck
(
TD Price Deck
), which we revised subsequent to the March 14
th
financing
announcement.
Impact – NEUTRAL
The leverage position of Tourmaline improves through our forecast
period. Based on our forecast, D/CF
is expected to contract through
2017 to 1.6x (as compared to the group of 2.5x). The liquidity position
should remain healthy with 50% of its $1.85 billion credit facility
available by the end of 2016.
Our CFPS estimates are down 22
% and 11% in
2016 and 2017,
respectively. The softer outlook
on CFPS is driven by our revised
commodity price assumptions, combined with marginal dilution from
the equity raise.
Tourmaline believes it can drive an incremental 15.0 mbbl/d of C5+
production if oil prices were to appreciate towards $50/bbl. This would
imply liquids volumes of about 40 mbbl/d as compared to our current
27.9 mbbl/d 2016 forecast.
The company has layered in additional hedges to help mitigate the
expected summer weakness around AE
CO pricing with an estimated
55% of gas production priced outside of the AECO hub this summer.
Although constructive on the Nymex outlook, we continue to see some
near-term headwinds surrounding th
e AECO market which we have
presented over the last couple of years. Today, we believe the dynamics
are unfolding as expected and beli
eve the AECO market will face some
near-term headwinds, followed by above normal volatility as the North
American infrastructure re-directions
continue to progress. We recently
highlighted our short-term concerns in our
All about the Basis
note.
Our production outlook
and capital spending for
ecast remain unchanged
and in line with Tourmaline's guidance of 200 mBOE/d and $775
million (including acquisitions).
TD Investment Conclusion
We reiterate our BUY recommendation. Our revised target price of
$34/share (down from $35) is a function of our lower cash flow outlook
(revised commodity price). A heal
thy balance sheet, strong capital
efficiencies and a quality asset portfoli
o are the foundation to the thesis.