Our view: Tourmaline’s Q3/21 results were slightly ahead of the Street, with the company remaining well positioned as 2022 shifts into sharper focus. In our view investors' focal point remains on return-of-capital strategies, with our outlook continuing to point to meaningful FCF, special dividends and buybacks through 2022. Tourmaline remains a top idea and continues to be featured on our Global Energy Best Ideas List.
Key points:
Q3 results - ahead of Street. Q3/21 production of 456,489 boe/d vs. RBCe 452,606 (Street 458,382 boe/d) and drove CFPS of $2.32 vs. RBCe $2.24 (Street $2.24). Liquids mix of 22% was as expected, driving a liquids figure of 98,743 bbl/d. Royalties and transport expense came in slightly better than expected; see Exhibit 1 for further details. Capital investment of $446 million (incl. cap. G&A) was in line with our expectation of $430 million.
FCF outlook – positioned to generate $2.6 billion in FCF next year. Based on our updated estimates, we now see TOU generating roughly $2.6 billion in FCF during 2022, corresponding to an approximately 18% FCF yield at the RBC price deck (19% at strip). Our outlook also calls for roughly $4/share in special dividends to be distributed through 2022, alongside two increases to the company's base common dividend (to $0.96/share annualized by Q4/21).
Operations - in good shape. Key operational highlights are noted in Exhibit 1 and include: (1) drilling 87 net wells; (2) stimulating and bringing on production 77 net wells; and (3) Gundy Phase 2 which is expected to be commissioned late Q4/21. Importantly, the company continues to maintain substantial exposure to US markets, with 445 mmcf/d set to be pointed to California by end-2022 (345 mmcf/d currently), plus another 150 mmcf/d to the GC market by end-2022, (becoming JKM index exposure in January 2023 - see our note here). The company has roughly 33% exposure to AECO pricing through 2022.
Balance sheet - solid. The company’s balance sheet remains solid, with a 2021E D/CF ratio of 0.3x (peers: 1.4x). On our updated estimates, we project net debt of $0.9 bn by year-end 2021 (vs. TOU's long-term target $1-1.2 bn), with ~16% drawn (including working capital items) on the company’s $2.8 billion credit facilities.
Q3/21 Conference call. Thursday, November 4, at 9:00 a.m. MT (11:00 a.m. ET) | 1-888-664-6383| ID 15212375.