CIBCHave always had one of the lower targets at $70.00. GLTA
EQUITY RESEARCH
May 3, 2023 Flash Research
TOURMALINE OIL CORP.
Q1/23 First Look: In-line Print And Moving To 100% Free Cash
Flow Allocation To Shareholders In 2023
Our Conclusion:
Tourmaline reported Q1/23 headline metrics that were aligned with
expectations. The $1.50/sh special dividend comes in at the top end of our
expected range and the 4% dividend increase is also a sweetener. We
anticipate minimal estimate revisions to consensus given guidance for 2023
was maintained, and expect the shift towards 100% of free cash flow being
returned to shareholders is a welcome update. Our recent strip model
estimates free cash flow at ~$5.90/sh in 2023 for TOU, which aligns closely
with management’s updated forecasts at $5.88/sh. The stock is trading at
5.0x 2023E EV/DACF on strip and a 10% free cash flow yield versus gas-
weighted peers at 4.5x and 6%, respectively.
Key Points:
Headline metrics come in as expected for Q1/23. Cash flow of $3.28/sh
was in line with consensus at $3.27/sh, and slightly below our estimate of
$3.35/sh. Production volumes of 525.9 MBoe/d were above our estimate
(521.7 MBoe/d) and the Street (523.6 MBoe/d), primarily due to stronger
natural gas volumes, but offset by slightly weaker liquids volumes given a
previously indicated pipeline outage. Capital spending of $594MM was
slightly below our estimate ($598MM) and ahead of Street ($565MM).
Q2 production guidance moderated but should not come as surprise.
April volumes prior to injection at 531 MBoe/d is a strong rate, however
management indicated Q2 volumes are anticipated to be 500 MBoe/d to 515
MBoe/d, which compares as in line versus our estimate of 511 MBoe/d. This
screens as being lower than the consensus average for Q2 at 521 MBoe/d,
but we suspect many estimates in the average are stale.
Special dividend of $1.50/sh at the top end of our expectations. We were
anticipating a special dividend in the range of $1/sh to $1.50/sh would be
possible with Q1 results, and see the announcement as being a net positive.
Free cash flow allocation to shareholders shifting to 100% in 2023. The
4% dividend increase is modest, however management indicated it expects
to return 100% of free cash flow to shareholders in 2023, up from the
previous range of 50% to 90%. The company’s recent strip pricing estimate
for 2023 is largely unchanged at ~$6/sh, which should translate into
~$2.40/sh of special dividends remaining in 2023 based on the current
commodity price outlook.
Production and capital spending guidance unchanged. Tourmaline
maintained its all-in capital spending budget at $1.86B for 2023, which
compares to our estimate at $1.86B and consensus at $1.84B. Production
guidance of 520 Mboe/d to 540 MBoe/d was maintained (Consensus: 529
MBoe/d, CIBCe: 526 MBoe/d).