Tourmaline Oil Corp.
(TOU-T) C$57.92
Q1 in-line; Special DPS and Future Payout Higher Than TD Est.
Event
Reports Q1/23 Results; Increases Base Dividend/Declares Special Dividend
Impact: SLIGHTLY POSITIVE
Q1/23 Production of 526 mBOE/d Met Consensus (524 mBOE/d) and TD (522 mBOE/d): As anticipated, liquids production was affected by the Pembina outage in February. CFPS of $3.28 was exactly in line with consensus and very modestly higher than TD’s forecast ($3.15).
Production and Capex Guidance Unchanged, but Incremental Quarterly Volume Disclosure Provided: Although current productive capacity is ~531 mBOE/ d, Tourmaline is guiding to Q2/23 sales volumes of 500-510 mBOE/d due to planned maintenance and its decision to direct ~8 mBOE/d into expanded storage that will be withdrawn and sold later to take advantage of seasonal/regional pricing opportunities.
Base Dividend Up; Special Dividend Higher Than TD Anticipated, Pushing RoC up to 100% of FCF: Tourmaline declared a base annual dividend of $1.04/ share (2% annualized yield), which is up 4% from the previous level ($1.00/share). Additionally, Tourmaline declared a Q2-payable special dividend of $1.50/share. This is well above our estimate of $0.94/share. Our estimate was based on the midpoint of Tourmaline’s previous payout range of 50-90% of FCF. However, with this release, the company signalled that it would distribute up to 100% of FCF in 2023.
Our View: Although it has not ruled out the possibility of share repurchases, we forecast that all of this will be returned in cash. Based on 100% of FCF, we estimate that shareholders could receive an annualized cash yield of 12% between the base and special dividends over the next 12 months. We view this slight change of policy positively as we believe that an eroding cash dividend in response to lower gas prices could alienate investors who were attracted to the cash yield TOU had offered. TOU’s negligible debt (0.2x YE-2023E D/CF), 4%/annum organic growth, and a robust dividend that is entirely funded with CF differentiate TOU’s RoC offering from some other high-yield Canadian gas companies.
TD Investment Conclusion
Tourmaline offers exposure to diversified natural-gas sales points including JKM pricing, significant cash yield framework, significant inventory, exploratory upside, and a top-tier management team.