TOURMALINE OIL CORP.
Q2/23 Recap: South Montney Growth Project Offers Future
Catalyst Our Conclusion
We have updated our model expectations for Tourmaline following its Q2/23
results. Although we take the recent wildfire-related weakness as a transient
issue, our cash flow and production expectations for the balance of 2023
move lower. While details are limited at the current time, we are also
intrigued on the company’s new growth project in the South Montney. We
expect Tourmaline will provide a more detailed budget for 2024 at some
point this fall, and expect future special dividends could be of similar
magnitude to the $1/sh announced in conjunction with Q2/23. We slightly
increase our price target to $77/sh from $75/sh prior, based on 7.0x 2024E
EV/DACF on our commodity price deck.
Key Project Updates:
South Montney project unveiled: TOU acquired 28 gross (15 net) sections
of land in an undisclosed region for $25MM which adds 135 Montney drilling
locations. The company also spent $32.5MM in Q2/23 on acquisitions “which
facilitate future expansions of operated gas and liquids processing capacity
in the South Montney”.
North Montney: The 100 MBoe/d development will see initial spending
begin in 2024, with first production expected in 2025. New permits received
in 2023 have totaled 97, including with new surface disturbance permits.
Exploration program: Tourmaline indicated that it has drilled 17 successful
wildcat wells over the past three years, including two in July 2023.
Management indicated that some of the older discoveries are factored into
the long-term growth plan, but additional new pool developments will be
incorporated into the next update of the plan, which we believe is likely to
accompany formal 2024 guidance in the fall.