Q1 AS EXPECTED. GUIDANCE UNCHANGED. DIVI UP.
THE TD COWEN INSIGHT
Tourmaline is one of our top picks in the Canadian natural-gas space given its industry- dominant position, large Montney growth potential, global-market exposure, near-term FCF, and low debt. We believe Tourmaline should be a core Canadian energy holding. The quarter was as expected, with no material revisions to our outlook through 2025.
Event: Tourmaline reports Q1/24 results Impact: SLIGHTLY POSITIVE
First Quarter Results as Expected: Q1 production averaged 592.1 mBOE/d, which was in line with both TD (589.8 mBOE/d) and Consensus (592.4 mBOE/d). CFPS of $2.45 also met TD expectations ($2.39) and Consensus ($2.44).
Base Dividend Nudged Higher (Again): With Q1 results, Tourmaline increased its base dividend 7% to $0.32/q (from $0.30/q). This follows a series of base dividend increases - up from $0.30/shr in Q1/24, $0.28/sh in Q4/23, $0.26/sh in Q3/23, $0.25 in Q1/23. The special dividend was unchanged from the prior quarter at $0.50.
Our View: We forecast the base dividend will consume 33% of H2/24E FCF. This leaves ample FCF available to pay TD-estimated H2 special dividends totaling $1.07/shr (assuming 85% of FCF is returned to shareholders) and reduce debt to $1.6 billion by YE-2024E (YE-2024E D/CF 0.5x).
2024 Capex and Production Guidance Unchanged: After minor tweaks with Q4 results
in March, the company's 2024 budget remains intact. TOU did make upward pricing/CF revisions to its 5-year plan to reflect updated strip pricing since March 6th (primarily on higher liquids and JKM pricing). Looking ahead, we anticipate Q2 volumes to atrophy slightly to ~560-570 mBOE/d, which includes planned facility maintenance and 7 mBOE/d of gas injected into storage (to be withdrawn/sold later in a higher price environment).
Sells Duvernay Assets Acquired with Bonavista: In line with its previously articulated intentions, the company announced it divested the Duvernay production (~1.7 mBOE/
d) and acreage it had acquired with Bonavista. The company fetched ~$53mm for the asset. Neighboring operators include Paramount (POU-T; not covered), Baytex (BTE-T), and Spartan Delta (SDE-T). Although not material to Tourmaline, there may be implications for the smaller buyers who are building land positions in the region.