Q2/24 IN-LINE; RIG ADD SURPRISING, BUT NOT IRRATIONAL
THE TD COWEN INSIGHT
TOU's decision to add an incremental rig for the next year is curious. Although the reaction of some will be that this could add incremental supply to an already saturated market, we suggest that this is a prudent and calculated decision by Canada's largest gas producer who is looking beyond YE-2024.
Event: Reports Q2/24 Results; Bumps Base Dividend; Reduces 2024 Production Guidance Slightly; Adds a Rig
Impact: NEUTRAL
Q2/24 Headline Data Points as Expected: Q2/24 production averaged 561.8 mBOE/d. This was in line with TD (566.8 mBOE/d) and consensus (564.7 mBOE/d). CFPS of $2.12 was also in line with TD ($2.12) and consensus ($2.09).
No Capex Cut, but Deferring Tie-ins from Q3/24 into Q4/24 (Potential Tailwinds into 2025):
Tourmaline maintained its FY-2024 capital budget, but nudged down FY-2024 guidance to reflect the deferral of some well completions from Q3/24 into Q4/24. The net result is an immaterial ~5 mBOE/d (~1%) reduction in FY-2024 production guidance. This is likely to provide volume tailwinds into 2025, which should benefit from higher-demand associated with the expected startup of LNG Canada.
Plans to Add Another Rig Next Year: Tourmaline announced that it intends to add another rig (to 15, from 14) through H1/25. The company partly attributed the decision to its
ability to capitalize on lower drilling costs and improved drilling times. Although the 2025 volume figure (620 mBOE/d) in the five-year plan is unchanged, the company suggested this provides capability to exceed this. We believe there are incremental capital costs associated with completions, but those would be partially offset by drilling efficiencies.