Have an $80.00 target. GLTA
TOURMALINE OIL CORP.
Acquisition Of Crew Energy And Dividend Increase Announced
Our Conclusion
We see the acquisition of BC Montney producer Crew Energy (CR-CN, not
covered) as a being a logical strategic move for Tourmaline. The acquisition
establishes Tourmaline with a material land position in the South Montney
region of BC, with meaningful opportunity for future free cash flow accretion,
and development upside that should benefit from Tourmaline’s scale and
expertise. The total consideration paid of $1.3B implies an acquisition price
of 5.6x based on 2025 disclosed cash flow from the Crew assets, which is
roughly in line with our recent trading metric for TOU of 5.3x 2025E on strip
pricing. The acquisition will consolidate 700 tier 1 Montney locations, provide
greater than $0.6B (NPV 10%) of acquisition synergies, and is expected to
add >$200MM to 2025 free cash flow. The company also announced a 6%
increase to the base dividend in conjunction with the deal.
Key Points
Deal metrics. The acquisition price of $1.3B computes to a 2025E cash flow
metric 5.6x which is aligned with Tourmaline’s 2025E EV/DACF trading
multiple of 5.3x on strip. The assets comprise 341 net sections of Montney
land and 700 tier 1 Montney drilling locations along with 30 MBoe/d of
production (20% crude oil and condensate).
Expected synergies are substantial. Tourmaline expects pro-forma 2025
free cash flow to increase by ~$245MM. Included in this are synergies in
marketing, drill and complete costs, and corporate costs with a total NPV10
of $600MM or ~46% of total deal value. Crew also holds ~$900MM in tax
pools which will be beneficial for Tourmaline.
2024 production and capital expenditures guided higher. The company
increased its production guidance to 582.5 MBoe/d – 592.5 MBoe/d from 575
MBoe/d – 585 MBoe/d prior, which compares to our estimate of 581.4
MBoe/d and Street at 579.1 MBoe/d. Capital expenditure guidance was
increased by $50MM to $2,050MM to account for planned expenditures on
the acquired lands in Q4/24 compared to our estimate at $2,095MM and
Street at $2,107MM.
Acquisition accompanied by 6% base dividend increase. The company
announced a 6% increase to the quarterly base dividend, moving to
$0.35/sh from $0.33/sh prior. Tourmaline expects that upon completion of the
Groundbirch development out of the acquired assets, its free cash flow will
be increased by $350MM – $400MM or ~$1 per pro forma share, which will
be directed towards further increasing cash distributions to shareholders.