CIBC$75.00 now seems to be the consensus target. GLTA
EQUITY RESEARCH
November 6, 2024 Flash Research
TOURMALINE OIL CORP.
Q3/24 First Look: Solid Quarterly Metrics, With Capital
Spending Outlook Fine-tuned Slightly Higher
Our Conclusion
Tourmaline reported third quarter metrics that beat consensus estimates.
The company’s 2024 and 2025 guidance features slightly higher capital
spending than estimates, which could be a grind to consensus free cash flow
numbers, but we expect provides added conservatism. The five-year plan
updates were generally consistent with the prior outlook, but exclude three
projects that are expected to be incorporated into the plan during 2025 which
could offer additional growth catalysts. Tourmaline trades at a 2025E
EV/DACF of 5.7x and FCF yield of 6%, versus gas-weighted peers at 4.0x
and 5%.
Key Points
Q3/24 headline metrics were better than consensus. Production of 557
MBoe/d was slightly above our estimate of 556 MBoe/d and consensus of
554 MBoe/d. Cash flow of $2.09/sh was slightly below our estimate of
$2.12/sh and above consensus of $2.04/sh. Capital spending of $591MM for
the quarter was below our estimate of $640MM and consensus of $601MM.
2024 guidance fine-tuned. Management guided to a Q4/24 production
average of 600 to 620 MBoe/d, which is below consensus at 635 MBoe/d.
The lower range is due to turnaround activity initiated in October due to lower
gas pricing. E&P capital spending was adjusted higher by $50MM from prior,
with Tourmaline also announcing it will acquire Todd Energy Canada for
$300MM. 2025 budget largely consistent with previous messaging.
Production guidance of 635 to 665 MBoe/d in 2025 (mid-point of 650 MBoe/d) is in line with our estimate and consensus of 649 MBoe/d. The total capital budget for 2025 was set at a range of $2.85 Billion to $3.1 Billion, above our estimate of $2.77 Billion and consensus of $2.74 Billion. Management also outlined a net debt target of $1.5 Billion in the business.
Growth options at Groundbirch, West Doe, and North Montney are
incremental to the new five-year plan. Tourmaline’s five-year plan is
generally similar to the prior outlook, with slightly higher E&P capital
spending in each year (+$110MM across most years). Free cash flow
expectations are lower than the prior outlook with lower commodity pricing.
Special dividend consistent with expectations. Tourmaline announced a
$0.50/sh special dividend, which is in line with our expectations.
Management guided to $3.31/sh of free cash flow for 2024, which results in a
100% payout on the year through a balance of special and base dividends.
Free cash flow in 2025 and 2026 was indicated at ~$3/sh on the new plan.