Have a $72.50 target. GLTA
Q4/23 Recap: Free Cash Flow Outlook Intact For 2024 Our Conclusion
We have updated our model expectations for Tourmaline following its Q4/23
results. The impact of reduced natural gas production through 2024 drives a
minimal change to our cash flow estimate but we have fine-tuned our liquids
mix assumptions to more tightly align with guidance, which sees 2024E cash
flow move 2% lower. Our free cash flow estimate revision is positive, by
$150MM in 2024, with Tourmaline generating ~$3.60/share of free cash flow
this year. We expect the vast majority of free cash flow to be allocated to
shareholders in 2024, with modest debt reduction towards the company’s
targeted range of $1.2B-$1.4B. We estimate future special dividends could
be of similar magnitude to the $0.50/share announced in conjunction with
Q4/23 results given the available free cash flow following our estimate
revisions. Given the minor change to our cash flow expectation and positive
outlook for gas pricing in 2025, we maintain our price target of $72.50/share,
based on a 7.6x 2024E EV/DACF multiple, which is up from 7.3x prior.
Key Points
Revisions to our production mix assumption drive cash flow slightly
lower, with minimal impact from lower gas volumes: Based on our
capital spending assumption of $2,125MM, we model free cash flow of
$1.28B, which is up from our prior estimate of $1.13B. This computes to
$3.60/share in free cash flow for 2024E. With a base dividend of $1.20/share
and a recently announced $0.50/share special dividend, we estimate
$1.90/share of remaining special dividends or further debt reduction for the
balance of 2024. Under its revised spending plan, Tourmaline expects to add
50 drilled but uncompleted (DUC) wells, which will provide the capacity to
quickly ramp up production should commodity prices improve.
2025 outlook also moderated: We have adjusted our forward profile for
2025 to better align with new guidance from Tourmaline, which similarly
contemplates a 15 MBoe/d reduction in production volumes.
Deep Basin successes highlighted from the 2023 program: Tourmaline
indicated that it had delivered several pads above type-curve in the Deep
Basin, including on the acquired Bonavista lands. The company indicated
that it drilled its first monobore well design in the Glauc trend, which utilizes a
consistent casing diameter throughout the length of the well. This well design
has been found to reduce cost and well construction time, which Tourmaline
indicates could reduce its drilling costs by 15%-20%.
Low water intensity will likely be beneficial in the event of water
availability restrictions: Tourmaline ranks as having the lowest fresh water
intensity in its peer group, and indicated that its water storage and recycling
facilities could be beneficial in the event of water restrictions later in the year.