Tourmaline Oil Corp (Alberta) T.TOU

RBC

[retiredcf]

Their upside scenario target is $100.00. GLTA

August 12, 2024

Outperform

TSX: TOU; CAD 60.73

Price Target CAD 80.00

Tourmaline Oil Corp. Adding Crew to the Portfolio

Our view: Tourmaline's acquisiton of Crew Energy fits the corporate playbook of adding resource at low points in the cycle, with this deal adding 2.7 Tcf + 86 mmbbl (2P) at a price that approximates our estimate of 1P NAV. We view the transaction positively, which continues to build the NE BC Montney fairway while positioning for higher prices. We update our estimates to reflect the acquisition resulting in our 2025 CFPS estimates increasing slightly on deal accretion. TOU remains on RBC's Energy Best Ideas List. .

Key points:

• Transaction summary. Tourmaline will issue 18.8mm TOU shares to Crew
shareholders and assume $240mm in debt, with total consideration
mapping to $1.3bn; the transaction is expected to close in early October
2024. The transaction includes roughly 30,000 boe/d of production (28%
liquids) and an estimated 700 Tier 1 locations across Crew's 220,000 acre
land base. Crew's Montney position is proximal to Tourmaline's existing
South Montney acreage.

• Transaction metrics. Metrics equate to roughly $45,000/boe/d, ~5.5x CF, $2.82/boe and the deal appears to be priced at roughly 1P NAV based on Crew's year-end reserve book at futures pricing. At current prices, the assets generate roughly $240mm in CF, of which the company expects roughly half to be FCF after the effect of maintenance capital (~$135mm) and will be slightly accretive to Tourmaline's per-share CF. Additionally, TOU noted roughly $600mm in potential synergies - with much of that due to marketing - coming in tandem with the deal.

• Guidance - Increased. Reflective of the transaction and the October closing date, Tourmaline's 2024 volume guidance increases to 582,500-592,500 boe/d (from 575,000-585,000 boe/d) while its 2024 budget increases to $2,050mm (from $2,000mm). TOU expects to hold CR's production flat at current levels (30 mboe/d) for the near term and will revisit post-close with Q3 update with Groundbirch in-focus.

• Asset Overview - NE BC Montney. The acquisition encompasses 341 net sections of Montney lands with 2.8 TCFe of 2P reserves booked and 238 Montney 2P drilling locations booked. Septimus/Tower has 180 mmcf/d (expandable: 200 mmcf/d) of capacity with 16 DUCs in H2/24. Groundbirch has 70,000 acres of contiguous land with 180 mmcf/d of permitted capacity (project timing TBD) with 85 permitted licenses. Asset specific curves are noted in Exhibit 4 and highlight improving condensate gas ratios ("CGR") on recent wells.

• Dividend Increase. Tourmaline increases its base dividend by 6% (now $1.40/sh annualized). This is in addition to the company's most recent increase (+3%) which was announced on its Q2/24 release. The company's base dividend now maps to a 2.4% yield and we forecast a $0.50/sh 2024 special dividend in each quarter.

• Updates to Estimates. Our 2024/25 production estimates have increased to the updated midpoint of guidance (+2%/+5%) resulting in a 0%/+2% adjustment to our 2024E/25E CFPS (RBC Deck) on +$50mm of EP capital