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Energy Company 'Shaking Things Up With Royalty, Infrastructure Spinout'

Streetwise Reports, Streetwise Reports
0 Comments| October 17, 2019

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The transaction details are relayed in a CIBC report.


In an Oct. 10 research note, CIBC analyst Dave Popowich reported that Tourmaline Oil Corp. (TOU:TSX) intends to spin out, into a new private royalty and infrastructure company called Topaz Energy, a gross over-riding royalty interest across its properties plus a nonoperated 45% working interest in two of its gas plants.

In exchange, Tourmaline will receive CA$135–185 million in cash and retain a 75–81% equity share of Topaz. Existing Tourmaline staff members will manage the new entity under a contract. "Topaz expects to seek a public liquidity event in H1/20," Popowich indicated. "The company will initially pay out about 75% of its expected $90 million of annual revenue."

Popowich commented that the "transaction allows Tourmaline to monetize a fairly low-risk portion of its cash flow base while retaining some upside in an investment vehicle that should value it at a higher multiple in the public market." Previously, management indicated several times that its infrastructure has consistently been undervalued in the past.

The expected changes to CIBC's estimates on Tourmaline as a result of the transaction are minimal, Popowich noted, and no major impacts to the investment thesis are predicted in the short term. However, that could change, he added, were Tourmaline "able to use Topaz as a platform to roll up additional royalty and/or facility interests in a basin that is clearly ripe for consolidation."

Looking to this winter, AECO and/or NYMEX prices should improve, thus benefitting this Canadian gas-weighted energy firm, the analyst wrote.

CIBC has an Outperformer rating and a CA$25 per share target price on Tourmaline, whose stock is currently trading at around CA$12.06 per share.

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from CIBC, Tourmaline Oil Corp., October 10, 2019

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analysts employed outside the U.S. are not registered as research analysts with FINRA. These analysts may not be associated persons of CIBC World Markets Corp. and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Tourmaline Oil Corp. (TOU)

· CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Tourmaline Oil Corp. in the next 3 months.

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