Tourmaline emerges as fastest-growing producer in the oilpatch with $1.1B acquisition of Black Swan

Tourmaline emerges as fastest-growing producer in the oilpatch with $1.1B acquisition of Black Swan

Chris Varcoe: The consolidation continues because the monetary fortunes of pure fuel producers have reversed over the previous yr

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Canadian pure fuel costs are heating up this spring and so is the tempo of deal-making within the sector.

Tourmaline Oil Corp., already the nation’s largest fuel producer, introduced Friday it acquired privately held Black Swan Power Ltd. in a deal valued at $1.1 billion.

It’s one other key buy for Tourmaline because it continues to gobble up prime fuel property, and it comes whereas mergers and acquisitions have swept by the hard-hit sector.

By the center of subsequent yr, Tourmaline CEO Mike Rose sees the corporate’s whole manufacturing topping 500,000 barrels of oil equal (boe) per day, up from expectations of exiting this yr at 430,000 boe per day.

“We’re well-positioned with a robust steadiness sheet and have accomplished now six transactions by 18 months, both within the Alberta Deep Basin (play) or the B.C. Montney,” Rose mentioned in an interview Friday.

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“These are Canada’s two finest and most worthwhile fuel performs and the place our largest presence is.”

The all-stock deal for Black Swan, which is partly owned by the Canada Pension Plan Funding Board, Warburg Pincus LLC and Azimuth Capital Administration, will see Tourmaline assume as much as $350 million in debt.

It should add greater than 50,000 boe per day to Tourmaline’s total output, and it represents the Calgary-based firm’s largest acquisition because it acquired shale oil and fuel property from Royal Dutch Shell nearly 5 years in the past for $1.4 billion.

Extra considerably, the brand new deal permits Tourmaline to proceed consolidating property within the north Montney area in northeast British Columbia.

Based in 2008, Tourmaline snapped up 50 per cent of the north Montney property of Saguaro Sources Ltd. in April for $205 million, whereas inking a three way partnership settlement with the smaller firm to develop the properties.

Within the Black Swan transaction, Rose expects the acquired property will develop by one other 10,000 bpd within the first half of subsequent yr, serving to propel Tourmaline’s whole manufacturing to the half-a-million boe per day mark, cementing its place as one in all Canada’s largest and fastest-growing petroleum producers.

“You might be placing high-quality property within the palms of what the market views as a consolidator,” mentioned Robert Fitzmartyn, head of power analysis at Stifel FirstEnergy.

“This doesn’t solely reinforce Tourmaline Oil as a North American power inventory, but it surely’s rising on a worldwide scale now.”

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Tourmaline expects the acquired property to pump out $150 million to $200 million a yr in free money circulation at present fuel costs and it additionally introduced Friday a dividend enhance.

“We simply continue to grow effectively (to) keep that low price,” added Rose.

“The truth is we discovered how one can be worthwhile at $1.75 fuel by having such a low-cost construction. So now, it’s slightly nicer when fuel is within the $2.75 to $3 vary. That’s why we will generate a lot free money circulation.”

Buyers welcomed the information as Tourmaline inventory, which has climbed 90 per cent this yr, closed Friday at $33.25 on the Toronto Inventory Change, up $2.55 on the day.

“It’s simply the robust getting stronger,” mentioned Jordan McNiven, a director with Tudor Pickering Holt & Co.

“It’s good for the resilience of the Canadian fuel business and good for Tourmaline.”

That is the newest takeover throughout the Canadian pure fuel business, highlighted by ARC Sources Ltd. shopping for Seven Generations Power Ltd. in February, making a a lot bigger mixed firm with an enterprise worth of $8.1 billion.

Final November, Tourmaline introduced two separate takeovers on the identical day, buying Jupiter Sources and Trendy Sources in offers valued at greater than $750 million.

The consolidation continues because the monetary fortunes of pure fuel producers have reversed over the previous yr, with greater commodity costs and rising demand for liquefied pure fuel exports from the U.S.

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Earlier this week, the U.S. Power Data Administration projected benchmark pure fuel costs will common US$3.07 per million British thermal models (mmBtu) in 2021, up from $2 final yr.

In Western Canada, benchmark AECO spot costs sat at US$1.40 per mmBtu a yr in the past, however are projected to common about $2.50 for this summer time, earlier than heading greater to round $2.75 within the fall, in response to power consultancy IHS Markit.

U.S. pure fuel costs elevated Friday to shut at $3.30 per mmBtu.

“These are the best summer time costs since 2014,” mentioned Ian Archer, affiliate director of North American pure fuel for IHS Markit.

“That is basically a giant boon for these guys. They’re lastly seeing higher costs and eventually seeing higher days … It’s a dramatic change.”

Lately, the Canadian fuel business has been dogged by stubbornly low costs, competitors from rising U.S. output and infrastructure bottlenecks.

Lots of these complications have subsided. The phasing out of coal in electrical energy era has additionally elevated demand for pure fuel in Alberta.

Whereas there stays some threat that enhancing pricing will coax North American fuel producers to spend extra on drilling and bump up manufacturing later this yr, there’s additionally an opportunity a scorching summer time or chilly winter will increase continental demand and push costs even greater, Archer added.

With enhancing business economics, count on to see extra M&A exercise from producers with robust steadiness sheets that need to broaden, mentioned analyst Phil Skolnick with Eight Capital.

“It’s just the start. There’s a good quantity left to be accomplished within the Montney,” Skolnick mentioned.

“A part of the purpose of doing this M&A is to realize extra relevancy. The larger you get … the extra consideration you will get from traders.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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