Morningstar | Raising Our FVE for Tourmaline; Stock Looks Fairly Valued
After taking a fresh look at Tourmaline Oil’s fourth-quarter results, we are raising our fair value estimate to CAD 19 from CAD 16 based on our increased forecast for the company’s gas realizations. Despite the higher fair value, the stock looks fairly valued as the market appears to be appropriately pricing in the company’s future realizations. Additionally, we are maintaining our no-moat rating.As a reminder, Tourmaline reported fourth-quarter operating cash flow of CAD 392 million, which represents a 24% increase quarterly and was ahead of our expectations. The increased operating cash flow was driven by better-than-expected realized natural gas prices. Fourth-quarter realized prices averaged CAD 3.13 per thousand cubic feet, while the AECO benchmark price averaged CAD 1.57/mcf. Higher price realizations can be attributed to Tourmaline’s market access and hedging strategies, which offer much-needed relief in the market access constrained environment. However, price realizations compared unfavorably with U.S. natural gas pricing, which averaged CAD 5.20/mcf during the fourth quarter.
Tourmaline’s fourth-quarter production of 276.6 mboe/d fell below our expectations, though, but it represents 9% growth sequentially and 5% year over year. The lower-than-expected production was driven by rescheduled maintenance activities, transportation disruptions, and a third-party turnaround at the Saturn complex in the Deep Basin that plagued the company’s operations in the prior quarter.
Tourmaline Oil is engaged in the acquisition, exploration, development and production of petroleum and natural gas properties in the Western Canadian Sedimentary Basin.
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