Morningstar | Tourmaline’s First-Quarter Operating Cash Flow Surpasses Our Expectations
No-moat Tourmaline Oil reported first-quarter operating cash flow of CAD 419 million, which represents a 7% increase sequentially and was ahead of our expectations. The increased operating cash flow was driven by better-than-expected realized natural gas prices. First-quarter realized prices averaged CAD 3.59/mcf, while the AECO benchmark price averaged CAD 2.64/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.Tourmaline’s first-quarter production of 293.4 mboe/d fell just below our expectations, however, but represents 6% growth sequentially and 9% year over year. The lower-than-expected production was driven by weather-related outages and unplanned interruptions at the Peace River operations.
Conversely, Tourmaline reiterated its 2019 full-year production target of 300 mboe/d. Thus far in 2019, the company has been producing in the 290-300 mboe/d range that it set out for the first half of 2019. Currently, the full-year target remains above our expectations, and we remain skeptical of the full-year target given the decline in Western Canadian gas prices. We expect gas realizations to decline while Western Canada faces pipeline constraints. Unfortunately for Tourmaline, over 80% of its production comes from natural gas, which will continue to drag on the company until TransCanada can expand its NGTL System.
We expect to incorporate the company’s fourth-quarter results into our model shortly, but for now we are maintaining our CAD 19 fair value estimate and no-moat rating.
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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