Tourmaline Oil
CANADA
Sweet Tourmaline – Good times never seemed so good Deep Basin/Peace River Arch focused mid-cap producer
TOU CN Price (at 20:00, 10 Sep 2013 GMT) Valuation
Outperform C$43.24 C$
54.00
12-month target C$ 12-month TSR % GICS sector Market cap C$m Market cap US$m 30-day avg turnover C$m Number shares on issue m
54.00 +24.9 Energy 7,964 7,690 13.4 184.2
- 10.7x 2014 EV/DACF
Investment fundamentals Year end 31 Dec Revenue Reported profit Gross cashflow CFPS CFPS growth PGCFPS Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV
2012A 2013E 2014E 2015E m m m C$ % x C$ % % % x % x
415.1 16.9 280.3 1.63 nmf 26.6 0.00 0.0 1.3 0.6 27.0 13.2 2.8
824.4 1,280.4 1,562.5 177.5 291.0 395.5 601.2 947.1 1,186.0 3.18 4.93 6.17 95.6 54.8 25.2 13.6 8.8 7.0 0.00 0.00 0.00 0.0 0.0 0.0 7.1 9.5 11.6 6.0 8.7 10.7 12.8 8.6 7.0 15.5 12.8 4.1 2.6 2.4 2.1
Source: FactSet, Macquarie Research, September 2013 (all figures in CAD unless noted)
Tourmaline Oil (Tourmaline) is an intermediate gas producer whose primary operations are located in the Alberta Deep Basin and the Greater Peace River Arch areas of Alberta and British Columbia (BC). The company began operations in the fall of 2008, and through a series of strategic acquisitions, farm-ins and land acquisitions, it has emerged as a ~C$8.0bn market-cap E&P company. The company’s core strategy is to build an extensive asset base over two to three core areas through an aggressive exploration, development, production and acquisition program.
Proven management team with access to capital Tourmaline Oil is led by essentially the same team from Duvernay Oil (sold to Shell in 2008 for C$5.9bn) and Berkley Petroleum (sold to Anadarko for C$1.6bn in 2001). Michael Rose leads the team as Chairman, President & CEO and has over 30 years of experience in the oil & gas industry. Management and directors own ~26% of the basic and ~31% of the fully-diluted shares outstanding. Through a large number of equity raises and acquisitions, the company has raised C$2.9bn in total gross proceeds including C$364m from insiders of the company.
Extensive Drilling Inventory Tourmaline has the largest land position with 1,950 gross sections in the Alberta Deep Basin and is the fifth-largest Montney producer in Western Canada with production of more than 30,000boe/d. The company also boasts a drilling inventory of over 3,200 vertical locations, 3,750 horizontal locations in the Deep Basin, 550 locations in northeast BC and 1,000 locations in the Peace River High Charlie Lake region.
Initiating coverage with C$54.00 target and Outperform rating We are initiating coverage of Tourmaline Oil with an Outperform rating and C$54.00 target. Certainly, our investment call on Tourmaline is not much different than consensus, as we concur with much of the positive investment theses on the stock: 1) above-average production growth profile relative to its peers, 2) free cash flow generating abilities under a higher gas price environment, and 3) management’s execution abilities. Where we differ is that our 2014/2015 decline rates are at +38% per annum, which results in higher maintenance capital during those periods. Nevertheless, with a fortress balance sheet (ie, 2013E D/CF of less than 1.0x), we believe the company can weather potential mishaps over that time frame, if any. Our target price of C$54.00/share is based on a 10.7x 2014E EV/DACF multiple and implies a 12-month potential return of ~25%.
12 September 2013 Macquarie Capital Markets Canada Ltd. This report was prepared by Macquarie Capital Markets Canada Ltd and is being distributed by Macquarie Private Wealth Inc. Macquarie Private Wealth Inc and Macquarie Capital Markets Canada Ltd are separate affiliated corporate entities that are part of the Macquarie group of companies. Please refer to the important disclosures and analyst certification on the inside back cover of this document.
Macquarie Research
Tourmaline Oil
Inside
Tourmaline Oil
Sweet Tourmaline – Good times never seemed so good
Company profile 3
Valuation: premium name
4
Capital efficiency in focus
7
Asset overview
11
Macquarie forecasts
19
Recommendation
21
Tourmaline Oil (Tourmaline) is an intermediate gas producer whose primary operations are located in the Alberta Deep Basin and the Greater Peace River Arch areas of Alberta and British Columbia (BC). The company began operations in the fall of 2008, and through a series of strategic acquisitions, farm-ins and land acquisitions, it has emerged as a ~C$8.0bn market-cap E&P company. The company’s core strategy is to build an extensive asset base over two to three core areas by aggressively drilling and developing its extensive undeveloped land position; employing advanced drilling and completion techniques; focusing on operational/cost efficiencies; pursuing strategic acquisitions; and wildcat exploration drilling for new pool discoveries.
TOU CN vs TSX
Management team
Source: FactSet, Macquarie Research, September 2013
Tourmaline Oil is led by essentially the same team from Duvernay Oil (sold to Shell in 2008 for C$5.9bn) and Berkley Petroleum (sold to Anadarko for C$1.6bn in 2001). Michael Rose leads the team as Chairman, President & CEO and has over 30 years of experience in the oil & gas industry. Mr. Rose founded and served as President & CEO of Duvernay Oil and Berkley Petroleum. He worked for 14 years at Shell Canada until leaving in 1993 to found Berkley. The management team is also supported by essentially the same Board of Directors at Duvernay Oil and Berkley Petroleum. Management and directors own ~26% of the basic and ~31% of the fully diluted shares outstanding.
Fig 1
Tourmaline – Officers & Directors
Officers of Tourmaline Oil Name Michael L. Rose Brian G. Robinson Robert N. Yurkovich Stanley M. Nowek Ronald J. Hill Drew E. Tumbach Allan J. Bush Tim A. Krysak W. Scott Kirker
Role in Tourmaline Oil President & CEO VP, Finance & CFO EVP, Exploration VP, Operations & COO VP, Exploration VP, Land and Contracts VP, Production VP, Drilling Secretary and General Counsel
Recent History President & CEO of Duvernay Oil VP, Finance & CFO of Duvernay Oil VP, Exploration of Duvernay Oil VP, Operations & COO of Duvernay Oil Senior Geologist at Duvernay Oil VP, Land and Contracts of Duvernay Oil Completions and Operations Engineering Manager of Duvernay Oil Drilling Manager of Duvernay Oil Manager Corporate Affairs of Duvernay Oil
Directors of Tourmaline Oil Name Michael L. Rose William D. Armstrong Lee A. Baker Robert W. Blakely John W. Elick Kevin J. Keenan Phillip A. Lamoreaux Andrew B. MacDonald Clayton H. Riddell Brian G. Robinson Robert N. Yurkovich
Chairman
Principal Occupation President & CEO of Tourmaline Oil President & CEO of Armstrong Oil & Gas President & CEO of Nordegg Resources President of Likrilyn Capital Former Non-Executive Chairman of Cinch Energy Independent Businessman Managing Member of Lamoreaux Capital Management Independent Businessman Chairman & CEO of Paramount Resources VP, Finance & CFO of Tourmaline VP, Exploration of Tourmaline Oil
Source: Company Reports, Macquarie Research, September 2013
12 September 2013
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Macquarie Research
Tourmaline Oil
Sweet Tourmaline – Good times never seemed so good We are initiating coverage of Tourmaline Oil with an Outperform rating and C$54.00 target price. Our target price is based on a 10.7x 2014E EV/DACF multiple. We are initiating coverage of Tourmaline with an Outperform rating and C$54.00 target
Investment highlights Premium management team deserves premium multiple. Tourmaline trades at a deserving
premium multiple based on the management group led by Michael Rose. The team had built and sold two companies previously: Duvernay Oil (sold to Shell in 2008 for C$5.9bn) and Berkley Petroleum (sold to Anadarko for C$1.6bn in 2001). Tourmaline’s management has extensive technical experience in the Alberta Deep Basin and Greater Peace River Arch. Insiders and associates have 26% of the basic shares outstanding and 31% fully diluted, which aligns interests with shareholders. Deep inventory in the Deep Basin and Peace River Arch. Tourmaline has the largest land
position with 1,950 gross sections in the Alberta Deep Basin and is the fifth-largest Montney producer in Western Canada with production of more than 30,000boe/d. The company also boasts a drilling inventory of over 3,200 vertical locations, 3,700 horizontal locations in the Deep Basin, 550 locations in northeast BC and 750–1,000 locations in the Peace River Arch Charlie Lake region. Low cost structure. The company’s cash costs are among the lowest in western Canada,
which allow it to realize decent netbacks even in a low AECO price environment. Despite having production weighted almost 90% to natural gas, we are forecasting Tourmaline to have netbacks over C$20/boe. Operating costs have been reduced every year and the company continues to reduce its average well costs in each of its plays with evolving completion and frac technology. Leverage to higher gas prices. Tourmaline’s ~90% weighting to natural gas allows the
company to benefit from improvements in natural gas prices. Given that AECO prices have been historically low, a rally in natural gas pricing would directly benefit Tourmaline’s future cash flow. We think that the company is capable of generating free cash flow above US$3.85/mmbtu Henry Hub or C$3.25/mcf AECO in 2014.
Investment risks Commodity risk. Tourmaline’s primary growth potential is sourced from multi-zone, gas
targets in the Deep Basin. Its cash flow is highly sensitive to natural gas prices given its high gas weighting. Any prolonged downturn materially impacts cash flow, and if development is not moderated, it could strain its balance sheet. Our Henry Hub gas price forecast is US$3.85/mmbtu for 2013 and US$4.10/mmbtu for 2014. In addition, the company is somewhat reliant on NGL pricing, which has also come under pressure over the past 12 months. Access to capital. Future performance is dependent on adequate access to capital, including
equity, flow-through or debt financing. If access to capital is scarce, Tourmaline’s reinvestment opportunities may be adversely affected, impacting future production and cash flow. Production risk. Geological and reservoir characteristics vary by pool, which results in a wide
range of risks. There is no certainty that past drilling success will be replicated in the future. Actual production and cash flow achieved by a producer could be materially different than projections based on third-party engineering and/or our forecasts.
12 September 2013
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Macquarie Research
Tourmaline Oil
Valuation: premium name Our estimate of Tourmaline’s after-tax NAV, which is pro-forma of the 1Q13 financing, is shown in Fig 2. We calculate the company’s core after-tax NAV at C$16.39/share based on the 28 August 2013 strip, and C$19.51/share based on flat pricing. This implies that the shares are currently trading at 2.6x our strip NAV and 2.2x our flat NAV. Our flat commodity price assumptions are US$108/bbl WTI, US$5.00/mmbtu Henry Hub and US$1.00/C$. Tourmaline has an inventory of over 8,500 future development locations
Risked NAV estimated at C$34.58/share. Including Tourmaline’s core NAV and its risked Deep Basin, BC Montney, Foothills, and Charlie Lake upside, we arrive at a sum-of-parts risked resource NAV of C$34.58/share (PV10AT, flat). Our risked upside assumes a total of 5,831 risked locations compared to its inventory of 8,500 locations, or ~70% chance of success. Unrisked and including its core NAV, Tourmaline could be worth C$43.65/share on strip pricing. Based on our core NAV plus risked upside, the shares are currently trading at 1.2x our strip RENAV and 0.8x our flat RENAV.
Fig 2 Tourmaline’s NAV Strip Pricing MMBOE
Unit Value ($/BOE)
PV AT $mm
Flat Pricing $/Share
PV AT $mm
$/Share
Reserves (10% AT) Proven AT
249.1
$6.57
1,635.4
$8.31
2,098.0
Probable AT
188.8
$4.79
905.2
$4.60
1,048.6
$10.66 $5.33
P+P Reserves AT
437.9
$5.80
2,540.6
$12.91
3,146.6
$15.99
Tax Pools ($2700 mm; value equiv. to $0.16/$)
$0.99
432.9
$2.20
440.8
$2.24
Reserve Value (10% AT)
$6.79
2,973.6
$15.11
3,587.5
$18.23
Reserve Value (10% BT)
$7.75
3,392.0
$17.24
4,192.9
$21.31
161.5
$0.82
161.5
$0.82
(214.2)
($1.09)
(214.2)
($1.09)
Net Und. Land (1077,000 acres @$150/acre) Net Cash (Debt) ($mm) Option Proceeds ($mm) Net Asset Value (AT)
304.5
$1.55
304.5
$1.55
3,225.4
$16.39
3,839.2
$19.51
3,643.8
$18.52
4,444.7
$22.59
Price/NAV Net Asset Value (BT)
264%
Price/NAV Undeveloped Resource Upside - Deep Basin (PV10 AT)
222%
233%
191%
2,050.0
$10.42
4,743.8
$24.11
Undeveloped Resource Upside - BC Montney (PV10 AT)
746.2
$3.79
1,123.4
$5.71
Undeveloped Resource Upside - Outer Foothills (PV10 AT)
265.4
$1.35
549.9
$2.80
Undeveloped Resource Upside - Charlie Lake (PV10 AT)
516.1
$2.62
791.4
$4.02
6,803.0
$34.58
11,047.7
$56.15
Unbooked Resource Upside + Net Asset Value (AT) Fully Diluted Shares: 196.8 mm
Current Price
$43.24
Notes: Reserves evaluated by GLJ Petroleum Consultants as at January 1, 2013. Strip pricing to 2016, escalated at 2% thereafter. Costs escalated from 2013. Flat price is US$108/b and US$5.00/mmbtu with flat costs.
Source: Company Reports, Macquarie Research, September 2013
RENAV sensitivities. Undoubtedly, given Tourmaline’s gas leverage, we thought it would be worthwhile to provide a sensitivity of its risked NAV to different gas prices. As shown in Fig 3, Tourmaline’s risked resource NAV varies from C$9.00 at US$2.50/mmbtu Henry Hub to C$50.51 at US$5.00/mmbtu Henry Hub. This assumes a flat US$90/bbl WTI price. The current share price implies a flat gas price of US$4.64/mmbtu for our unrisked NAV.
12 September 2013
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Macquarie Research
Tourmaline Oil
Fig 3
RENAV sensitivity
$60
Charlie Lake Outer Foothills BC Montney Deep Basin Core NAV Current Price
Core NAV, RENAV ($/sh, 10%AT)
$50
Risked Unrisked (strip)
$40
$30
$20
$10
$0 $2.50
$3.00
$3.50 $4.00 $4.50 $5.00 flat NYMEX (US$/mmbtu), flat WTI (US$90/bbl)
strip
$4.00
Source: Bloomberg, Macquarie Research, September 2013
Valuation comparables Tourmaline trades at a premium to the peer group given its depth of inventory and production growth rate
12 September 2013
At the current share price of C$43.24/share, Tourmaline trades at 8.7x 2014E EV/DACF, which represents a premium to its median North American mid-cap peer group at 5.4x, but is below the likes of Concho (CXO US), Pioneer (PXD US), Range Resources (RRC US), Cabot Oil & Gas (COG US), and Quicksilver (KWK US). We believe this premium is justified given its depth of inventory and production per share growth rate, which is expected to be 47% in 2014 and is above the median of ~20%. Note that the company’s 2014 production growth rate is above that of Range Resources and Cabot Oil & Gas, which we believe are close valuation peers.
5
60%
40%
20%
2013 Net Debt/CF
120.0
100.0
80.0
60.0
2014 EV/boe/d
8.0x
6.0x
2014 EV/DACF
10.0x
2013E EV/boe/d
2014E Production per share growth
-20%
12 September 2013 CKE LRE CTA SM WLL SN LEG EXXI FST BXE CR AEF NFX BBG XEC DTX ROSE CQE BCEI KOG BIR EOX CLR AAV GDP EGN AREX TOU CXO PXD COG RRC KWK
CKE LRE WLL SM LEG CTA EXXI NFX CR BXE AEF XEC SN FST BBG CQE ROSE DTX BIR KOG KWK CLR EGN AAV BCEI GDP CXO AREX EOX PXD TOU COG RRC
2013 EV/DACF
Comparables: 2013E EV/DACF
CKE BXE CTA LRE CQE CR SM AAV BIR NFX FST KWK BBG XEC ROSE TOU COG LEG EXXI RRC SN DTX AEF WLL EGN GDP AREX BCEI KOG EOX CXO PXD CLR
CKE LRE CQE CR CTA BXE KWK AAV SM NFX BIR FST BBG XEC ROSE EXXI LEG COG WLL EGN RRC TOU AEF DTX GDP AREX SN EOX BCEI CXO PXD CLR KOG
2013 EV/boe/d
Fig 4
16.0x 18.0x
14.0x 16.0x
12.0x
4.0x
2.0x 2.0x
0.0x 0.0x
200.0
180.0
20.0
0.0
100%
EOX XEC CKE DTX TOU COG BXE PXD WLL SM CQE LRE CTA BCEI CLR CR EGN LEG AEF ROSE EXXI SN AREX CXO BIR AAV NFX RRC KOG BBG FST GDP KWK
KWK CKE EGN BBG CR XEC EXXI LRE FST LEG NFX AAV SM WLL PXD CQE CXO BIR AEF ROSE GDP RRC CTA CLR DTX COG AREX BXE BCEI TOU KOG EOX SN
2014 Prod/share growth
Macquarie Research Tourmaline Oil
2014E EV/DACF
14.0x
12.0x
10.0x 8.0x
6.0x
4.0x
2014E EV/boe/d 160.0x
160.0 140.0x
140.0 120.0x
100.0x
80.0x
60.0x
40.0 40.0x
20.0x
0.0x
2013E D/CF
8.0x 41.1x
80% 7.0x
6.0x
5.0x
4.0x
3.0x
0% 2.0x
1.0x
0.0x
Source: Bloomberg, Macquarie Research, September 2013
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Macquarie Research
Tourmaline Oil
Capital efficiency in focus The company is able to grow due to its prolific rates in the Deep Basin / Montney, sub-30% corporate decline rate and ability to raise capital
Why can Tourmaline grow? Capital efficiencies, decline, cost structure, and funding Time and time again, producer sustainability is a function of its cash flow generating abilities (ie, cash netbacks), capital efficiencies, and decline rate. Why has Tourmaline been able to grow efficiently over the past few years? We chalk this to the company’s prolific rates in the Deep Basin and Montney (ie, low production addition costs), sub-30% corporate decline rate, and the company’s ability to raise or tap the equity market at premium multiples despite the poor gas price environment. Capital efficiencies. As shown in Figs 5 and 6, Tourmaline’s capital efficiencies over the past few years have averaged between C$25–42k/boe/d on an all-in production addition basis and C$8.00–14.00/boe P+P on a finding and development cost basis. When compared to the peer group, Tourmaline ranks amongst the lowest in terms of FD&A and production addition costs, largely driven by its prolific gas rates in the Wilrich/Falher and Montney Formations (see more in Asset overview). Going forward, we believe the company is capable of achieving capital efficiencies in the C$20–25k/boe/d range, which includes facilities and land purchases.
Fig 5
Tourmaline historical production addition costs and decline rates
$50
Fig 6
30%
Tourmaline historical FD&A costs and recycle ratios 1.6x
$25
$45
1.4x 25%
$40
$20 1.2x
15%
$20
1.0x
$15
0.8x $10
0.6x
Recycle Ratio
$25
C$/boe P+P
20%
$30 %/year
C$k/boe/d
$35
10%
$15
0.4x $10
5%
$5 0.2x
$5 $0
0% 2010
All-in capital efficiency ($k/boe/d)
2011
2012
Drill bit capital efficiency ($k/boe/d)
$0
0.0x 2010
Base decline (%)
All-in FD&A cost
2011 Drill-bit F&D
Peer group median ($/boe)
2012 All-in P+P recycle ratio
Source: Company reports, Macquarie Research, September 2013
Decline rates sub 30%, but creeping up to ~38% for 2013. As shown in Fig 7, Tourmaline’s 2012 base decline rate was at a surprising 27% per annum, despite the massive production growth in 2010 and 2011. We believe the company has been able to achieve this decline rate through its successful acquisition spree over the past few years, which has focused on not only strategic assets, but lower declining asset bases (ie, Huron Energy, Cinch, Exshaw, etc). In our view, this has been imperative in counteracting its high flush organic production additions. For 2013, we forecast Tourmaline to have a higher decline rate of around 38%. Given its strong capital efficiencies or production addition costs, we think the company is able to grow through this flush production phase. However, we do see a higher probability of Tourmaline potentially missing production targets, if on-stream times become an issue either because of unforseen weather conditions or delayed facility construction or start-up.
12 September 2013
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Macquarie Research
Tourmaline Oil
Fig 7
Vintage decline plot for Tourmaline
mboe/d 80
70
60
50
40
30
2013 2012 2011
20
2010 2009
10
2008
Producing Year 2008 2009 2010 2011 2012 2013F Prod'n (mboe/d) % of Total
Decline by Year - Wells Started Production Pre 2008 2008 2009 2010 2011 29% 20% 35% 15% 39% 21% 11% 32% 22% 42% 9% 19% 17% 28% 37% 7.2 11%
1.8 3%
3.3 5%
6.1 9%
10.5 16%
2012
2013
20.9 32%
15.5 24%
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Jan-07
Apr-07
Pre 2008
0
Aggregate Decline 29% 26% 20% 28% 27% 38% 65.2 100%
Source: XI Technologies AssetBook (data as of May 2013), Macquarie Research, September 2013
Cost structure ahead of its peers. Figs 8–11 highlight Tourmaline’s relatively low operating cost structure compared to other Canadian mid-cap producers despite having the highest gasweighted production in the small/mid-cap space. In 2012, Tourmaline achieved a cash netback of C$15.06/boe, which was better than its nine gas-weighted peers. The company maintains the lowest opex compared to its peers and is the only producer below C$5.00/boe.
12 September 2013
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Macquarie Research
Fig 8
Tourmaline Oil
2012 Gas Production Weighting
Fig 9
100%
2012 Operating Costs
25
90% 20
80% 70% Median: 58.3%
15
$/boe
60% 50%
Median: $10.24/boe 10
40% 30%
5
20% 10%
0
TOU CQE STE POU AAV BIR PPY DEE CKE NVA CTA BXE SRX RTK MEI MQL RMP NGL CR DTX LRE SGY TOL NVS LEG TOG SOG RRX PXX PRY
0%
Fig 10
2012 Cash Costs
Fig 11
2012 Cash Netback
70
50 45
60 40
50
35
25
Median: $21.59/boe
20 15
$/boe
$/boe
30
40 30 20
Median: $17.76/boe
10
10 5 0
0
Source: Company reports, Macquarie Research, September 2013
Financings. Finally, we note that Tourmaline has been able to raise an impressive C$2.9bn worth of equity since inception (see Fig 12). This additional capital has no doubt helped the company grow organically despite the low cash flow generation from low natural gas prices over the past year. What’s more, raising equity at premium valuation multiples has helped support the company’s production per share growth profile, which ranks amongst the highest within the small/mid-cap peer group.
12 September 2013
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Macquarie Research
Tourmaline Oil
Fig 12 Date
October-08 October-08 December-08 April-09 May-09 September-09 November-09 November-09 November-09 November-09 January-10 March-10 March-10 June-10 August-10 November-10 March-11 May-11 July-11 October-11 November-11 April-12 August-12 November-12 November-12 March-13 March-13 na
Capitalization to-date Description
founders shares common flow-through AB Deep Basin acq. common Pienza acq. Vigilant acq. Exshaw acq. common flow-through Altia acq. common flow-through Greater Hinton acq. flow-through IPO flow-through common Cinch acq. common flow-through flow-through common flow-through Huron acq. common flow-through options exercised Total
Insiders # shares Price Total Insiders (m) ($/share) ($m) 15.0 13.5 1.3 na 3.0 na na 1.1 2.3 0.8 na 1.5 0.5 na 0.3 0.9 0.4 0.5 na 0.3 0.2 0.2 0.0 0.1 na 0.0 0.1 5.9 47.6
$3.50 $7.00 $10.00 na $10.00 na na $12.00 $15.00 $18.00 na $18.00 $21.60 na $22.00 $21.00 $30.00 $25.50 na $33.00 $41.00 $28.80 $29.00 $36.90 na $34.25 $42.15 na
$52.5 $94.5 $12.5 na $30.0 na na $13.2 $34.4 $13.5 na $27.0 $9.7 na $6.6 $17.9 $11.4 $12.8 na $9.9 $6.6 $4.3 $1.2 $1.8 na $1.0 $3.6 na $364.3
Public # shares Price Total Public (m) ($/share) ($m)
22.0 1.3 3.0 11.0 3.6 3.8 9.8 9.5 1.0 6.4 8.0 2.0 2.5 0.9 11.5 1.2 6.3 6.4 4.6 1.2 1.3 4.6 1.0 7.4 5.8 0.8 na 136.6
$7.00 $10.00 $8.00 $10.00 $12.00 $12.00 $12.00 $15.00 $18.00 $15.00 $18.00 $21.60 $18.00 $22.00 $21.00 $30.00 $25.50 $33.02 $33.00 $41.00 $28.80 $29.00 $36.90 $33.02 $34.25 $42.15 na
$154.0 $12.5 $24.0 $110.0 $42.7 $46.1 $117.4 $142.5 $18.0 $96.2 $144.0 $43.2 $45.0 $18.7 $241.5 $36.0 $161.4 $210.0 $151.8 $49.2 $36.0 $133.4 $36.9 $244.3 $196.9 $31.6 na $2,543.3
Public & Insiders Combined Total Cumulative Total ($m) ($m) $52.5 $248.5 $25.0 $24.0 $140.0 $42.7 $46.1 $130.6 $176.9 $31.5 $96.2 $171.0 $52.9 $45.0 $25.3 $259.4 $47.4 $174.2 $210.0 $161.7 $55.8 $40.3 $134.6 $38.7 $244.3 $198.0 $35.2 $0.0 $2,907.6
$52.5 $301.0 $326.0 $350.0 $490.0 $532.7 $578.8 $709.4 $886.2 $917.7 $1,013.9 $1,184.9 $1,237.8 $1,282.8 $1,308.1 $1,567.4 $1,614.8 $1,789.0 $1,999.0 $2,160.7 $2,216.5 $2,256.8 $2,391.3 $2,430.1 $2,674.4 $2,872.4 $2,907.6 $2,907.6
Source: Company reports, Macquarie Research, September 2013
12 September 2013
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Macquarie Research
Tourmaline Oil
Asset overview >1 million acres across Alberta and BC The company is one of the largest Deep Basin producers in Canada and controls over 1m gross acres of land across the two provinces
Tourmaline is currently an ~82,000boe/d gas producer, focused mainly in the Peace River Arch and Deep Basin corridors of Alberta and British Columbia. The company is one of the largest Deep Basin producers in Canada and controls over 1.2m gross acres of land across the two provinces. The company’s primary producing targets are multi-zone stacked gas formations, including the Cretaceousaged Cardium, Falher, Wilrich, Notikewan, Bluesky, and Gething Formations, Jurassic Cadomin and Nikanassin Formations as well as the prolific Triassic Montney Formation. The company is also targeting the Triassic Charlie Lake Formation at Spirit River, for its oil and gas potential.
Fig 13
Tourmaline’s focus areas
Source: Company reports, Macquarie Research, September 2013
Alberta Deep Basin: it just keeps on giving Tourmaline’s current production in the Deep Basin is ~53.0mboe/d. Its land base covers 1.2m acres. The Deep Basin region provides Tourmaline with a number of multiple producing, high heat content, and gas saturated horizons, which typically is exploited via horizontal multi-stage fracture stimulation or vertical wellbores (ie, commingling a number of formations). Generally, drilling is focused on the multi-zone Cretaceous and Triassic sequences found at depths of over 2,800m. A large number of reservoirs are found in the Lower Cretaceous Mannville Group, in which the tight gas saturated sands provide good deliverability with little or no water. So far, the company has drilled and completed over 70 horizontal wells in the Deep Basin. The company has interests in six natural gas plants (five of which are operated by Tourmaline) with total processing capacity of 275–300mmcf/d and two additional 50mmcf/d expansions planned for the balance of 2013. This allows the company to have one of the lowest operating costs per boe in the basin. This year the company expects to drill 8–10 vertical wells and 60 horizontal wells, of which a majority is wells are targeting the Spirit River group.
12 September 2013
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Macquarie Research
Fig 14
Tourmaline Oil
Tourmaline Deep Basin overview
Source: Company reports, Macquarie Research, September 2013
Fig 15
Stratigraphy
Source: ERCB, September 2013
Spirit River group a focus. The company’s main focus for 2013 will be targeting the Cretaceous Spirit River group, which includes the Notikewin/Falher and Wilrich Formations. These zones are one of the most productive in terms gas deliverability, providing for high initial gas rates as well as a small amount of liquids (C3+) in the 5–15bbl/mmcf range. The Spirit River group can range in depth from 2,800m at Edson to as deep as 3,400m in the Minehead region. Tourmaline will typically extend the horizontal length of its wells to 1,400m long. We estimate average well costs at ~C$5.5m in Edson and C$8–10m in the Kakwa/Minehead regions. Note that the company sees about 535 Falher/Notikewin and 1,575 Wilrich horizontal locations in inventory. With over 7,000 wells in its Deep Basin inventory, Tourmaline has well over 25 years of drilling inventory on its current land base
12 September 2013
Multiple drilling horizons. According to public data (current to June 2013), Tourmaline rig released 50 wells since 2012, including 36 wells targeting the Falher/Wilrich/Notikewin, 5 wells in the Cardium, and the remainder targeting other Cretaceous or Jurassic formations. In Fig 16, we show results from Tourmaline’s Spirit River program, which interestingly enough highlights the high initial gas deliverability. Peak IP30 rates have been at ~7.0mmcf/d and then subsequently declining to the 2mmcf/d range after 12 months on production. With over 7,000 wells in inventory, Tourmaline has well over 25 years of drilling inventory on its current land base.
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Macquarie Research
Tourmaline Oil
Tourmaline horizontal Wilrich/Falher/Notikewin drilling results
16,000
40
Count MCFE Avg P10 (MCFE) P50 (MCFE) P90 (MCFE) MAQ AB Deep Basin Hz curve
14,000
35
30
Calendar Day Rate (mcfe/d)
12,000
10,000
25
8,000
20
6,000
15
4,000
10
2,000
5
# Producing Wells
Fig 16
-
1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
31
33
Productive Month(s)
Note: Data reflects horizontal wells rig released from January 2008 Source: geoSCOUT, Company reports, Macquarie Research, September 2013
Our type well forecasts an EUR of 4.2bcfe (or 700mboe), which compares to management’s expectation for a EUR of 4.6bcfe (or 770mboe)
Economics. Based on publicly available data described above, we have created a generic Deep Basin horizontal type curve and economics, as shown in Figs 16 and 17. We have assumed IP rates of 7.1mmcf/d (30 days), which includes 15bbl/mmcf of liquids. Our type well also forecasts an EUR of 4.2bcfe (or 700mboe), which compares to management’s expectation for an EUR of 4.6bcfe (or 770mboe). Our half-cycle development assumptions include the following. Well costs. Drilling, completion and tie-in costs for a horizontal Deep Basin development well
are estimated at ~C$5.25m, including C$3.0m for drilling and C$1.75m for completion. Royalties. Our economics are based on the Alberta Royalty Framework, which generates a
5% royalty rate over the life of the well. Operating costs. We have assumed fixed costs of C$1,000/well/month and variable costs of
C$0.85/mcf.
12 September 2013
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Macquarie Research
Tourmaline Oil
Fig 17
Generic Deep Basin economics Deep Basin gas Hz
Deep Basin Gas Vt
Total Costs ($m) IP Rate (mmcf/d) EUR/well (bcfe) % liquids Liquids Yield (bbl/mmcf) Fixed Opcosts ($/well/month) Royalty Rate Avg Operating Cost ($/boe)
5.3 7.1 4.2 8% 15 1,000 5% 5.67
4.0 2.7 3.1 8% 15 2,000 5% 6.33
Economic Metrics F&D Costs ($/boe) NPV10 BT ($m) NPV10 AT ($m) NPV10 BT ($/boe) NPV10 AT ($/boe) P/I Ratio (BT) P/I Ratio (AT) Recycle Ratio IRR (BT) IRR (AT)
7.51 2.7 2.0 3.86 2.79 0.5 0.4 2.0 31% 23%
7.64 1.0 0.7 1.95 1.35 0.3 0.2 1.7 17% 15%
Inputs
Economics based on US$90/bbl WTI, C$3.50/mcf AECO, and US$1.00/C$ exchange Source: Company reports, Macquarie Research, September 2013
Hitting a familiar territory: Montney in NEBC Tourmaline’s current production is 34mboe/d making it the 5th/6th largest Montney producer in Western Canada
12 September 2013
Tourmaline believes it has more than 550 locations in the greater Dawson/Sunrise/Sundown region, targeting the prolific Montney Formation. Remember, Tourmaline’s predecessor company, Duvernay Oil, was purchased by Shell, for what we believe was its Montney potential at Groundbirch. As of Sept 2013, the company has tested a total of 59 horizontal Montney wells out of the 67 horizontal Montney wells drilled thus far. Average initial test rates have been at 11.7mmcf/d, including 270bbl/d of liquids. The company plans to drill a total of 30 Montney horizontal wells in this region for 2013. Interestingly, the company recently brought-on its Doe BC gas plant in July, taking its Montney production to currently 34,000boe/d. At this production level, Tourmaline would be the 5th/6th largest Montney producer in Western Canada.
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Macquarie Research
Fig 18
Tourmaline Oil
Tourmaline’s NEBC Montney
Fig 19
Stratigraphy
Sunrise
Dawson
Groundbirch
Sundown
Source: geoSCOUT, Company reports, Macquarie Research, September 2013
We estimate a typical Montney well drilled by Tourmaline will generate an IRR (AT) of ~54% and an after-tax profit to investment (P/I) ratio of 1.2x
Source: ERCB, September 2013
Montney results/economics. As shown in Fig 20, we have created a Montney horizontal type curve based on Tourmaline’s well results to-date. Our type well generates strong economics despite the low gas price environment. We estimate a typical Montney well drilled by Tourmaline will generate an IRR (AT) of ~54% and an after-tax profit-to-investment (P/I) ratio of 1.2x. Our half-cycle development assumptions include the following: IP rates. We have assumed IP rates of 4.4mmcf/d (30 days), which includes 10bbl/mmcf
of liquids. EUR. We estimate our type well will have an EUR of 5.3bcfe (or 888mboe). Our assumptions
are in line with management’s expectation for an EUR of 5.2bcfe (or 867mboe). Well costs. Drilling, completion and tie-in costs for a horizontal Montney development well are
estimated at ~C$4.0m, including C$2.0m for drilling and C$1.4m for completion. Royalties. Our economics are based on the BC Crown royalties, which generates a 12%
royalty rate over the life of the well. Operating costs. We have assumed fixed costs of C$1,000/well/month and variable costs of
C$0.90/mcf.
12 September 2013
15
Macquarie Research
Fig 20
Tourmaline Oil
Montney type curve and economics
Inputs
80
10,000 9,000
Count
MCFE Avg
P10 (MCFE)
P50 (MCFE)
P90 (MCFE)
MAQ BC Dawson curve
70
8,000
50
6,000
40
5,000 4,000
30
# Producing Wells
Calendar Day Rate (mcfe/d)
60 7,000
3,000 20 2,000 10
1,000 -
1
3
5
7
9
11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 Productive Month(s)
Economics based on US$90/bbl WTI, C$3.50/mcf AECO, and US$1.00/C$ exchange
BC Montney
Total Costs ($m) IP Rate (mmcf/d) EUR/well (bcfe) % liquids Liquids Yield (bbl/mmcf) Fixed Opcosts ($/well/month) Royalty Rate Avg Operating Cost ($/boe)
4.0 4.4 5.3 6% 10 1,000 12% 5.78
Economic Metrics F&D Costs ($/boe) NPV10 BT ($m) NPV10 AT ($m) NPV10 BT ($/boe) NPV10 AT ($/boe) P/I Ratio (BT) P/I Ratio (AT) Recycle Ratio IRR (BT) IRR (AT)
4.50 6.5 4.9 7.36 5.52 1.6 1.2 2.0 73% 54%
Source: geoSCOUT, Company reports, Macquarie Research, September 2013
Spirit River – Charlie Lake oil play Average IP30 rates have been around 565boe/d (63% oil), with ultimate recoveries expected at ~300-350mboe range on capital costs of ~C$3.6m/well
Tourmaline’s success in the Charlie Lake oil/gas Formation has been a function of its recent development program at Spirit River Alberta. In total, 50 horizontal wells have been drilled or licensed in the area since exploitation began in late 2011. Well results have been intriguing to say the least: average IP30 rates have been around 565boe/d (63% oil), with ultimate recoveries expected at ~300–350mboe range on capital costs of ~C$3.6m/well. For 2H13, pool production is expected to average 11,000boe/d (50% oil), which we view as a well-above-average rate given activity has only been 18 months in the making. Tourmaline has plans to drill 30–40 horizontal wells this year and believes ~200 horizontal locations are left to be drilled in this pool. Notably, the company plans to proceed with the next phase of the Spirit River gas plant expansion to 60mmcf/d from 40mmcf/d currently (expanded in 2Q from 16mmcf/d). Beyond Spirit River, Tourmaline recently acquired over 410 new sections of land in the Peace River Arch (from Shell Canada), targeting a regional Charlie Lake oil/gas resource play. Interestingly, the company has found one new pool at Earring, with its 13-8 horizontal well testing at ~700boe/d. The company also notes that an existing 14-23 vertical well on its Mulligan land base has recovered 400mbbl of oil and 1.7bcf of gas. Based on this regional fairway, the company has identified nearly +800 horizontal exploration locations.
12 September 2013
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Macquarie Research
Fig 21
Tourmaline Oil
Tourmaline’s Peace River Arch Charlie Lake potential 13-8 Vt discovery test: 700boe/d
Fig 22
Stratigraphy
Earring 1-14 Hz (RTK) test: 3.6mmcf/d + 60bbl/d of oil
Mulligan 14-23 Vt Cum: 400mtsb oil; 1.5bcf gas
Mirage 7-3 Hz 1,550bbl/d + 1.9mmcf/d
Spirit River 14-8 Hz 1,283bbl/d + 2.0mmcf/d
Source: geoSCOUT, Company reports, Macquarie Research, April 2013
Source: ERCB, September 2013
Charlie Lake economics. As shown in Fig 23, we have created a Charlie Lake horizontal type curve based on Tourmaline’s well results to-date. Based on this type well, we believe the economics are strong for this play, with an IRR (AT) of ~41% and an after-tax profit-to-investment (P/I) ratio of 0.8x. Our half-cycle development assumptions include the following. Well costs. Drilling, completion and tie-in costs for a horizontal Charlie Lake development well
are estimated at ~C$4.0m, including C$2.0m for drilling and C$2.0m for completion. Royalties. Our economics are based on the Alberta Royalty Framework, which generates a
22% royalty rate over the life of the well. Operating costs. We have assumed fixed costs of C$5,000/well/month and variable costs of
C$9.00/bbl.
12 September 2013
17
Macquarie Research
Fig 23
Tourmaline Oil
Charlie Lake type curve and economics
1,000
Inputs
35
900
Count
BOE Avg
P10 (BOE)
P50 (BOE)
P90 (BOE)
MAQ Charlie Lake curve
30
25
700 600
20 500 15 400 300
10
200 5 100 -
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Productive Month(s)
Economics based on US$90/bbl WTI, C$3.50/mcf AECO, and US$1.00/C$ exchange
# Producing Wells
Calendar Day Rate (boe/d)
800
Total Costs ($m) IP Rate (boe/d) EUR/well (mboe) % liquids Fixed Opcosts ($/well/month) Royalty Rate Avg Operating Cost ($/boe) Economic Metrics F&D Costs ($/boe) NPV10 BT ($m) NPV10 AT ($m) NPV10 BT ($/boe) NPV10 AT ($/boe) P/I Ratio (BT) P/I Ratio (AT) Recycle Ratio IRR (BT) IRR (AT)
Spirit River Ch 4.0 li 400 295 60% 5,000 22% 8.96
13.57 4.2 3.1 14.36 10.44 1.1 0.8 1.9 57% 41%
Source: geoSCOUT, Company reports, Macquarie Research, September 2013
Exploration potential Tourmaline has further exploration potential with the Devonian Wabamun at Sunset/Parkland, Outer Foothills Cardium, Resthaven/Smoky Montney, and Deep Basin Devonian oil
12 September 2013
Beyond the three core areas described above, Tourmaline is also chasing a number of new E&P plays. This includes: 1) the Devonian Wabamun gas play in the Sunset/Parkland area, of which the company has identified 10 prospects at 200–300bcf recoverable per target; 2) Outer Foothills Cardium play, of which 500 locations are estimated to be in inventory; 3) Resthaven/Smoky Montney play, of which the company holds 85 sections of Montney rights; and 4) Deep Basin Devonian oil and gas stratigraphic traps, of which the company has identified six prospects. At this point, we do not carry any upside for these new play concepts; however, we do think it could represent further upside if proved successful. Note that the company has already commenced drilling its Devonian Wabamun exploration well at Sunset, BC.
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Macquarie Research
Tourmaline Oil
Macquarie forecasts Expecting continued strong growth The company expects to average 80.0mboe/d in 2013 and 116–120mboe/d in 2014 with a D/CF of 0.9x for 2013
Management’s 12-month plan. Tourmaline recently increased its 2013 spending to C$950m (excluding acquisitions) from ~C$848m, of which ~C$391m was spent in 1H13. For 2H13, the company will have a 15-rig program operating to drill a total of 55 gas wells and 22 oil wells. In terms of guidance, production is expected to average 80,000boe/d, with a 4Q13 exit rate of 95,750boe/d. For 2014, the company expects production to average between 116–120mboe/d. Macquarie estimates. Our estimates are relatively consistent with management’s expectations, though we are slightly more conservative on both production and spending. We forecast average production for 2013 of 78.8mboe/d, on development spending of C$950m (1.6x cash flow). We expect Tourmaline to generate cash flow of C$3.18/share in 2013, based on our commodity price forecasts of C$3.40/mcf AECO and US$99.00/bbl WTI. For 2014, we have production at 117mboe/d on spending of C$900m, which generates cash flow of C$4.93/share. Our development capital for 2014 (and beyond) is slightly higher than management’s forecast of C$850m, as we assume a go-forward decline rate of 38–40%. Balance sheet. Post the March 2013 financing, the company’s balance sheet remains in great shape. We forecast year-end debt of ~C$549m, which would translate into a D/CF multiple of 0.9x. We do not foresee any addiitonal equity financings, other than the possbility of a flow-through financing.
Fig 24
Financial forecast for Tourmaline bbl/d mmcf/d boe/d
2012A 6,137 268.0 50,804
2013E 9,426 416.5 78,840
2014E 19,379 588.0 117,373
2015E 22,530 699.9 139,176
Production growth per share
% %
417% 193%
74% 43%
64% 48%
55% 38%
Financials CFPS (diluted) EPS (diluted) Dev. Capex Total Capex (incl. Acq'n/Disp'n) Capex/Cash Flow Net debt Net debt/Cash flow
C$ C$ $m $m x $m x
$1.63 $0.10 $663.0 $741.6 2.4x $464.3 1.7x
$3.18 $0.94 $950.0 $908.0 1.6x $548.6 0.9x
$4.93 $1.51 $900.0 $900.0 1.0x $501.5 0.5x
$6.17 $2.06 $900.0 $900.0 0.8x $215.5 0.2x
$/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe
$22.60 ($1.63) ($4.43) $16.54 ($0.79) ($0.70) $0.00 $15.06
$28.74 ($2.24) ($4.26) $22.23 ($0.67) ($0.67) $0.00 $20.90
$29.89 ($2.37) ($4.25) $23.26 ($0.47) ($0.69) $0.00 $22.11
$30.76 ($2.44) ($4.25) $24.07 ($0.33) ($0.39) $0.00 $23.35
US$/bbl C$/mcf US$/C$
$94.00 $2.40 1.00
$99.00 $3.40 0.99
$104.50 $3.54 1.00
$103.25 $4.10 1.00
Oil & Liquids Natural Gas Total
Netbacks Revenue/boe Royalties/boe Operating costs/boe Operating Netback/boe G&A & Others/boe Interest/boe Cash taxes/boe Cash Netback/boe Assumptions WTI AECO Exchange Rate
Source: Macquarie Research, September 2013
12 September 2013
19
Macquarie Research
We estimate a free cash flow breakeven natural gas price of US$3.85/mmbtu for 2014
Tourmaline Oil
Looking at free cash flow. We estimate that Tourmaline will have free cash flow of $47m in 2014 on our Henry Hub forecast of US$4.10/mmbtu. The breakeven free cash flow natural gas price on our estimates is US$3.85/mmbtu or C$3.25/mcf AECO.
Fig 25
2014E Free Cash Flow Sensitivity to NYMEX prices
$300 2014E Free Cash Flow Free Cash Flow ($m)
$200 $100 $0 ($100) ($200)
US$3.85/mmbtu breakeven
($300) ($400) $2.50
$3.00
$3.50
$4.00
$4.50
$5.00
NYMEX (US$/mmbtu) Source: Macquarie Research, September 2014
12 September 2013
20
Macquarie Research
Tourmaline Oil
Recommendation Initiating coverage with Outperform rating We are initiating coverage of Tourmaline with an Outperform rating and C$54.00 target
12 September 2013
We are initiating coverage of Tourmaline Oil with an Outperform rating and C$54.00 target. Certainly, our call on Tourmaline is not much different than consensus, as we concur with much of the positive investment theses on the stock: 1) above-average production growth profile relative to its peers, 2) free cash flow generating abilities under a higher gas price environment, and 3) management’s execution abilities. Where we differ is that our 2014/2015 decline rates are at +38% per annum, which results in higher maintenance capital during those periods. Nevertheless, with a fortress balance sheet (ie, 2013E D/CF of less than 1.0x), we believe the company can weather potential mishaps over that time frame, if any. Our target price of C$54.00/share is based on a 10.7x 2014E EV/DACF multiple and implies a 12-month potential return of ~25%.
21
Macquarie Research
Tourmaline Oil
Tourmaline Oil (TOU CN, Outperform, Target price: C$54.00) Price Assumption Oil-WTI Oil-Edmonton Par Oil-Lloyd Heavy Blend Gas-Henry Hub Gas-AECO US$/C$
US$/b $/b $/b US$/mmbtu $/mcf $
2012A 94.00 86.39 73.14 2.80 2.40 1.00
2013E 99.00 94.70 75.77 3.85 3.40 0.99
2014E 104.50 99.50 84.70 4.10 3.54 1.00
2015E 103.25 98.25 84.67 4.65 4.10 1.00
Income Statement Oil & Liquids Natural Gas Total Production Gas Production Ratio
kb/d mmcf/d kboe/d (@ 6:1) %
2012A 6.1 268.0 50.8 87.9
2013E 9.4 416.5 78.8 88.0
2014E 19.4 588.0 117.4 83.5
2015E 22.5 699.9 139.2 83.8
Production per Share Growth YoY
%
48.3
38.3
47.4
18.6
Revenue (net of hedging & transp.) Royalties Operating Costs G&A Costs
m m m m
420.2 (30.3) (82.3) (14.6)
827.0 (64.6) (122.7) (19.2)
1280.4 (101.6) (182.1) (20.0)
1562.5 (124.0) (215.9) (16.9)
EBITDA
m
292.9
620.6
976.7
Interest Costs DD&A, Others Costs, & Tax
m m
(13.0) (263.2)
(19.3) (423.2)
Net Income EPS (basic) EPS (diluted) Adjusted EPS (diluted) Dividend Per Share
m
16.7 0.10 0.10 0.10 0.00
Revenue per Share Growth YoY EBITDA per Share Growth YoY
% %
Basic WA Shares OS Diluted WA Shares OS
US$/b US$/mmbtu $ $/b $/mcf
1Q13A 94.35 3.49 0.99 90.18 3.50
2Q13A 94.13 4.02 0.98 88.49 3.94
3Q13E 101.00 3.85 1.00 90.22 3.54
4Q13E 106.00 4.00 1.00 94.78 3.89
kb/d mmcf/d kboe/d (@ 6:1) %
7.4 367.3 68.6 89.2
7.0 378.9 70.2 90.0
10.4 422.3 80.8 87.1
12.8 496.0 95.4 86.6
Revenue (net of hedging & transp.) EBITDA
m m
163.8 154.1
179.4 133.3
210.8 153.5
273.0 205.0
Net Income EPS (basic) EPS (diluted) Adjusted EPS (diluted)
m
52.2 0.30 0.29 0.29
30.0 0.17 0.16 0.16
36.5 0.20 0.19 0.19
58.9 0.32 0.31 0.31
Cash Flow from Operations CFPS
m
1205.7
116.6 0.64
128.9 0.68
152.8 0.80
202.9 1.06
(29.6) (656.1)
(19.7) (790.5)
Production per Share Growth YoY Production per Share Growth QoQ
% %
34.4 15.5
23.7 -0.7
49.6 14.6
55.2 18.1
178.2 0.98 0.94 0.94 0.00
291.0 1.58 1.51 1.51 0.00
395.5 2.15 2.06 2.06 0.00
CFPS Growth YoY CFPS Growth QoQ
% %
74.5 22.4
89.6 6.2
114.7 16.7
101.4 32.7
7.1 12.2
78.3 95.9
51.9 44.5
22.0 23.5
m m
162.6 172.2
182.3 188.9
184.2 192.2
184.2 192.2
$/boe $/boe $/boe $/boe $/boe $/boe $/boe
26.52 (1.84) (4.27) 20.41 (0.80) (0.73) 18.89
28.10 (2.33) (4.29) 21.48 (0.82) (0.47) 20.19
28.35 (2.25) (4.25) 21.85 (0.61) (0.69) 20.56
31.09 (2.46) (4.25) 24.38 (0.51) (0.76) 23.11
Balance Sheet Cash Debt Net Debt Bank Lines Net Debt as % of Bank Lines
m m m m %
2012A 0.0 360.6 464.3 575.0 80.7
2013E 0.0 494.9 548.6 750.0 73.1
2014E 0.0 447.9 501.5 750.0 66.9
2015E 0.0 161.8 215.5 750.0 28.7
Cashflow Analysis Cash Flow from Operations Chgs in Working Cap Net Cash Flow from Operations Cash Flow from Investing Cash Flow from Financing Increase in Cash
m m m m m m
2012A 280.3 (6.8) 273.5 (742.0) 468.5 0.0
2013E 601.2 (23.3) 577.9 (969.4) 391.5 0.0
2014E 947.1 0.0 947.1 (900.0) (47.1) (0.0)
2015E 1,186.0 0.0 1186.0 (900.0) (286.0) 0.0
Total Assets Total Liabilities Total S/H Equity
m m m
3580 846 2735
4163 972 3191
4517 1017 3500
4769 856 3913
Free Cash Flow1 Debt Adjusted Cash Flow (DACF)
m m
(389.5) 293.2
(372.1) 620.5
47.1 976.7
286.0 1205.7
Ratios Analysis ROA ROCE ROE Net Debt/Equity Net Debt/CF Price/Book Year End Book Value
2012A 0.5 0.9 nmf 17.0 1.7 2.8 15.6
2013E 4.6 5.6 6.0 17.2 0.9 2.5 17.3
2014E 6.7 8.2 8.7 14.3 0.5 2.3 19.0
2015E 8.5 10.2 10.7 5.5 0.2 2.0 21.2
1.63
3.18
4.93
6.17
% % % % x x m
Development Capital Expenditures Total Capex (incl. Acq'n/Disp'n)
m m
663.0 741.6
950.0 908.0
900.0 900.0
900.0 900.0
Capex/Cash Flow
x
2.4
1.6
1.0
0.8
x x m x $/boe $k/boe/d years %
2012A nmf 26.6 7606 25.9 18.85 146.5 21.0 0.0
2013E 46.0 13.6 8361 13.5
2014E 28.6 8.8 8461 8.7
2015E 21.0 7.0 8175 6.8
104.0
70.7
57.6
0.0
0.0
0.0
Per Boe Statistics Revenue/boe Royalties/boe Operating costs/boe Operating Netback/boe G&A/boe Interest/boe Capital Tax/boe Cash Netback/boe Depletion and Depreciation/boe Stock based compensation/boe Other Non-cash/boe Cash Taxes/boe Deferred Taxes/boe Earnings Netback/boe
$/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe
2012A 22.60 (1.63) (4.43) 16.54 (0.79) (0.70) 0.00 15.06 (13.04) (0.80) 0.09 0.00 (0.86) 0.45
2013E 28.74 (2.24) (4.26) 22.23 (0.67) (0.67) 0.00 20.90 (12.87) (0.59) 1.49 0.00 (2.73) 6.19
2014E 29.89 (2.37) (4.25) 23.26 (0.47) (0.69) 0.00 22.11 (12.75) (0.42) 0.00 0.00 (2.15) 6.79
2015E 30.76 (2.44) (4.25) 24.07 (0.33) (0.39) 0.00 23.35 (12.75) (0.35) 0.00 0.00 (2.46) 7.79
2013E 0.5 5.8 0.5 0.2
2014E 0.7 5.2 0.3 0.1
2015E 0.6 5.0 0.2 0.1
Capital Efficiencies F&D (Proven)2 FD&A (2P)3 Recycle Ratio - (2P)3
$/boe $/boe x
2012A 10.56 10.35 1.5
3-Year 12.82 12.56 1.3
Valuation P/E P/CF Enterprise Value EV/DACF EV/Reserves4 EV/Production4 Reserve/Production (2P) Dividend Yield
Core Net Asset Value (PV10AT)5 P/NAV x Core NAV + Risked Resource Upside (PV10AT)6 P/(NAV+Risked Upside) x
16.39 2.6 34.58 1.3
Sensitivities (Adjusted Cash Flow) Oil WTI +/- US$1.00/b Gas +/- C$0.25/mcf Oil +/- 100 b/d Gas +/- 1.0 mmcf/d
2012A 0.7 8.2 1.0 0.2
% % % %
Quarterly Forecast Oil-WTI Gas-Henry Hub US$/C$ Liquids Realization Gas Realization Oil & Liquids Natural Gas Total Production Gas Production Ratio
Revenue/boe Royalties/boe Operating costs/boe Operating Netback/boe G&A/boe Interest/boe Cash Netback/boe
CFPS
All figures CAD unless noted and production and reserve figures are gross of royalties 1) Cash flow from Operations (before chg in WC) Less Capex and Dividends; 2) Excludes Revisions; 3) Includes changes in Future Development Capital; 4) Excludes non-producing assets; 5) Strip pricing; 6) Risked resource upside based on LT price of US$5.00/mmbtu HH, US$108/b WTI, and US/C$1.00
Source: Company data, Macquarie Research, September 2013
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Macquarie Research Important disclosures:
Tourmaline Oil
Recommendation definitions
Volatility index definition*
Financial definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return
This is calculated from the volatility of historical price movements.
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests
Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative.
Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return +10% Neutral – expected return from -10% to +10% Underperform – expected return 5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Recommendation proportions – For quarter ending 30 June 2013 Outperform Neutral Underperform
AU/NZ 49.80% 39.85% 10.35%
Asia 57.68% 24.45% 17.87%
RSA 48.05% 42.86% 9.09%
USA 41.13% 54.70% 4.17%
CA 61.75% 34.42% 3.83%
EUR 47.10% (for US coverage by MCUSA, 8.12% of stocks followed are investment banking clients) 30.89% (for US coverage by MCUSA, 6.60% of stocks followed are investment banking clients) 22.01% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)
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Macquarie Research
Tourmaline Oil
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