Tourmaline says $1.4B deal puts it on path to profit target
Tourmaline Oil Corp. said it has taken a “major step” in its ambitions to become Canada’s largest and most profitable natural gas producer after announcing its biggest ever acquisition, a $1.37-billion deal with Royal Dutch Shell.
“This is the one big deal I’ve always said we’d do if it came along, and it did,” Mike Rose, Calgarybased Tourmaline’s chairman, president and CEO, said in an interview Friday.
He noted the company has grown to become the second- largest producer of Canadian natural gas, behind Canadian Natural Resources Ltd., just eight years after it launched. But Rose isn’t as concerned about size as he is about another important metric.
“The trick is to be the most prof- itable, and that’s where we want to be,” he said.
In its deal with Shell, Tourmaline will acquire more than 83,000 hectares of oil and gas properties in western Canada, including 58,700 hectares in the Deep Basin in westcentral Alberta.
The Deep Basin assets, which include three gas processing plants and a pipeline system, were initially owned by Duvernay Oil Corp. when it sold to Shell for $5.9 billion in 2008.
Duvernay’s management team started Tourmaline as a new venture after that 2008 sale, which means the same executives are now buying back some of their old assets.
The latest deal highlights “the astuteness of Tourmaline’s management,” according to Odlum Brown analyst Fai Lee, who said it appears the company is acquiring Duvernay assets at a discount from what Shell had initially paid.
Rose said conditions have changed since the earlier 2008 deal, when gas prices were more than double current levels, which made the properties more valuable back then.
Still, he noted drilling costs are currently down by half and new techniques recover far more resource from the well than was the case eight years ago.
“These are assets, particularly in the Deep Basin, that we’ve wanted for a long time, and we just waited until Shell was ready to sell them,” Rose said.
Tourmaline has made smaller acquisitions in the past, including a $106-million all-stock deal to buy junior Mapan Energy Ltd. in mid2015. Mapan owned two processing properties in the Deep Basin, including one initially owned by Duvernay Oil.
Tourmaline’s $1.37-billion acquisition from Shell, which the buyer will finance by issuing $739 million in shares and securing bank debt, is by far the company’s biggest deal.
“It makes us significantly larger in Canada’s most profitable, competitive gas plays,” Rose said, referring to the Deep Basin and the resourcerich Montney formation where Tourmaline will acquire 24,700 hectares in northeastern B.C.
The deal is expected by Nov. 30. Tourmaline’s total production is forecast to reach the equivalent of up to 260,000 barrels of oil per day in 2017 and up to 320,000 a year later.
For Shell, the deal marks a further pullback from its Canadian operations after it cancelled its Carmon Creek oilsands project and indefinitely placed its LNG Canada project in B.C. on hold.
Shell retains about 174,000 hectares in the Duvernay in Alberta and about 88,000 hectares in the Montney gas play.
Speaking to reporters at an energy conference in Banff last month, Shell Canada president Michael Crothers said the company remained committed to its North American plays.
“We’re really happy with where we are now, but we always are busy looking at the edges of those portfolios,” Crothers said. “We continue to do swaps and some minor portfolio moves,” but not “major divestment or investment.”