Canada’s Tourmaline Oil in Buying Mood
Canadian senior producer Tourmaline Oil said November 4 it had reached agreements to acquire two privately-held Deep Basin producers for C$570mn (US$437mn) in cash and shares and the assumption of about C$244mn of debt.
The same day, it announced net earnings in Q3 2020 of C$4.8mn, down from earnings of C$15.8mn in the comparable period last year.
In the first of the acquisitions, Tourmaline acquired Modern Resources, effective November 2, for a total consideration of about C$144mn (C$73.75mn cash and 1.5mn Tourmaline shares) and the assumption of current net debt of about C$44mn.
Included in the deal is about 9,000 barrels of oil equivalent (boe) of daily production, proved plus probable (2P) reserves of some 88mn boe, more than 400 sections (256,000 acres) of lands in the Deep Basin, a 100% interest in a natural gas processing plant and more than 200 future drilling locations.
In the second deal, Tourmaline has entered into a definitive agreement to acquire Jupiter Resources for 24.2mn Tourmaline shares, representing a total consideration of C$626mn, including net debt estimated at C$200mn.
All of Jupiter’s major shareholders, representing about 92% of its common shares, have agreed to vote in favour of the transaction, which is expected to close December 16, subject to customary regulatory and Toronto Stock Exchange approvals.
The Jupiter assets, which are also located in the Deep Basin adjacent to the Modern assets, include current average production of 67,000 boe/day, estimated 2P reserves of 357mn boe, more than 500 sections (320,000 acres) of land with working interests averaging 84% and working interests in two gas processing plants.
Effective January 1, 2021, Tourmaline will sell a gross overriding royalty (GORR) interest in the Modern and Jupiter lands to its affiliate, Topaz Energy, for C$130mn, representing 2% on natural gas in 2021, 3% in 2022 and thereafter and 2.5% on crude oil and condensate.
In its earnings release, Tourmaline said it had Q3 cash flow of C$279.9mn on total capital spending, excluding acquisitions, of $241.2mn, yielding free cash flow of $38.7mn for the quarter.
Capital spending for 2020, Tourmaline said, has been increased to C$835mn from $800mn, primarily to allow for Q4 drilling on the Modern and Jupiter assets to maintain existing production levels and winter drilling elsewhere. The 2021 capital budget has been set at C$1.1bn against anticipated 2021 cash flow of C$2bn.
Natural gas production in Q3 edged about 1% higher, to 1.4bn ft3/day, while crude oil, condensate and natural gas liquids production was 12% higher, at 62,538 b/d. Realised natural gas prices in the quarter increased to C$2.60/’000 ft3 from C$1.89/’000 ft3 in Q3 2019.