• Natural Gas News

    Canadian Tourmaline Develops Gas Assets


Creates new subsidiary and plans spending of C$1.7bn in northeast British Columbia.

by: Dale Lunan

Posted in:

Natural Gas & LNG News, Americas, Premium, Editorial, Corporate, Mergers & Acquisitions, Share prices, Exploration & Production, Investments, News By Country, Canada

Canadian Tourmaline Develops Gas Assets

Tourmaline Oil, Canada’s largest natural gas producer, pushed into the headlines over the Canadian Thanksgiving weekend with two value-adding initiatives. First it announced late on October 10 the creation of a subsidiary, Topaz Energy, that will help monetise its upstream and midstream assets. Then it pledged October 12 to spend C$1.7bn (US$1.3bn) over the next five years in the prolific Montney basin.

Topaz Energy will be a private royalty and infrastructure energy company that will acquire royalty interests on all Tourmaline’s lands in the Montney, Deep Basin and Peace River High regions (about 2.2mn net acres), a non-operated interest in two of the company’s existing 19 natural gas processing plants and a part of Tourmaline’s third-party processing revenue.

Tourmaline will receive C$775mn for the assets and retain a 78% interest in Topaz, with the balance held by third-parties who injected somewhere between C$150mn and C$200mn into the new entity by way of a private placement.

Assets acquired by Topaz include:

  • gross overriding royalties of 4% on natural gas production until January 2022, declining to 3% after that, and 2.5% on condensate and crude oil production;
  • non-operated working interests of 45% in the Brazeau and Musreau gas processing facilities in Alberta’s Deep Basin, with Tourmaline entering into a 15-year take-or-pay agreement on 50mn ft³/day of processing for a fee of C$0.70/’000 ft³, and;
  • existing third-party gas processing revenue from Tourmaline amounting to about C$14mn in 2020.

Taken together, all three components are expected to provide 2020 revenue of some C$89mn.

In an October 11 research note, GMP FirstEnergy analyst Robert Fitzmartyn noted that topaz is the official gemstone of the state of Texas and is associated with an English superstition that it cured lunacy.

“As such, it could be stated that Tourmaline is looking to spin out [T]opaz to cure market lunacy,” he wrote, noting that if the transaction had been completed in the public realm, it might have been worth as much as C$1.25bn.

In the second, Tourmaline celebrated the commissioning of a new 200mn ft3/day deep cut gas plant at Gundy, near Fort St John, BC by announcing it would spend $1.7bn on natural gas exploration and development in the area over the next five years.

“There's no doubt that energy demand of all kinds is going to go up and we’re trying to position ourselves,” Tourmaline COO Allan Bush said. “We’re in this for the long haul and we see this as a really good place to be doing business. We want to stay aggressive here.”

The Gundy plant, which began operations in May 2019, is already undergoing an expansion that will double its capacity to 400mn ft3/day – a C$150mn expenditure that is included in the $1.7bn total. Also included will be new drilling to support the expanded capacity at Gundy, and new pipelines, with new full-time jobs created in production, operations, construction and technology, Bush said.

The market reacted positively to both announcements: Tourmaline’s shares on the Toronto Stock Exchange jumped 15% on October 11 to close at $12.34/share. It resumed the momentum when markets reopened on October 15, peaking at $12.63/share by mid-morning before giving back some of the gains to close at $12.09/share.