Tourmaline tops Canadian natural gas producers; BC gaining ground
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Gary Park for Petroleum News
The latest shuffle of Canada’s natural gas cards has dealt a winning hand to Tourmaline Oil, which will emerge as the king of Canadian producers when it closes the purchase of privately held Black Swan Energy in a deal valued at C$1.1 billion.
Founded in 2008 by Mike Rose, who remains Tourmaline’s chief executive officer, the company has made a staggering rise in its relatively short life.
By adding more than 50,000 barrels of oil equivalent per day of Black Swan volumes to its portfolio, Tourmaline will push its output over 500,000 boe per day.
The acquisition is the Calgary-based company’s biggest catch since five years ago when it acquired the shale oil and gas assets of Royal Dutch Shell for C$1.4 billion.
Over the last 18 months, in the thick of the COVID-19 pandemic, Tourmaline has locked up six deals in the Alberta Deep Basin and British Columbia’s booming Montney formation, ranked as one of the four biggest plays in North America.
Rose said Deep Basin and Montney are Canada’s “two best and most profitable gas plays and that’s where our largest presence is.”
He said the Black Swan takeover is a “generational opportunity” to consolidate Tourmaline’s production in the two formations.
“If commodity prices keep going up, or even hold where they are, I think (other merger and acquisition opportunities) will disappear.”
Under the deal, Tourmaline will issue 26 million of its shares for Black Swan and assume up to C$350 million of debt.
Tourmaline said the deal represents a key part of its ongoing North Montney consolidation strategy to dominate development of the key sub-basin for supplying Canadian LNG.
Analysts hail acquisition The latest acquisition was unreservedly hailed by analysts, with Robert Fitzmartyn, the head of energy research at Stifel FirstEnergy, noting that the “high-quality assets (of Black Swan) are being put in the hands of what the market views as a consolidator.”
“This not only reinforces Tourmaline as a North American energy stock, but it’s emerging on a global scale now.”
Rose said his company keeps growing “efficiently to maintain our low costs. We figured out how to be profitable at C$1.75 (per thousand cubic feet) by having such a low-cost structure. Now that’s a little nicer with gas in the C$2.75-C$3 range.”
Fitzmartyn said he believes investors want to own Tourmaline shares because of their value.
He said Rose is a “low-cost guy, so stewardship of the capital is amongst the best.”
Tourmaline’s hope is to gain offshore buyers for its gas as LNG markets come on stream in about 2025, relying heavily on Montney for its feedstock.
Phil Skolnick, an analyst with Eight Capital, said the improving gas sector economics should see more M&A deals by producers with strong balance sheets.
“It’s just the beginning,” he said. “There is a good amount left to be done in the Montney.”
He said one of the goals of engaging in M&A activity is “to gain more relevancy. The bigger you get the more attention you’ll get from investors.”
Gas as wind, solar backstop Almost unnoticed in this swirl of activity is a development that was almost unthinkable until recently as gas fills the void created by the decline of coal and crude oil.
The Canadian Energy Regulator, a federal government agency, said the trend towards low-carbon gas is essential as customers demand a firm source of power to backstop the intermittent wind and solar power supplies.
The CER’s Chief Executive Officer Gitane De Silva said the growth of British Columbia’s natural gas production could see the province become the largest source of gas in Canada by 2040, knocking Alberta off what was thought to be its unassailable perch.
Timothy Egan, president of the Canadian Gas Association, said his organization has delivered to the federal government a list of 70 “shovel ready” natural gas related projects worth a total of C$12 billion that are poised to go ahead.
He said “roughly half of them are in British Columbia.”
Canadian producers argue that natural gas and LNG from B.C. should qualify for a “green” premium because the province limits the use of flaring and venting at well sites and is implementing regulations to further reduce methane emissions from production by 45%.
The B.C. government has also been investing in new transmissions lines to deliver hydro power to northeast B.C. to drive gas plants and pipelines that would otherwise burn gas.
Another boost for gas producers occurred earlier in June when Ontario Premier Doug Ford, leader of Canada’s most populous province, announced a plan to spend C$234 million to provide new gas connections offering heat to 43 rural, remote and Indigenous communities.
The province is also working on a plan to increase the role of gas in electricity generation as Ontario’s nuclear reactors are taken offline around 2025.
The Ontario Power Generator, a provincial utility, has already spent C$.8 billion buying three existing gas plants from TC Energy.
- GARY PARK
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