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Tourmaline feeding off growth diet Company, now 3rd among Canadian gas producers, posts industry exploration records in Alberta, BC; ready to exploit ‘weak moments’ Gary Park For Petroleum News
The depth of management experience that has enabled Tourmaline Oil to climb in only eight years to Canada’s third largest natural gas producer have recently yielded industry records from horizontal Deep basin wells in northwestern Alberta and Montney wells in British Columbia.
Led by Mike Rose, whose track record includes the sale of Berkley Petroleum to Anadarko in 2001 for C$1.6 billion and Duvernay Oil to Shell in 2008 for C$5.9 billion, Tourmaline topped 800 million cubic feet per day in 2014 and extending into 2015.
That puts it behind only Canadian Natural Resources at a projected 1.65 billion cubic feet per day and Encana at about 1.6 bcf to 1.7 bcf per day.
The prospects of further gains have been elevated by Tourmaline’s latest results from Western Canada’s hottest resource plays.
High-deliverability horizontal wells have been drilled in the Notikewin, Wilrich and Falher plays on the company’s Columbia-Harlech land block in the Deep basin, with three wells testing at an average 17.7 million cubic feet equivalent per day each (85 percent gas).
More wells, new gas plant More wells are scheduled after the spring breakup, with a new gas plant targeted to come on stream in the first half of 2016.
In British Columbia’s Montney formation - which has staggering estimated resources of 3,000 trillion cubic feet of gas - Tourmaline drilled its highest-deliverability wells in the first quarter, with rates from its Upper and Middle Montney wells averaging 17.5 million cubic feet equivalent per day.
In the process, it has managed to lower drilling and completion costs for Montney horizontals to C$3.8 million, down 30 percent from 2014.
Production in Deep basin surpassed a company record of 600 million cubic feet per day in March, with 30-day rates for 16 Wilrich wells averaging 10.1 million cubic feet equivalent per day.
The Wilrich sweet spot is estimated to hold more than 100 drilling locations.
Additional 3-D Tourmaline has acquired two additional 3-D seismic programs to high grade its pending drilling sites as well as grow the inventory, which includes 40,640 acres of new land, raising its stake to a basin-leading 1.4 million acres.
In the Peace River area of northwestern Alberta, Tourmaline expected to complete a 24,000 bpd Mulligan battery in the third quarter and is counting on a sharp reduction in its overall operating costs.
In addition, the cost of drilling sand completing a horizontal well is down 25 percent over the past year to C$3.5 million.
Continuing its buying spree, the company gained 84,480 acres in a regional pool in the Peace River, feeding another 220 locations into the drilling inventory.
Tourmaline’s overall first quarter output was 862.3 million cubic feet equivalent per day (87 percent gas) and current volumes are running from 912 million to 942 million cubic feet equivalent as it targets 987 million cubic feet equivalent.
It is forecasting cash flow of C$1.06 billion this year and C$1.36 billion in 2016.
Looking for companies in slumps In a Bloomberg interview in March, Rose left little doubt that he is back on the trail of companies that are in a slump, including large operations he believes will be pressured to sell if low prices persist.
“We’ve stayed close to certain companies and you kind of peck away at them and maybe you get them in a weak moment,” he said.
His target list includes companies that are unloading assets and trimming dividends, while Tourmaline enjoys low debt and a cheap gas supply that investment bank Peters & Co. said means purchases are affordable.
Tourmaline has “historically taken times like these to fill in and add to their core areas,” said Peters’ analyst Cindy Mah.
Rose said that his company’s combination of drilling success along with ownership of pipelines and gas processing plants allows it to be profitable even with Canadian gas prices below $3 per gigajoule.
Tourmaline’s market value of about C$7.6 billion has taken a dip along with a 2.4 percent loss of share prices compared with 5.2 percent in the 76-member S&P/TSX Energy Index.
“There are some good assets for sale in Canada,” Rose said, suggesting that if commodity prices remain week through the third quarter more will be on offer.
His record in that respect verges on impeccable, given that Tourmaline was formed in 2008 when North American gas prices nosedived from US$13.57 per million British thermal units to US$5.29.
Rose said the company is open to expansion in three main areas - Deep basin, Peace River High and the Montney.
If any moves happen, they will likely come soon, given Tourmaline’s own expectation that gas will reach C$4 per gigajoule in 2016 from this year’s anticipated average of C$2.59, and U.S. crude regains US$70 a barrel.
Analysts are inclined to think Tourmaline is itself too big for a takeover, although Mah said there could be interest if British Columbia enters the LNG age - a theory that Rose agrees has potential.
However, he postulated that “majors are doing things right now and the only people that can buy us are super-majors,” that would be dominated by the big players on the British Columbia coast who need gas feedstock for LNG projects.
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