Key Morningstar Metrics for Tourmaline Oil
- : C$51.00Fair Value Estimate
- : ★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : HighMorningstar Uncertainty Rating
What We Thought of Tourmaline Oil’s Earnings
Weak natural gas prices have resulted in a constrained capital plan and no special dividend for Tourmaline Oil TOU. The commodity price outlook appears poor, with in-basin pricing remaining anemic. The company also updated its growth plan for asset sales.
Why it matters: The market hoped that LNG Canada would help soak up the excess gas in the basin. However, producers had the same hope, building production, and weak demand in the Western United States meant exports were not as profitable.
- Canadian natural gas production needs more egress, and further growth risks value destruction if it imperils in-basin pricing.
- Based on the company’s release, current strip pricing does not enable more than the base dividend in 2026 or 2027. Management’s guidance for further cuts to the capital plan if prices don’t improve shows a willingness to protect that dividend.
The bottom line: We are lowering our fair value estimate to C$51 per share from C$52. Commodity pricing over the next several months looks rough, but was partially outweighed by operational and capital cost savings.
- Shares traded 6% lower after the release, but we still view them in 2-star territory.
- Our no-moat rating, Standard Morningstar Capital Allocation Rating, and High Morningstar Uncertainty Rating remain unchanged.
Long view: In February, Tourmaline sold its mature Peace River High operations and raised C$765 million. Management expects the removal to reduce costs by C$0.50 per barrel of oil equivalent, which is one-third of its upsized 2031 C$1.50/boe goal.
- While production has been guided as flat in the near term, the updated capital plan still envisions essentially the same organic growth by 2028 after adjusting for the sale.
- Proceeds will mostly be used to pay down debt, while the remainder will fund growth capital.
