Key Morningstar Metrics for Tourmaline Oil
- : C$57.00Fair Value Estimate
- : ★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : HighMorningstar Uncertainty Rating
What We Thought of Tourmaline Oil’s Earnings
Improved commodity prices for natural gas liquids and crude oil are assisting performance, while Tourmaline Oil TOU management hopes that demand firms up in the Western United States. If it doesn’t, then the firm is likely to constrain production into the summer months.
Why it matters: Liquids pricing has improved as global consumers seek to replace lost supplies. 2027 pricing has begun to move up as the disruption caused by the Iran war extends.
- Gas prices have not moved, as liquefied natural gas production remains at full capacity. Until more capacity starts up on the Gulf Coast, US demand will need to pick up for better pricing to be realized.
- Constraining production by choking wells and deferring production is common practice in low-price environments. It’s not great if it is done, but it’s better than pushing more volumes into a market that doesn’t need gas.
The bottom line: We are increasing our fair value estimate to C$57 per share from C$54 after refreshing our model with the quarter’s results.
- We see shares trading narrowly in 3-star territory and recommend shareholders wait for a better opportunity to enter a position.
- Our no-moat rating, Standard Capital Allocation Rating, and High Uncertainty Rating are unchanged.
Big picture: LNG and data centers remain the bigger story for Tourmaline and gas producers generally. Shell acquiring Arc Resources makes LNG Canada Phase 2 more likely, but the actual impact to gas producers will be less as Shell is likely to grow production into its offtake from the facility.
- Gas demand is set to rise in the lower 48, driven by LNG and power generation. Tourmaline’s opportunity is to use its firm pipeline capacity to backfill volumes, along with its LNG offtake agreements.
- Beyond 2028, there are opportunities for increased demand. If government reforms accelerate data center development, then the WCSB is an attractive option given the plentiful supply of gas. For similar reasons, Ksi Lisims LNG could move forward but not come online until the 2030s.
