Tourmaline Oil (TOU)

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Peculiar_Investor
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Tourmaline Oil (TOU)

Post by Peculiar_Investor »

Does anyone follow Tourmaline Oil? AltaRed? I've sort of followed them off and on for a while, mostly based on the thesis of the management team being a smart bunch who've had previous success, Shell to Acquire Duvernay Oil for C$5.27 Billion (Update4) - Bloomberg. Based on my research to date, Tourmaline seems like somewhat of a reincarnation of Duvernay Oil, which interests me as I'll explain below.

Back in the days of oil and gas royalty trusts, a reasonable successful investment thesis was to watch the juniors that got acquired by the trusts and see where the management team ended up. The good management teams that enjoyed success as exploration companies had reduced interest in the business once it became an operating producer. So they sold to the royalty trusts who wanted the operating assets, waited until their non-complete expired and restarted another junior exploration company, typically with some prime assets hived off from the sale of the previous company. Back in the heydays of the tech boom I enjoyed reasonable successful in the energy sector using this thesis. Now I'm wondering it the time is right to revisit it.

I've just finished reviewing their Q3 report, Tourmaline Earns $28.5 Million in the Third Quarter, and I must admit I like their cash flow story. Their debt to equity ratio has been rising, but generally seems under control, as do their interest costs. It has held up pretty well as compared to others such as Encana. One potential negative for some, Tourmaline doesn't pay a dividend, but I'm OK with that as I'd prefer they reinvest in the business. I like their management team and business model better than Crescent Point as another example from the energy sector.

I'm currently holding Encana, the original thesis was a natural gas play, particularly after then spun out Cenovus, but Encana seems to be moving back much more into the oil space. The trade opportunity here would be to harvest a capital loss from Encana and invest the proceeds into Tourmaline to maintain sector exposure to the Energy sector (I'm well underweight vs. the index).
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Re: Tourmaline Oil (TOU)

Post by nisser »

I don't follow them but if you want to have a gas play, you could also look into VET. And they pay a dividend. Their P/CF are equivalent.
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Re: Tourmaline Oil (TOU)

Post by AltaRed »

I don't follow them either but anecdotally I have heard that investors who follow successful management teams from company to company have usually done well too. Murray Edwards, First Engergy et al apparently made a lot of their money following/funding successful management teams. It also seems to be a theme with several of the money managers who prostitute themselves on BNN's Market Call.

It may be more of a question how much of that is baked into current stock price. They have been a market darling for some time. But if the fundamentals support current market prices, I'd give the Tourmaline team a :thumbsup:

The bigger issue to me is the breadth and depth of the gas price funk North America is in. It's been tough sledding ever since the USA discovered horizontal drilling and fracking. Can TOU continue to be a high performer/low cost operator at these price levels?

Added: I would not be concerned with TOU not paying a dividend either. Dividend yields are over rated in the energy resource space due to the cyclic nature of the business. At most, dividend yields should be 'low' aka what IMO does.
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Re: Tourmaline Oil (TOU)

Post by Peculiar_Investor »

AR, thanks for the insights.
AltaRed wrote:The bigger issue to me is the breadth and depth of the gas price funk North America is in. It's been tough sledding ever since the USA discovered horizontal drilling and fracking. Can TOU continue to be a high performer/low cost operator at these price levels?
That's the $26.11 (or so) question :wink: Based on my reading of their earnings reports over the past year or so it does appear so. As with most (all?) of the energy sector, their stock price has been hammered pretty hard over the past year, bringing the fundamentals back into line and one could make the argument that valuations are cheap. Whether they can get cheaper is unknown, but I wouldn't bet against it. I'm not trying to time the bottom or anything, just trying to buy solid companies with solid management teams as a reasonable margin of safety.

I was listening to a respected value money manager, who normally stays away from the commodities sector, commentary the other day. His viewpoint/thesis was the only time they consider looking at the sector and consider buying is when the stock is cheap and the commodity is also cheap and then look at the low cost producers with solid balance sheets. For the most part I'm thing that Tourmaline falls into this category.
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Re: Tourmaline Oil (TOU)

Post by AltaRed »

Peculiar_Investor wrote:His viewpoint/thesis was the only time they consider looking at the sector and consider buying is when the stock is cheap and the commodity is also cheap and then look at the low cost producers with solid balance sheets. For the most part I'm thing that Tourmaline falls into this category.
I know even less about PEY than TOU but they seem to have the lock on lowest Opex and have significant growth....but I am not aware of their balance sheet.
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Re: Tourmaline Oil (TOU)

Post by Peculiar_Investor »

Peyto Exploration & Development Corp (PEY) is another name I've been comparing against Tourmaline. They come out ahead on some metrics and behind on other metrics. I haven't researched their financials in as much detail, yet.

Vermilion Energy (VET) also shows up in my research, but lags on many metrics based on the quick comparables I've looked at.

I'm still leaning towards Tourmaline at this point based on the thesis of the quality and history of success of the management team involved. Still working on my due diligence to understand the company and their business situation. Valuations and a margin of safety are key drivers to my investment decision, but at the end of the day I'm buying a business (okay a very small part) and intangibles such as the quality of the management group are a consideration also.
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Re: Tourmaline Oil (TOU)

Post by core »

I've held Tourmaline since better days ($48ish) so I can share a few observations with regards to the stock. Obviously my perception is a bit soured, but I still have a positive outlook on the shares from this current level, which is why I continue to hold today.

1) The management team is loved by everybody. The founder/CEO had previously done two versions of this company and achieved tremendous success selling them. So when TOU came around, everybody felt comfortable making a bet on Mike Rose and his magic.

2) They are reportedly one of the lower cost energy producers in Canada, which should ease some fears in this terrible price environment. When you have an environment like this, you want to see which companies have strong enough balance sheets for acquisitions. TOU made one in the summer.

3) It goes without saying, but the current energy environment is grim and with no end in sight. If you want a Canadian energy play, this or Suncor could be as safe as it gets (without buying the index). However, with that said, it's hard for me to justify going into energy at all right now. I say this, and I stupidly DCA'ed into the XEG ETF just last week, when I should've poured into a more generic one. Maybe I need that 1-800 oil stock hotline...
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Re: Tourmaline Oil (TOU)

Post by Peculiar_Investor »

Thanks. I was well aware of #1, that's part of my original thesis on the company.

I'm still working through understanding the company, its assets and cash flow to make sure I can test how accurate #2 really is. As to #3, I'd rather buy when everyone is fearful, I'm just trying to make sure I'm not catching a falling knife. The jury is very clearly out on that one, and as you say will be for a while.
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Re: Tourmaline Oil (TOU)

Post by AltaRed »

O&G is a tough place to be for sure. Any kind of prolonged period of prices at current levels is going to shake out some marginal production. Some cannot cover cash costs at these levels in both oil and gas. TOU, PEY and a few others in the Montney will probably do all right but growth will be stunted.

I am concerned the natural gas malaise has a long time to sort itself out simply because of US shale gas production. LNG is not going to save anyone soon and it is fraught with investment risk. Imagine if nat gas prices doubled (eventually) but oil prices stay in the $50 doldrums long term because of climate change pressures and rapid conversion. There will be insufficient spread/margins in LNG to justify new investment. Christy Clark is going to be disappointed.
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Re: Tourmaline Oil (TOU)

Post by Peculiar_Investor »

Today's headline news -- Shell sells $1.3 billion of Canadian oil and gas assets in latest pullback by energy major | Financial Post, Tourmaline is the buyer. I'm left to wonder how much of the assets being purchased are remnants of the Shell to buy Canada's Duvernay Oil | Reuters deal?

The Tourmaline press release -- Tourmaline Oil Corp. announces strategic asset acquisition in the Alberta Deep Basin and NEBC covers the details including a discounted stock offering today.
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Re: Tourmaline Oil (TOU)

Post by DenisD »

TOU will be added to the S&P/TSX 60 Index on Sep 19.

https://money.tmx.com/en/quote/TOU/news ... X_60_Index
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Re: Tourmaline Oil (TOU)

Post by brady »

Has been an exceptional stock. I is a focused NG producer . I believe another NG producer offers better upside and that is Arx Resources. TOU has been the sweetheart in this market but I figure Arx's day is coming.
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tourmaline oil

Post by jaime »

Hi all

Im thinking of investing some gamble money in TOU based on this article:


https://calgaryherald.com/opinion/colum ... y-takeover

my takeaway is that Tourmaline Oil's acquisres of Bonavista Energy, highlighting how Mike Rose, sees the deal as a strategic move to consolidate assets and achieve cost savings in the natural gas sector.i think the merger reflects broader trends in the Canadian energy industry as companies seek efficiencies and scale amid challenging market conditions.

does anyone have any insight or thoughts on the stock price for TOU based on this? and if its a good investment opportunity.

Thanks

Merged into existing thread - Moderator W
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Re: Tourmaline Oil (TOU)

Post by AltaRed »

I do not follow individual O&G stocks but clearly Mike Rose is known to be one of the very best in the business. I doubt he would have been buying nearly as much as he has if he did not see a pretty robust future in gas. That said, no one quite knows how the energy transition will play out and the role of gas throughout the transition. There are several jurisdictions in North America starting to restrict new natural gas heating installations at the state or municipal level, and probably in Europe as well but Asia still looks as a strong bet for some time to come.

The bigger question may not be whether gas has a robust future or not as much as it is... is that mostly baked into TOU's price already? Maybe it depends on what you are looking for here.... a solid play with moderate growth, or a bell wringer doubling in price within 3-5 years.
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Re: Tourmaline Oil (TOU)

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AltaRed wrote: 11 Dec 2023 18:36 .... a solid play with moderate growth, or a bell wringer doubling in price within 3-5 years.
a bell ringer :) or at least outperformance over a smeared out global etf. Is that too much to ask for?
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Re: Tourmaline Oil (TOU)

Post by AltaRed »

No way of knowing if that will/would be the case. Part of the answer lies in whether it is an attractive valuation at the moment and just how well the planets will line up with LNG demand and pricing. Clearly there is an opportunity to strengthen both gas volumes and price with LNG but I suspect too many investors are expecting too much.
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Re: Tourmaline Oil (TOU)

Post by Peculiar_Investor »

jaime wrote: 11 Dec 2023 16:57 does anyone have any insight or thoughts on the stock price for TOU based on this? and if its a good investment opportunity.
We've held Tourmaline for a number of years and have no plans to sell. As AltaRed states, Mike Rose is a tremendous CEO and the company treats their shareholders quite well, returning excess cash via dividends and numerous special dividends.

As to the current price and whether or not it is good investment opportunity, I don't really know. It depends on what metrics and valuation methods you use for your portfolio.
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