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Tourmaline Oil Corp.: Navigating Near-Term Challenges Amid Long-Term LNG Ambitions

Edwin FosterThursday, May 8, 2025 12:30 pm ET

3min read

Tourmaline Oil Corp.’s Q1 2025 earnings underscore a company at a crossroads—balancing near-term financial headwinds against ambitious growth plans fueled by strategic acquisitions and infrastructure investments. While the quarter’s earnings per share (EPS) miss and post-earnings stock dip highlight short-term market skepticism, the company’s operational resilience, dividend discipline, and long-term LNG-driven growth trajectory warrant closer scrutiny.

Financial Performance: A Mixed Bag

Tourmaline reported an EPS of $0.56, a 63.6% shortfall relative to the $1.54 consensus estimate. This miss was largely attributed to elevated capital expenditures ($825 million in Q1) and weak natural gas prices at Station 2, which forced deferred frac work. However, revenue surged 8% above forecasts, reaching $1.89 billion, driven by robust production and strong liquids sales.

The company’s free cash flow of $150 million was constrained by CapEx, but management emphasized a rebound in the second half of 2025, when the LNG Canada Phase 1 facility—set to begin operations late this year—will boost gas prices and cash flows.

Despite the Q1 miss, Tourmaline maintained its dividend tradition, announcing a special $0.35/share dividend and a $0.50/share quarterly payout, extending its streak of eight consecutive years of uninterrupted dividends. This underscores management’s commitment to shareholder returns even amid cyclical pressures.

Operational Strengths: Production Growth and Strategic Acquisitions

Tourmaline’s operational performance was a bright spot. Q1 production averaged 638,000 BOEs/day, an 8% increase year-over-year, with March hitting a record 645,000 BOEs/day. The Alberta Deep Basin Complex set a new high of 330,000 BOEs/day, while acquisitions in the Montney region—notably the La Prairie-Conroy assets and Greater Septimus area—added 20,000 BOEs/day and 4.10 Tier 1A drilling locations, bolstering reserves and future growth.

Long-term, Tourmaline aims to scale production to 850,000 BOEs/day by 2030, enabled by infrastructure projects such as the $300 million Northeast BC Montney build-out, which includes four new gas plants. The first of these, the Aitken plant, is slated to come online in late 2026, directly supporting LNG export growth.

Strategic Priorities: LNG, Liquids, and Liquidity

Tourmaline’s strategy hinges on three pillars:
1. LNG-Driven Growth: The LNG Canada Phase 1 facility will absorb 95 MMcf/d of gas, lifting Canadian prices and free cash flow. Meanwhile, the Rockies LNG project—now in engineering phase—could secure a Final Investment Decision (FID) by early 2026, further diversifying export channels.
2. Liquids Focus: Liquids volumes hit 150,000 barrels/day in March, with management targeting sustained growth through improved well performance and storage management.
3. Balance Sheet Discipline: Acquisitions were financed via equity issuance, preserving liquidity. The $2.6–2.85 billion 2025 CapEx budget prioritizes infrastructure over expansion, with a focus on small-to-medium deals to avoid over-leverage.

Risks and Challenges

Gas Price Volatility: Weak Station 2 prices delayed frac work into Q3, highlighting reliance on Canadian gas markets.
Execution Risks: Delays in Montney infrastructure could disrupt production targets.
Backwardation in Strip Pricing: Natural gas forward curves suggest lower prices in 2026–2027, compressing free cash flow unless operational efficiencies offset this.

Conclusion: A Buy for Long-Term LNG Bulls

Tourmaline’s Q1 results reveal a company navigating cyclical headwinds while laying groundwork for secular growth. Key data points reinforce this:
- Production: 8% YoY growth, with 660,000 BOEs/day achievable in April before Q2 maintenance.
- Liquidity: $150 million free cash flow in Q1, with H2 2025 cash flow projected to surge on LNG-driven price improvements.
- Reserves: Acquisitions added 3.63 million BOEs of 2P reserves, extending resource life.

While the EPS miss and stock dip reflect near-term pain, Tourmaline’s $400 million annual tax burden from 2026 onward could be offset by tax benefits from acquisitions, while hedging (1.16 Bcf/day at $4.95/Mcf) mitigates gas price risks.

For investors, Tourmaline presents an asymmetric opportunity: downside is tempered by dividend discipline and low leverage ($1.9 billion net debt as of Q1), while upside hinges on LNG demand and infrastructure execution. With a stock price at $63.68—near its 52-week low—the risk-reward balance tilts favorably for those willing to bet on North American gas markets and energy infrastructure plays.

In summary, Tourmaline Oil Corp. is a hold-to-buy for investors with a 3–5 year horizon, provided the LNG Canada facility meets its timeline and gas prices stabilize. The company’s focus on high-margin Tier 1A assets and its disciplined capital allocation suggest that, while short-term volatility persists, the long-term trajectory remains intact.

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