Tourmaline Continues BC Montney Consolidation Strategy with the Acquisition of Crew Energy Inc. and Increases Base Dividend
Press Release
AUGUST 12, 2024
Calgary, Alberta – Tourmaline Oil Corp. (TSX:TOU) (“Tourmaline” or the “Company”) is pleased to announce that it has entered into a definitive arrangement agreement with Crew Energy Inc. (“Crew”) to acquire all of the issued and outstanding common shares of Crew( 1 ) (the “Acquisition” or the “Arrangement”) in exchange for 18.778 million Tourmaline common shares and the assumption of net debt of approximately $240 million, including all transaction costs, for total consideration of approximately $1.3 billion(2). The Acquisition is expected to close in early October 2024, subject to customary closing conditions.
The Acquisition represents a further important component of the Company’s continuing NEBC consolidation strategy that builds on its long-term EP organic growth plan. It provides a significant high-quality addition to Tourmaline’s South Montney asset base and is immediately accretive to the Company’s key financial and reserve metrics, adding over $200 million to Tourmaline’s anticipated 2025 free cash flow(3)(4) (“FCF”). The Crew assets provide a significant future growth opportunity which, coupled with Tourmaline’s extensive, well-defined BC Montney development inventory, will facilitate the Company evolving into Canada’s largest and most efficient Montney producer. Tourmaline already is the largest Alberta Deep Basin producer; the BC/AB Montney and the Alberta Deep Basin are widely regarded as Canada’s two premier natural gas plays. In addition, the Acquisition complements Tourmaline’s continued growth towards a 750,000 boepd Canadian senior producer over the next five years, with further growth opportunities extending into the next decade.
The Company plans to sequence the timing of major capital projects, and associated volume growth, with improving commodity markets and will continue to prioritize total shareholder returns. Tourmaline believes this is an opportune time for consolidating natural gas assets prior to imminent major growth in the North American LNG business and acceleration of natural gas-powered electrical generation requirements across the continent.
- Including the issuance of Crew common shares pursuant to Crew’s incentive awards in accordance with the terms of the Arrangement.
- Based on Tourmaline closing share price of $58.28/share on August 9, 2024.
- “Free cash flow” is a non-GAAP financial measure defined as cash flow less capital expenditures, excluding acquisitions and dispositions. Free cash flow is prior to dividend payments. See “Non-GAAP and Other Financial Measures” in this news release.
- Based on oil and gas commodity strip pricing on July 15, 2024.
“Dale and his team at Crew have done a tremendous job over the past 21 years assembling one of the premier, concentrated Montney asset bases in NEBC, with significant upside. Tourmaline’s scale, execution capability and ability to generate strong FCF in all parts of the commodity cycle will allow Crew shareholders to realize the material embedded upside on an accelerated timeline” said Mike Rose, President & CEO of Tourmaline.
CREW ACQUISITION OVERVIEW
- The Acquisition includes existing low decline average base production of 29,000 – 30,000 boepd, externally and independently evaluated proved and probable (“2P”) reserves of 473.2 million boe (Sproule Report – effective December 31, 2023), and an extensive drilling inventory, including over 700 Tier 1 locations (246 net Montney locations booked in the Sproule Report 2P reserve category). The Crew assets are immediately adjacent to Tourmaline’s existing South Montney operated complex.
- Crew’s Groundbirch development project, including the planned and permitted 15-25 electrified deep cut gas processing facility, has the potential to approximately double the existing Crew production base. Tourmaline intends to proceed with the Groundbirch project within the next five years, with specific timing to be determined over the next year.
- Tourmaline has identified multiple synergies associated with the Acquisition, including drilling and completion capital cost improvements, infrastructure capital cost reduction opportunities, as well as liquids growth and margin improvement opportunities. The Company estimates initial acquisition synergies with a net present value of over $0.6 billion at a 10 percent discount rate before tax. This does not include additional value expected to be realized through further productivity gains, expected field operating cost improvements, synergies with existing Tourmaline facilities, or future natural gas marketing opportunities for the Crew gas volumes.
- The Crew drilling inventory complements Tourmaline’s existing Tier 1 inventory, adding an estimated four years of Tier 1 locations based on a break-even average natural gas price of
$1.50/GJ(5). Over the entire combined land base in NEBC and Alberta, the Company now has over 20 years of Tier 1 inventory and over 75 years of total inventory.
- The Arrangement is expected to close in early October 2024, subject to certain customary closing conditions, including receipt of Court, Crew shareholder and regulatory approvals. All of the officers and directors and certain shareholders of Crew (representing 32% of the fully diluted shares outstanding) have entered into voting support agreements and have agreed to vote in favour of the Arrangement.
- The Board of Directors of each of Crew and Tourmaline have unanimously approved the Acquisition.
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