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Outperform-Rated Oil & Gas Company Adds 'Black Swan to the Flock' with Acquisition
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Tourmaline Oil's purchase of a private energy firm is discussed in a CIBC report.

In a June 11 research note, analyst Jamie Kubik reported that CIBC raised its target price on Tourmaline Oil Corp. (TOU:TSX) to CA$40 per share from CA$35. In comparison, Tourmaline's current share price is about CA$31.91.

Kubik explained that CIBC raised its target for two reasons. One is that it expects Tourmaline's cash flow to increase in 2021 and 2022 due to the company's acquisition of Calgary-based Black Swan Energy. The other is to reflect the recent increase in strip commodity pricing.

The analyst discussed the Black Swan acquisition, pointing out the ways it benefits Tourmaline, also headquartered in Calgary. It affords the company high-quality assets. The transaction complements Tourmaline's operations and existing position in northern British Columbia's Montney formation, thereby providing synergies. Also, it solidifies Tourmaline's presence there.

"We expect the development formula from Tourmaline will enhance economic returns on the assets moving forward," Kubik added. "Management estimates current production of 50 MBoe/d from the assets, which computes to ~$22,000/Boe/d and an implied cash flow multiple of ~4.5x 2022E on strip."

Kubik also highlighted that Tourmaline is paying a reasonable price for Black Swan. The total consideration is $1.1 billion, including 26 million Tourmaline shares "and the assumption of $350MM (maximum) of net debt."

The "purchase price screens as being slightly accretive to our pre-deal metrics and provides material long-term runway in a key area of the basin," Kubik wrote.

As for Tourmaline's financial situation, Kubik noted, 2021 capital spending is expected to be $70 million higher than the original estimate of $1.19 billion, but debt is low.

"Although we do see the Black Swan hedge book weighing down cash flows somewhat in 2022, our cash flow expectation increases on the back of the transaction for 2021 and 2022, and we see the 6.25% dividend increase as being appropriate given Tourmaline’s superior financial position. Kubik, its 6.25% dividend increase is warranted," Kubik wrote.

CIBC has an Outperformer rating on Tourmaline.


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Disclosures from CIBC, Tourmaline Oil Corp., Earnings Update, June 11, 2021

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

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Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

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Important Disclosure Footnotes for Tourmaline Oil Corp. (TOU.TO)
• 2a These companies are clients for which a CIBC World Markets company has performed investment banking services in the past 12 months: Tourmaline Oil Corp. • 2e CIBC World Markets Inc. has received compensation for investment banking services from these companies in the past 12 months: Tourmaline Oil Corp. • 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Tourmaline Oil Corp.

For important disclosure footnotes for companies mentioned in this report that are covered by CIBC World Markets Inc., click here: Disclaimers & Disclosures.

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