Tourmaline Oil Corp has agreed to acquire Black Swan Energy, Calgary-based exploration and development company operating in the liquids-rich Montney region. The deal, expected to close in July, has a total consideration of about C$1.1 billion. Black Swan is backed by Canada Pension Plan Investment Board, Azimuth Capital Management and Warburg Pincus.
CALGARY, AB, June 11, 2021 /CNW/ – Tourmaline Oil Corp. (TSX: TOU) (“Tourmaline” or the “Company”) is pleased to announce that it has entered into a definitive agreement to acquire privately owned Black Swan Energy Ltd. (“Black Swan”) for a total consideration of approximately $1.1 billion Cdn, consisting of 26 million Tourmaline common shares and the assumption of net debt(1) up to a maximum of $350 million, including all transaction costs. The transaction is expected to close in the second half of July 2021, subject to regulatory approvals.
The acquisition represents a further important component of the Company’s ongoing North Montney consolidation strategy. Tourmaline envisions the North Montney as the key sub-basin for supplying Canadian LNG, as the Company expects the North Montney to be the primary growth driver in the entire Western Canadian Sedimentary Basin for the next decade. The Black Swan acquisition complements Tourmaline’s core Gundy development and, along with the more recent Polar Star, Chinook, and Saguaro transactions, will establish Tourmaline as the largest current North Montney producer with the most extensive future drilling and project inventory. As a Senior Canadian producer, Tourmaline now expects to average approximately 500,000 boepd of production by mid-2022.
BLACK SWAN ACQUISITION OVERVIEW
Tourmaline will acquire expected average production of over 50,000 boepd at close, post the first phase of the Nig Creek expansion, which expands again to 60,000 boepd in 1H 2022 upon completion of the deep cut installation.
Tourmaline acquires existing 2P reserves of 491.9 million boe (GLJ – December 31, 2020), 1,600 Montney horizontal internally estimated drilling locations (237 booked in GLJ 2P Reserve category), and 230,000 net acres of Montney rights. All the acquired reserves are in the Aitken core development area.
The acquisition includes material Montney land positions at Laprise, Beg, Jedney and Sojer that complement extensive existing Tourmaline North Montney acreage positions. Black Swan had not booked material reserves on these additional, highly prospective, acreage positions.
Significant key gas processing and transportation infrastructure including operatorship and 50% working interest in the two new Black Swan gas plants at greater Aitken, with existing capacity of 265 mmcfpd, which can be expanded to 360 mmcfpd. These plants and pipelines represent important components of Tourmaline’s planned North Montney regional gas and liquid processing and transportation infrastructure complex.
The existing Black Swan developed block at Aitken features amongst the highest performance Tier 1 Montney subsurface assets with per well EUR of 8-10 bcf and strong initial liquid yields (40-70 bbl/mmcf, 50-60% C5(+)). As of 2020YE, there were 99 producing Upper Montney horizontals and an additional 220 Upper Montney 2P undeveloped locations currently at Aitken (GLJ – December 31, 2020).
Existing Black Swan cash costs(2) are top quartile at under $10.00/boe. Tourmaline envisages considerable cost synergies on a go forward basis.
Black Swan’s three largest shareholders as well as all directors and officers have entered into agreements with Tourmaline in support of the transaction representing, in aggregate, over 98.5% of Black Swan’s outstanding common shares.
The board of directors of each Black Swan and Tourmaline have unanimously approved the transaction.
Scotia and Stifel FirstEnergy acted as financial advisors to Tourmaline and Peters & Co. Limited acted as financial advisor to Black Swan.
TOURMALINE PLANS AND OUTLOOK
The Black Swan acquisition will facilitate Tourmaline evolving into a 500,000 boepd company during 2022, with anticipated mid-2022 gas production of 2.25-2.30 bcf/day and total liquid production of 115,000 bpd (oil, condensate, NGLs).
The acquisition is expected to grow Tourmaline’s North Montney production to approximately 175,000 boepd during 2022, inclusive of the Gundy Phase 2 expansion commencing production in January 2022.
The Company’s envisioned North Conroy expansion is expected to increase Tourmaline North Montney production by an additional 100,000 boepd post 2025.
Tourmaline expects the Black Swan assets to generate a $150-200 million/year in free cash flow (“FCF”)(3) at strip pricing(4) in 2022 and beyond. The FCF accelerates in 2023 after existing Black Swan natural gas hedges expire.
Tourmaline will complete the Nig Creek Phase 2 plant expansion growing production to 60,000 boepd in 1H 2022 and plans to maintain production at those levels. There is a current available drilling inventory in the core Aitken development to maintain production at these levels for approximately 15 years. Annual maintenance capital is estimated at $65 – 70 million (16-18 wells/year).
An expansion of the North Aitken plant, with deep cut capability installation, is currently scheduled in the 2024-2025 timeframe, adding an incremental 15,000 boepd to the Black Swan production base. Tourmaline will match this incremental project to the timing of incremental Basin egress capacity that the Company secures.
Tourmaline expects to be able to reduce cash and capital costs for the Black Swan assets, improving margins/FCF generation commencing in 2022.
ABOUT TOURMALINE OIL CORP.
Tourmaline is an investment grade Canadian senior crude oil and natural gas exploration and production company focused on providing strong and predictable long-term growth and a steady return to shareholders through an aggressive exploration, development, production and acquisition program in the Western Canadian Sedimentary Basin by building its extensive asset base in its three core exploration and production areas and exploiting and developing these areas to increase reserves, production and cash flows at an attractive return on invested capital.