Tourmaline To Acquire Bonavista In Deep Basin Consolidation Move

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Image: Tourmaline's Deep Basin operations

Tourmaline Oil Corp. announced this morning a $1.45-billion deal to acquire Bonavista Energy Corporation, in a move that bolsters its existing Deep Basin assets.

The definitive share purchase agreement with all of the shareholders of Bonavista consists of $725 million in Tourmaline common shares and $725 million of cash, less Bonavista’s net debt at closing.

Tourmaline’s purchase of Bonavista continues a series of acquisitions in recent years that have boosted its output while it has also pushed into exports of liquefied natural gas off the U.S. Gulf Coast to garner better prices for its production.

“Given our scale, we see the opportunity to improve the returns from these assets,” CEO Michael Rose said of the Bonavista deal in an interview with BNN Bloomberg Television. “We can reduce costs, and we have a more diversified marketing portfolio, so we see an opportunity to do even better.”

Tourmaline said in May that it saw acquisition opportunities in the second half of the year amid weak gas prices. The company is boosting gas output, with plans to sign more LNG contracts and increase volumes dedicated for LNG exports to 200 mmcf/d or more.

The acquisition is expected to close in the second half of November 2023, subject to customary regulatory and stock exchange approvals.

Tourmaline said the acquisition represents a further important component of the company’s ongoing consolidation strategy that complements its long-term EP organic growth plan, adding decades of inventory and supplementing its existing Deep Basin assets.

The Bonavista assets are a natural extension of Tourmaline’s existing operations in the Deep Basin where the company is already the largest producer, it said.

The acquisition is immediately accretive to Tourmaline's 2024 free cash flow (FCF) yield.

“While we expect the Bonavista assets to be largely maintenance-focused initially, at first glance the deal appears to be attractively priced in context of meaningful free cash generation plus features the benefits of significant embedded tax pools,” RBC Capital Markets analyst Michael Harvey said.

Following closing of the acquisition, Tourmaline expects to exit 2023 with production of over 600,000 boe/d.

The company will release its formal 2024 guidance proforma this acquisition with an updated five-year plan alongside third quarter results on Nov. 1, 2023.

In September, Peyto Exploration & Development Corp. agreed to buy Repsol’s Deep Basin assets for US$468 (C$636 million).

Bonavista acquisition overview

The acquisition, which includes low-decline, long-life average production of over 60,000 boe/d, is expected to generate net operating income of approximately $450 million per year in 2024 through 2026 based on strip pricing, with anticipated EP spending of under $225 million per year on the assets.

The Bonavista assets include existing 2P reserves of 459 million boe at October 1, 2023, as well as 839 gross (656.7 net) horizontal internally estimated drilling locations and 1.2 million net acres of land rights.

Bonavista’s after tax PDP reserve net present value at a 10 per cent discount rate is $1.4 billion (based on internally estimated reserves and IC3 Q4 2023(11) pricing).

In addition, Bonavista YTD cash costs to June 30, 2023, were $10.29/boe, including operating costs of approximately $6.14/boe.

Tourmaline said it anticipates considerable cost synergies on the Bonavista assets on a go forward basis.

The board of directors of each of Bonavista and Tourmaline have unanimously approved the acquisition.

Peters & Co. Limited acted as financial advisor to Tourmaline and TPH&Co, the energy business of Perella Weinberg Partners, acted as financial advisor to Bonavista.

Base dividend increase and special dividend declaration

Given continued strong financial forecast for 2H 2023, as well as anticipated sustainable FCF coupled with its low-cost structure, Tourmaline’s board has approved an increase to the quarterly base dividend effective Q4 2023 to $1.12/share, on an annualized basis, from the current annualized $1.04/share, representing a 7.7 per cent increase.

The board has also declared a Q4 2023 special dividend of $1.00/share that will be paid on Nov. 1, 2023, to shareholders of record on Oct. 24, 2023. – with files from Bloomberg, Reuters

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