Tourmaline Oil Corp. to acquire Crew Energy Inc. in C$1.3bn deal

Tourmaline Oil Corp. (TSX: TOU) has announced a major acquisition of Crew Energy Inc. in a deal valued at approximately CAD 1.3 billion. The arrangement involves Tourmaline Oil Corp. purchasing all issued and outstanding common shares of Crew Energy Inc. The transaction will be executed through the issuance of 18.778 million common shares of Tourmaline Oil Corp. and the assumption of Crew Energy’s net debt, estimated at CAD 240 million. The deal, which is expected to close by early October 2024, is a significant part of Tourmaline Oil Corp.’s strategy to consolidate its presence in the North East British Columbia (NEBC) region.

Acquisition Details and Strategic Impact

The acquisition of Crew Energy Inc. is set to enhance Tourmaline Oil Corp.’s asset base in the South Montney region, aligning with its long-term expansion plans. The integration is expected to be accretive to Tourmaline Oil Corp.’s financial and reserve metrics. The addition of Crew Energy Inc.’s assets is projected to boost Tourmaline Oil Corp.’s free cash flow by over CAD 200 million in 2025. This move positions Tourmaline Oil Corp. to potentially become Canada’s largest and most efficient Montney producer. Currently, Tourmaline Oil Corp. is the leading producer in Alberta’s Deep Basin, with significant holdings in the BC and Alberta Montney plays, which are highly regarded within Canada’s natural gas industry.

Synergies and Growth Opportunities

The acquisition brings multiple synergies, including potential cost savings in drilling and infrastructure. Tourmaline Oil Corp. estimates initial synergies with a net present value exceeding CAD 0.6 billion before tax, not accounting for further productivity gains and marketing opportunities. The Crew Energy Inc. assets include a well-evaluated reserve base of 473.2 million barrels of oil equivalent and over 700 Tier 1 drilling locations. The integration of Crew Energy Inc.’s Groundbirch project, which includes a planned deep cut gas processing facility, is expected to potentially double the existing Crew Energy Inc. production base.

Financial and Operational Projections

Following the closure of the deal, Tourmaline Oil Corp. plans to update its five-year EP (exploration and production) plan. Under the maintenance capital scenario, Tourmaline Oil Corp. anticipates generating over CAD 240 million in annual cash flow. The acquisition is projected to contribute more than CAD 200 million to Tourmaline Oil Corp.’s free cash flow for 2025. After the development of the Groundbirch project, annual free cash flow from the acquired assets could rise to between CAD 350 million and CAD 400 million.

Tourmaline Oil Corp.’s net debt to cash flow ratio is expected to stay below 0.6 times, even after assuming the additional debt from the acquisition. The company’s 2024 production guidance has been revised to reflect the additional output from Crew Energy Inc., with updated projections to be provided following the third quarter 2024 financial results.

Regulatory Approvals and Future Outlook

The acquisition is subject to customary closing conditions, including approvals from Crew Energy Inc.’s shareholders, regulatory bodies, and a court. Notably, Crew Energy Inc.’s board and significant shareholders, holding 32% of the company’s fully diluted shares, have agreed to support the arrangement. Peters & Co. Limited is serving as the exclusive financial advisor to Tourmaline Oil Corp. for this transaction.