Patrick J. O'Rourke, CFA

Tourmaline Oil Corp.

On January 23, ATB Capital Markets hosted a virtual discussion with investors and Jamie Heard, Manager, Capital Markets of Tourmaline Oil Corp. (TOU) that focused on the recent agreement between the BC provincial government and Blueberry River First Nations (BRFN) that will permit and regulate oil and gas land disturbances in the BRFN traditional territory going forward and ensure protection of enshrined Treaty 8 rights. We came away from the discussion with a positive outlook for the path forward for oil and gas development in BC, and the risks associated with “high value” areas. In our view, TOU remains well positioned relative to peers given the strength of its longstanding indigenous relationships both in BC and Alberta. 

Highlights:  

Agreement a Clear Positive Development for BC Producers
TOU conveyed a clear positive view on the forward outlook for development in BC following the announcement of the agreement between the BRFN and BC government that provides a path forward for responsible development in partnership with Treaty 8 indigenous stakeholders. Under the terms of the agreement, TOU is confident in its ability to continue to execute its growth strategy with the prolific NEBC North Montney development that includes 3,372 future locations primarily affected by the agreement. The agreement does not impact key drivers of economics, most notably the royalty schedule, and from an execution perspective, strategic planning, such as locating key gas and liquids processing expansions on the existing Aitken hub land footprint, will reduce land use and access.   

Defining and Understanding “High Value” Land Use Parameters Critically Important
One of the key question marks following the announcement was with respect to the definition of “High Value” areas, including 650,000 estimated hectares (Ha) with a development moratorium. Subsequent to the announcement, a map was released by the BC government suggesting certain areas, which we have updated to include land positions in Figure 2. The key takeaway is the High Value Area 1-A, where a development moratorium has been suggested, appears to have minimal overlap with commercial Montney development or TOU acreage holdings. Development in other areas and management of the 750 Ha land use cap will ultimately be determined through relationships between bands and producers, which positions TOU well relative to peers. TOU pointed to land use of 100-150 Ha per year, with the upper end of the band representing 20% of the land use allowance, roughly in line with our estimate of TOU’s 18% current share of BC gas production.