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by Maureen McCall
The inside scoop on Tourmaline M&A activity and Macro Natural Gas trends with Jamie Heard VP of capital markets at Tourmaline Oil Corp
Tourmaline Oil Corp. is Canada’s largest natural gas producer and there is no room for debate that they have an aggressive exploration, development, production and acquisition program in the Western Canadian Sedimentary Basin.
Tourmaline maintains operations in three core areas: Alberta’s Deep Basin with a three-million-acre land position, Peace River Triassic Oil-one of the lowest cost large scale resource plays in North America and in BC Northeast Montney it is one of Canada’s biggest producers according to their website.
So when the opportunity came up to hear Tourmaline’s VP of Capital Markets Jamie Heard speak about M&A strategies and natural gas trends, who could refuse the opportunity? Heard’s focus is on acquisitions, capital allocation, investor relations and strategy. He has worked at Tourmaline since 2019.
Tourmaline’s recent acquisitions, including Crew Energy Inc for $1.4 billion and Bonavista Energy Corp., have contributed to its growth. Heard emphasized the importance of scale for market credibility and cost of capital.
“Scale is a big part of how you are priced in the market. In general, there’s an inflection point when you get to a certain size,” Heard said, “All of a sudden you start to get credit from the market and earn a cost of capital – you earn a multiple. As a small business today, it’s possible but really hard to differentiate and get that multiple without that size and scale. So the pressure to be a bigger business is large.”
Heard sees that being a bigger business offers many advantages and his message was that it is not too late to “get big”. He advised that although the “ship is starting to sail” in the United States, it is not too late in Canada.
From his perspective, he sees a “recipe” companies need to follow for the different types of transactions that a company may pursue at different times in its life cycle. He advises fund managers today, typically won’t or can’t look at companies valued under $10 bn. They start paying attention at $10 bn. He advised that companies need to find potential partners for their growth strategy, from low to high. Once a company reaches that inflection point – it will get a lot more attention from fund managers.
Still, being a small business has some advantages. One advantage is the investment made into the business is rewarded quickly if you are successful. It’s a small base effect according to Heard, when a company can grow production quickly and can go cash flow per share quickly. If the company can show a couple of years of 15 to 20% production per share and capital per share growth, he says the market will pay attention.
“Asset quality and execution are totally necessary to that recipe,” Heard said. “You’ve seen this success in Clearwater and in pockets of the Montney. You can be a small, growing business and be rewarded just by stringing together a couple of years of track record. A&D at this size is most successful by adding inventory into your business and making yourself more efficient. It’s hard to do the larger deal. You’re just not there yet. But then you can get into that mid-sized business.”
Heard stressed that scale adds meaningful ownership and opportunities to go to the market to raise funds. He mentioned Tourmaline’s recent acquisition in October of this year of Crew Energy Inc. for $1.4 billion which along with the November acquisition of Bonavista, has contributed to Tourmaline’s growth. He described how Crew had good assets that had just become discounted by the market. It was recognized that Crew’s Groundbirch development project is a world-class asset that just could not get capitalized. Tourmaline was able to acquire it at a premium which increased by the end of the day by 2 or 3% because the strategic fit was understood. He described it as the kind of strategic deal that opens up once a company gains “a track record”.
Heard highlighted the need for strategic deals that are pre-cash flow accretive and the benefits of small, meaningful acquisitions. He also spoke about the value of having asset execution teams working on deal teams- specifically geologists and reservoir engineers -especially if they are assets near where you are currently operating and stressed the need to have full employee buy-in on this approach.
“We also think surface strategy is important. Marketing and midstream can incorporate a huge amount of value and also risk in terms of what you’re buying. There’s been deals that look great in the subsurface, but have a really tough surface conversation that we walked away from. The 80/20 rule applies here. It needs to look like a screaming good deal from a NAV (Net Asset Value) basis.”
He also addressed the potential for gas demand growth due to renewable energy needs, pointing out that renewable projects have been adding a lot of capacity, especially in the U.S. but the actual generation from those projects is disappointing.
“We’re adding generation but at the same time renewables need baseload power that can dispatch really quickly,” Heard said. “Gas answers that call way better than hydro, nuclear, or coal, and that’s why you see gas growing along with renewables. The point here is that renewables struggle in the evening and morning, and they always will, even with battery loads you’re going to need some sort of baseload generation. This is how the symbiosis between gas and renewables has gone.”
Heard touched on the productivity per foot of U.S. vs Canadian Basins and determined that the U.S. basins have crossed their peak production. Productivity per foot in Canada is still improving which Heard sees as our opportunity. Although activity was robust in 2024, he doesn’t expect much growth in 2025 as many companies hold their investor days recently they seem to report they are generally slowing down a little bit but still he asserted “There is constant hope in Energy and there should be.”
In closing, he added: “We’re looking hard at the next phases of Western development. So big picture, we’re going to see a lot of LNG consumption come on over the next three years. It’ll be a big part of the story, but the incremental part of the story is how much more gas we burn.”
Maureen McCall is an energy professional who writes on issues affecting the energy industry.
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