Tourmaline Oil Corp (TOU.TO)

Natrual gas prices? The 2021 strip price for AECO is over $2. That will work for strong balance sheet producers like TOU, NVA (60% natural gas), and ARX.

How will their spin-out be a catalyst? They created the spinout, but haven't IPOd yet (https://www.newswire.ca/news-releases/tourmaline-announces-formation-of-topaz-energy-unlocking-value-in-tourmaline-s-significant-asset-base-867903254.html) They took the bull by the horns in a poor sentiment environment of low natural gas prices, worse then oil. So, they created Topaz, a royalty infrastructure company. These companies trade at a big premium which attracts better investor sentiment. Topaz just bought land from Painted Pony and bought a private as well as public company. They consolidated land and infrastructure in northeast BC. They can use Topaz to sell some of that infrastructure to reduce the cost. It's a great way to reduce their cost of capital. They can download assets to Topaz. He sees a lot of upside for TOU to do acquisitions.

TOU is too high of a natural gas exposure for him. BIR is overspending their cash flow to fill a plant they invested in for the promise of free cash flow next year. If you believe the strip pricing next year, they will generate a 26% free cash flow yield. However, it is also natural gas related. He just thinks there are better buying opportunities from the over selling in the oil markets from the Corona virus.

He doesn't like the oil sector. Don't buy weakness in a strong market. Hard to make money in an unloved sector, oil. No uptick here. ESG and coronavirus are headwinds. CNQ or Suncor are the very top stocks in this sector and are the only serious considerations.

He really likes this company, although he does not own it presently. Insiders have been buying regularly. They are generating excess cash flow and have plans to improve the balance sheet, buy back shares and perhaps raise the dividend later on. New facilities are coming on line and this will help bump up total production. A table pounding buy below $13. Book value is $28. A big LNG project on the west coast would benefit this company. Yield 3.5%

Market Outlook TOU-T is planning to spin off some of their infrastructure into a royalty like offering, while retaining 80% of the value. Prior to this the stock was trading at all time lows and the market was giving zero value to the infrastructure they held. The company was trading at 3 times cash flow. The assets they are effectively selling are being valued at 9 times cash flow within the offering. This should remind people how undervalued this space is and there are self-adjusting opportunities that will "fix the funk" we see today. ARX-T has a similar 20% of its company in similar infrastructure. Once we get past the upcoming Federal election things should move forward. What a party says on the campaign trail and what happens in reality can be two very different things. The Liberals appear to support the TMX pipeline project in reality and it will ultimately get built, he says. 11% of our GDP in Canada comes from the energy sector.