Tourmaline Oil Corp. and Enbridge Inc. were tied for first place in the Top 10 list of “Time to Buy” stocks in a survey of analysts’ opinions of over 1,000 Canadian companies.
Tourmaline Oil Corp. (TSX—TOU) announced its second-quarter 2020 financial and operating results with the company averaging 299,369 barrels of oil equivalent daily, tight to IA Securities analyst Michael Charlton’s estimate.
As Tourmaline has moved to capital “maintenance mode”, the company now guides for third-quarter 2020 volumes of 295,000 to 300,000 and fourth-quarter average volumes of 320,000 to 325,000, exiting the year between 322,500 and 327,500 barrels of oil equivalent daily.
In the second quarter realized prices decreased 13 per cent sequentially to $16.28 per barrel of oil equivalent. Lower royalties were offset by increased operating and transportation costs driving netbacks [Netback is a summary of all costs associated with bringing one unit of oil to the marketplace and the revenues from the sale of all the products generated from that same unit. It’s expressed as gross profit per barrel.] of $8.20 per barrel of oil equivalent, and ultimately fuelling cash flow of $225.2 million or $0.83 per share.
42 new wells online in Q3; 57 more in Q4
Spending in the first half of the year was around $401.8 million with $95.6 million invested in the second quarter, leading to second-quarter free-cash-flow of roughly $121.3 million. With about $400 million to spend in the back half of the year, Tourmaline’s capital program will drill 79 new wells and complete around 99 wells. The company anticipates bringing 42 new wells online in third-quarter 2020 and 57 in the fourth-quarter to drive strong exit rates.
The previously announced Chinook acquisition is now complete and added roughly 3,500 barrels of oil equivalent daily of production and 35.6 million barrels of oil equivalent of 2P reserves. Additionally, Tourmaline completed several smaller acquisitions in the Deep Basin for roughly $38.3 million that combined added about 3,500 barrels of oil equivalent daily, 32 million barrels of oil equivalent of reserves, 67 net sections of land and a gas plant interest.
“A reasonably active quarter for Tourmaline despite being in ‘maintenance mode’. During this time of lower field activity, Tourmaline has instead been quite active cobbling together additional production, reserves, infrastructure and strategic land packages, which we anticipate will be beneficial to Tourmaline and potentially its royalty spin-out Topaz (Private) in the near future,” says Mr. Charlton.
The analyst increases his recommendation from “buy” to “strong buy” and raises his target share price to $23 from $20.50. All of the analysts who cover Tourmaline Oil give it a “buy” recommendation, placing the company in a seven-way tie for first place on our top-10 “buys” list.
Enbridge reports strong Q2 results
After moving ahead with its pipeline replacements in the northern US, Enbridge Inc. (TSX—ENB; NYSE—ENB) displays strong second-quarter 2020 results that should reinforce Raymond James Financial’s core narrative of the resilient Enbridge business model, especially relative to the rest of the sector.
With relatively few challenges remaining for the L3R project through Minnesota, and signs of legal opposition to the Line 5 Tunnel project beginning to abate, the analyst believes, as of July 30, that shares of Enbridge could see momentum coming out of the quarter.
“While far from the finish line (for the Line 5 Tunnel), we believe we are beginning to see an inflection point in the continued opposition toward Line 5 through the State of Michigan.
Michigan may now be on side
“Notably, the State of Michigan did not file a Leave to Appeal the recent favourable ruling for Enbridge on the constitutionality of the Line 5 Tunnel agreement, substantially concluding that lawsuit and reinforcing the legal right to continue advancing that project. This follows on a recent resolution passed through the State Legislature in late-June which saw a vote of 80-28 in favour of supporting the Tunnel project, including 23 of the 51 Democrats voting on the proposal,” Mr. Cox states.
The company’s discounted cash flow (DCF) guidance for 2020 remains unchanged from $4.60-to-$4.80 a share. Meanwhile, analyst Chris Cox believes the base case now sits in the upper half of this guidance range, especially given the outperformance over the first half of 2020. DCF of $1.21 per share for the second quarter beat the consensus Wall Street estimate of $1.05 per share for largely the same reasons.
Mr. Cox denotes an unchanged “outperform” recommendation, “medium” risk rating, and $55 per-share target price. All six analysts covering ENB give it a “buy” recommendation. That puts Enbridge in a seven-way tie for first place in our “top-10 buys” list.
This is an edited version of an article that was originally published for subscribers in the August 21, 2020, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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