Varcoe: 'It's heading the right way' — A $1.4B takeover and LNG progress improve outlook for Canada's biggest gas producer

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It’s been a busy few days for Tourmaline Oil Corp. CEO Mike Rose, whose company announced a $1.45-billion takeover this week — one of the largest in its 15-year history — and then saw a proposed LNG project it’s supporting take another step forward.

For the country’s largest natural gas producer, it feeds into a bullish picture for the commodity. Even as short-term gas prices in Western Canada remain sluggish, the prospects for liquefied natural gas developments in the country are strengthening.

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“I think the second half of this decade is going to be brilliant for natural gas prices because you get LNG starting up in Canada (and on) the U.S. Gulf Coast . . . there’s going to be a big requirement for nat gas,” Rose said in an interview Friday.

“It’s going to be a great time to be in the nat-gas business for all the Canadian producers.”

Founded in 2008, Tourmaline has grown rapidly to become the fifth-largest gas producer in North America. It operates in three main areas In Western Canada and Tourmaline’s daily output was forecast to average about 520,000 barrels of oil equivalent (boe) per day this year.

That was before the company unveiled an acquisition this week that will propel Tourmaline’s output above 600,000 boe a day by year’s end.

The Calgary-based producer announced the purchase of Bonavista Energy Corp., with the offer consisting of $725 million in cash and $725 million in stock.

Bonavista has operations in the Alberta Deep Basin, near some of Tourmaline’s existing assets. It produces more than 60,000 boe per day, mainly natural gas.

Tourmaline has grown primarily through the drill bit, but has augmented it with M&A activity, including the $1.1-billion purchase of Black Swan Energy two years ago and the $630-million acquisition of Jupiter Resources in late 2020.

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In 2016, it bought assets from Shell Canada in the Alberta Deep Basin area and Montney properties in British Columbia for $1.4 billion.

Rose said Tourmaline will likely maintain Bonavista’s production near current levels in 2024. He anticipates natural gas prices to remain volatile through this year and likely next year.

(On Friday, U.S. benchmark price dipped six cents to close at US$2.90 per million British thermal units. In Alberta, AECO natural gas prices sat at US$1.73 per thousand cubic feet on Thursday.)

However, the pricing dynamic should improve with the anticipated operation of the LNG Canada project off Canada’s Pacific Coast beginning in 2025.

“When LNG Canada starts up, we see that is probably a positive event for in-basin pricing here, and then that would probably be the right time to grow the Bonavista assets a little bit,” Rose added.

For years, Canada has aspired to become a major LNG exporter, although the country has been slow to enter the sector. Only two projects are under construction: the massive Shell-backed LNG Canada development and the smaller Woodfibre LNG initiative in British Columbia.

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Meanwhile, the United States has accelerated quickly to become the world’s largest exporter of liquefied natural gas, averaging 11.6 bcf per day of exports during the first half of this year, topping Australia and Qatar.

Cedar LNG
Artist’s conception of proposed LNG liquefaction plant, a floating structure planned for Kitimaat Village, near Kitimat, B.C. CedarLNG

A final investment decision in Canada is expected later this year on the proposed $3.3-billion Cedar LNG development — a proposed floating liquefaction facility near Kitimat — which is a partnership between the Haisla Nation and Pembina Pipeline Corp.

Earlier this week, Ksi Lisims LNG filed its application with the British Columbia government to receive an environmental assessment certificate for the proposed development in the province’s northwest corner.

The Ksi Lisims project is a partnership between the Nisga’a Nation, Western LNG and a consortium of domestic natural gas producers called Rockies LNG Partners, which includes Tourmaline and Bonavista.

“It is absolutely a significant step forward because it’s the culmination of years of work,” said Rebecca Scott with Ksi Lisims LNG.

As proposed, the project would include two floating liquefaction, storage and off-loading barges, capable of producing up to 12 million tonnes of LNG per year, with gas destined for customers in Asia. The project would use between 1.7 and two bcf of gas per day, which would be transported through a pipeline from northeastern B.C. to the Pacific coast.

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Depending on regulatory approval, a final investment decision would likely take place in 2025, with construction on the project — previously estimated to cost between $8.3 billion and $9 billion — expected to take about three years to complete.

Aside from Tourmaline, the Rockies consortium also includes Advantage Energy, Birchcliff Energy, Crescent Point Energy, NuVista Energy, Ovintiv, Paramount Resources, and Peyto Exploration & Development.

“The reason why producers are looking to LNG is that there’s this international demand for the gas — and recognition that it’s going to be a very important part of the energy transition,” Charlotte Raggett, president of Rockies LNG, said in an interview.

At Tourmaline, Rose has long been a proponent of LNG development in the country. The company also has a long-term deal in place to deliver some of its gas to a Cheniere Energy LNG export facility on the U.S. Gulf Coast, which it began doing in January.

While the International Energy Agency has projected global natural gas demand will plateau later this decade as decarbonization efforts intensify, Rose sees the need for more product to displace higher-emitting coal that’s used in Asia.

Tourmaline joined Rockies LNG in August and Rose sees the prospects for Canadian-based LNG are improving.

“It’s heading the right way,” he added. “It’s never fast enough. But we’re going push hard to expand the business.”

Chris Varcoe is a Calgary Herald columnist.

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