Momentum in oil prices has remained strong of late. Indeed, many energy investors are finally seeing their day in the sun. After a rough 2020, this sort of environment has certainly been welcomed by many investors.
Fundamentals ought to be important to every investor. And in Tourmaline’s case, the company’s recent numbers speak to just how important rising oil prices have been.
In the Q1 of 2021, this company recorded net income of $248 million. This amounted to $0.83 per share. These earnings surpassed the $207 consensus analyst estimate by a wide margin.
The key reason for this earnings beat? Rising oil prices in conjunction with rising production and output.
Indeed, oil prices are outside of Tourmaline’s control. However, production levels are something the company is able to vary over the longer term. This past quarter, Tourmaline reported an impressive 417,800 boe/d of output in March. This is substantially higher than last year’s production levels of approximately 300,000 boe/d.
Of course, oil prices are a heck of a lot stronger today than they were a year ago. Accordingly, Tourmaline has planned for continued production increases on the horizon, as well as capex spending of more than $1 billion on the horizon.
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Acquisition-based growth boosting top and bottom line
Tourmaline has been an acquirer of late. In this oil price environment, making moves to grow one’s size in the marketplace makes sense.
Indeed, I view the company’s recent deals with two big private producers as wins. Tourmaline recently announced the acquisitions of Jupiter and Modern Resources in Q4 of last year. These deals have contributed approximately 33% of the production growth Tourmaline reported this past quarter.
For those bullish on where oil is headed, these deals seem well timed. The sector remains on unstable footing, meaning companies like Tourmaline can potentially walk away with some steals in the M&A arena. Indeed, if these deals turn out as the company expects, the revenue and cash flow growth stemming from these acquisitions could result in more flexibility to allow Tourmaline to pursue additional deals.
I’ve said it before, and I’ll say it again: Tourmaline is an undervalued and overlooked Canadian energy play right now.
The company’s size, scale, and production are noteworthy, but that still isn’t enough to capture the attention of most investors due to the company’s larger competitors, which suck up most of the investment in Canada’s energy sector.
That said, for investors seeking a high-leverage play on the price of oil, Tourmaline is a great choice today.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Chris MacDonald has no position in any of the stocks mentioned.