Tourmaline Oil Corp. continued its expansion in Canada’s Montney shale play with an agreement on June 11 to buy privately owned Black Swan Energy Ltd. for CA $1.1 billion.

The announcement is a part of a larger trend in the Canadian energy sector, which has seen a flurry of mergers between oil and gas producers within the past year. This includes the recent acquisition of Seven Generations Energy Ltd. by ARC Resources Ltd. for CA$2.7 billion, which established ARC Resources as the Montney’s largest oil and gas producer.

The Black Swan merger, in particular, represents a further important component of Tourmaline’s own ongoing consolidation strategy in the North Montney, the company said in its release.

“Tourmaline envisions the North Montney as the key sub-basin for supplying Canadian LNG, as the company expects the North Montney to be the primary growth driver in the entire Western Canadian Sedimentary Basin for the next decade,” the company said.

Despite ARC Resources’ status as the Montney’s biggest producer, Tourmaline expects to become the largest producer in the northern region of the play upon closing of the Black Swan acquisition, which is anticipated in July. 

“The Black Swan acquisition complements Tourmaline’s core Gundy development and, along with the more recent Polar Star, Chinook and Saguaro transactions, will establish Tourmaline as the largest current North Montney producer with the most extensive future drilling and project inventory,” the company continued in the release.

Tourmaline Investor Presentation Black Swan Energy Acquisition Map
(Source: Tourmaline Oil June 2021 Investor Presentation)

The acquisition of Black Swan adds over 50,000 boe/d of production. As a result, Tourmaline said it now expects to average approximately 500,000 boe/d of production by mid-2022.

Further, Tourmaline expects the Black Swan assets to generate between CA$150 million and CA$200 million of free cash flow starting next year, which the company said led to the approval by its board of directors of a 1 Canadian cent per share increase of its dividend.

Total consideration of the Black Swan transaction comprised of 26 million Tourmaline shares and net debt of up to $350 million that included deal costs, according to the company release.

Scotia and Stifel FirstEnergy were financial advisers to Tourmaline for the transaction. Peters & Co. Ltd. acted as Black Swans’ financial adviser.

Onshore