Morningstar DBRS Confirms Tourmaline Oil Corp.'s Issuer Rating and Senior Unsecured Notes Rating at BBB (high) and Commercial Paper Rating at R-2 (high), Stable Trends

DBRS, Inc. (Morningstar DBRS) confirmed Tourmaline Oil Corp.'s (Tourmaline or the Company) Issuer Rating and Senior Unsecured Notes rating at BBB (high) as well as Tourmaline's Commercial Paper rating at R-2 (high). All trends are Stable. 

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations and Stable trends reflect Morningstar DBRS' view that no material changes to Tourmaline's credit fundamentals are expected in the near term. The credit ratings are based on Tourmaline's (1) large size and production from its multiplay holdings in the Western Canada Sedimentary Basin, (2) efficient and highly integrated operations focused on liquids-rich natural gas resource development, (3) successful track record of low-cost reserve additions, and (4) strong financial risk profile. Factors that temper the credit ratings include Tourmaline's (1) large exposure to North American (N.A.) natural gas markets and related gas price volatility, (2) high concentration of assets in one geographic region, and (3) relatively short proved developed reserve life.

CREDIT RATING DRIVERS
A positive credit rating action would be possible assuming further material improvement in the Company's business risk profile, especially related to product/geographic diversification and proved developed reserves. Given the uplift that Tourmaline's financial risk profile provides to the overall credit rating, a material weakening in oil and natural gas prices that causes the Company's lease-adjusted cash flow-to-debt ratio to stay below 65% for an extended period could result in a negative credit rating action.

EARNINGS OUTLOOK
Tourmaline expects total production to range from 635,000 to 665,000 barrels of oil equivalent per day (boe/d) in 2025, which is estimated to be a 10% to 15% increase from an average of 579.2 mboe/d reported in 2024. To reflect actual Q2 2025 production and two acquisitions in the NEBC Montney that closed in June, Tourmaline intends to update full year 2025 production guidance in the second half of 2025. Incorporating Company estimates for Q2 2025 production and an anticipated 20.0 mboe/d addition from the two acquisitions, Morningstar DBRS expects full year 2025 production to remain within a range of 635.0 to 665.0 mboe/d. Morningstar DBRS expects natural gas to account for approximately 75% of Tourmaline's total production in 2025, about the same as in 2024.

Morningstar DBRS forecasts Tourmaline's net revenue to sequentially increase by about 25% to between $6.4 billion and $6.6 billion in 2025 with the increase in annual production that is incorporated to be partially offset by a lower crude oil price assumption. Based on its base-case West Texas Intermediate (WTI), New York Mercantile Exchange, and Alberta Energy Company (AECO) price assumptions of USD 60/barrel, USD 3.50/thousand cubic feet (/mcf), and CAD 2.50/mcf, respectively, for 2025, Morningstar DBRS expects the Company's EBITDA, EBIT and respective margins to increase relative to 2024. The base-case commodity price assumptions can be found in Morningstar DBRS' commentary, "Crude Spike From Israel-Iran War Likely Short-Lived as Supply Adjusts" (June 17, 2025) at https://dbrs.morningstar.com/research/456419.

FINANCIAL OUTLOOK
Tourmaline's 2025 total capital expenditure guidance (capex) range is $2.60 billion to $2.85 billion. Incorporating its base-case commodity price assumptions, Morningstar DBRS forecasts Tourmaline to generate moderately negative free cash flow (i.e., cash flow after capex and base and special dividends) in 2025, with surpluses thereafter. On March 31, 2025, the Company had total bank debt and senior unsecured notes of about $1.19 billion. Morningstar DBRS forecasts the lease-adjusted cash flow-to-debt ratio to be well above 100% through the forecast period (2025-27), which should provide the Company with the financial flexibility to gradually pay down its debt. Tourmaline has sufficient liquidity. On March 31, 2025, the Company had $2.11 billion available on its $2.55 billion revolving credit facility and $21.4 million available on its $75.0 million operating credit facility. Also on March 31, 2025, the Company's $75.0 million demand letter of credit facility was undrawn.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBBH/BBB
The CBRA reflects Tourmaline's large size (production of 637.9 mboe/d in Q1 2025), highly integrated and efficient operations focused on liquids-rich natural gas developments in the Alberta Deep Basin and NEBC Montney, and its successful track record of low-cost reserve additions. Factors that temper the CBRA include Tourmaline's large exposure to N.A. natural gas markets and related gas price volatility, its high concentration of assets in one geographic region, and its relatively short proved developed reserve life.

Comprehensive Financial Risk Assessment (CFRA): AAA/AAH
Tourmaline's CFRA reflects strong forecast EBIT and operating cash flow, supporting EBIT interest coverage of at least 50 times (x), and a lease-adjusted cash flow-to-debt ratio well above 100% through 2027. The financial risk score also factors in a negative 0.5-notch adjustment for carbon and greenhouse gas (GHG) costs. Morningstar DBRS believes the Company's financial risk profile supports the credit ratings.

Intrinsic Assessment (IA): BBBH
The IA of BBBH is within the Intrinsic Assessment Range and is based on the CBRA and CFRA, also taking into consideration current credit rating trend and peer comparisons, among other factors. To account for the volatility of the oil and gas industry, we selected the IA at the lower end of the Intrinsic Assessment Range.

Additional Considerations: None
Tourmaline's credit ratings include no further negative or positive adjustments because of additional considerations.

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/458536.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor had a relevant effect on the credit analysis: Morningstar DBRS considers the impact of both physical and transition risks associated with climate change with the transition risk deemed to be more substantial. Morningstar DBRS considered carbon and GHG costs as a relevant environmental factor for Tourmaline. This factor is relevant because ever-increasing environmental regulations in Canada targeting the reduction of GHG emissions will likely limit Tourmaline's growth potential and add costs for all oil and gas companies in Canada. Tourmaline's balance sheet strength, relatively lower carbon footprint because of its natural gas-weighted production, and ongoing emission reduction initiatives provide the Company with the financial flexibility to navigate the energy transition path.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in the Oil and Gas, Oilfield Services, Pipeline and Midstream Energy Industries (May 6, 2025), https://dbrs.morningstar.com/research/453396.

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025 https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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