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The company’s rise is all the more impressive because Tourmaline is a natural gas producer, and that’s a tough business to be in right now.HENRY ROMERO/Reuters

If Tourmaline Oil Corp. operated in any other sector, its 50-per-cent return in 2013 wouldn't be anything special. Last year Canadian Tire posted a similar gain.

But the company's rise is all the more impressive because Tourmaline is a natural gas producer, and that's a tough business to be in right now.

While major players like Encana Corp. and Talisman Energy struggle to turn around their operations, Tourmaline has been, and continues to be, a star. On Monday the company released its full-year production figures for 2013, and investors had every reason to be delighted, sending the stock to a new record high of $46.41.

Yet after 20 months of almost continual gains, a period during which Tourmaline's stock price more than doubled, you have to wonder: does the rally still have legs? And is any of this too good to be true?

As skeptical as you might be, the numbers are pretty compelling. At the end of 2013, Tourmaline produced 113,000 barrels of oil equivalent a day, near the high end of its production estimate of 100,000 to 115,000 barrels per day. And more of its production came from liquids – 15 per cent versus expectations of 12 per cent – so the company is diversifying itself away from volatile dry natural gas prices.

Then there's Tourmaline's balance sheet. With a debt burden amounting to just 1.1 times the company's trailing cash flow, the $575-million that Tourmaline has borrowed is roughly a drop in the bucket, giving the company ample room to take on more debt for capital spending.

It doesn't hurt either that Tourmaline is founded by Mike Rose, who famously sold off Duvernay Oil to Shell for $5.9-billion in 2008. Energy investors often flock to management teams with proven track records, and Tourmaline's executives certainly have histories to boast about.

Finally, Tourmaline's got good land – "some of the best in northeast British Columbia," RBC Dominion Securities analyst Michael Harvey recently noted – and it's a low-cost operator.

All of that clearly gives the rally some credence. But there's one thing investors can't ignore. It's hard to find solid energy producers in these markets, so portfolio managers are flocking to high-quality names, like Tourmaline, Arc Resources and Peyto. If the energy market improves – natural gas prices continue to rebound, oil sands crude becomes more attractive – there could be a quick transfer of money out of these expensive plays and into cheaper stocks.

However, even then, it would still be hard to completely ignore Tourmaline – provided management can keep its operations in order. Already the company is focusing more on lands that are rich in light oil and natural gas liquids, which could boost the bottom line no matter what happens to traditional gas.

And with a small debt burden, Raymond James analyst Kurt Molnar recently noted that the company has ample room to borrow to fund extensive capital spending, and then pay this debt back by issuing equity in the future – music to investment bankers' ears.

Not only have investors been extremely receptive to Tourmaline's previous offerings, Mr. Molnar notes that the company's management team has taken this approach many times before, both with this company and with Duvernay. "We expect it to remain a strategic tool," he noted.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 4:00pm EDT.

SymbolName% changeLast
ARX-T
Arc Resources Ltd
+1.65%23.99
ENB-T
Enbridge Inc
+0.89%48.81
TOU-T
Tourmaline Oil Corp
+2.7%62.28

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