Facing ‘extremely weak’ natural gas prices, Tourmaline explores data centre, spending cuts

Mike Rose, Tourmaline Oil Ltd.'s chief executive, speaks during a press event on Oct. 22, 2024. Photo by Jim Wells/Postmedia files

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Canada’s largest natural gas producer is looking to cut costs further as it copes with “extremely weak” prices in Western Canada — despite a global energy crisis that has generally led to a dramatic rise in commodity prices.

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Calgary-based Tourmaline Oil Corp. told analysts during its quarterly earnings call that it is also exploring growth avenues, including a possible data centre project.

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The company said it’s looking at the possibility of having a big tech company operate a data centre at one of its sites, which Tourmaline would supply with natural gas as a source of power. The firm said it has already chosen a power provider and hopes to select a “counterparty” later this year.

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“We have been exploring the possibility of co-locating with a hyperscaler at one of our sites, and are really a year into that evaluation process,” Mike Rose, Tourmaline’s chief executive, said on a conference call with analysts. “We could do that, or we could just simply be a provider of gas to another project.”

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A data centre project would help the major producer find new customers for its natural gas at a time of depressed prices in Western Canada.

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After announcing a $350-million cut to its capital budget earlier in March, Tourmaline said Thursday it has identified an additional $200 million worth of activities that it could defer if Western Canadian natural gas prices remain weak, the result of oversupply in the region.

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Rose said the company’s strategy is to pare back capital spending until prices improve, which he said could happen later this year. Tourmaline’s production sales fell slightly in the first few months of the year to $1.4 billion, partly because of lower prices.

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Those weak prices are “masking” some significant improvements the company is making to its financial performance, Rose told analysts.

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“It’s going to be a double win for shareholders when this all turns around,” the CEO said. “And we think it can happen within a quarter on the local pricing front.”

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Natural gas producers are facing a different outlook than Canadian oil companies, which have been reporting strong earnings due to higher prices for their commodity as conflict in the Middle East cuts off supplies.

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Western Canada has long been dealing with a localized oversupply of natural gas. Many in the industry hoped that LNG Canada, the country’s first shipping terminal for liquefied natural gas, would reduce supplies and raise prices, but so far it hasn’t happened.

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“During the quarter, (Tourmaline) continued to manage through trough gas pricing in an admirable fashion, with production maintained,” National Bank of Canada analyst Dan Payne said in a note to clients.

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Still, there is renewed optimism in the industry that supply challenges caused by war in the Middle East are making Canada a more attractive place to buy LNG, potentially motivating companies to green-light more shipping terminals on the British Columbia coast.