CALGARY, Jan. 15, 2019 /CNW/ – Tamarack Valley Energy Ltd. (“Tamarack” or the “Company“) is pleased to announce its 2019 capital budget, associated guidance and an operational update. Incorporating December field estimates, the Company achieved record production of approximately 24,780 boe/d in Q4/18 with an oil and natural gas liquids (“NGL”) weighting of approximately 66%, in line with its exit guidance range of 24,500 – 25,000 boe/d (65-67% oil and NGL), while spending approximately $7.0 million less than the budgeted capital for the quarter due to the volatility of commodity prices in Western Canada.
The Company’s 2019 guidance and assumptions are outlined below:
- Annual average production between 23,500 – 24,500 boe/d (64-66% oil and NGL), with 2019 exit production estimated between 25,500 – 26,500 boe/d (64-66% oil and NGL);
- Capital expenditures between $170 to $180 million to maintain the Alberta government’s mandatory production curtailments during Q1 of 2019;
- Estimated year end 2019 net debt to Q4 annualized adjusted operating field netback ratio of approximately 1.0 times with an estimated $100 million of liquidity on existing credit facilities; and
- Average 2019 commodity price assumptions of WTI US$50.00/bbl, Edmonton Par C$52.33/bbl, WTI / Edmonton Par differential of US$10.75/bbl, AECO $1.31/GJ and a Canadian/US dollar exchange rate of $0.75.
2019 Capital Program Highlights
Tamarack’s capital allocation strategy over the past several years has remained consistent with the objective of achieving sustainability at low oil prices, while generating debt-adjusted per share growth. Due to the Company’s success in accumulating an inventory of Viking and Cardium locations that payout in 1.5 years or less at current commodity prices, Tamarack expects to be self-funding again in 2019 and estimates it will achieve 3-5% debt-adjusted production per share growth in Q4/19 over Q4/18. The Company remains well positioned to withstand further crude oil price volatility given approximately 25% of its 2019 production is protected with hedges that include a US$60.00/bbl WTI put option and another approximately 3% is protected with fixed price contracts at US$64.60/bbl.
Tamarack’s 2019 capital expenditure plans are to invest between $170 and $180 million, funded entirely through adjusted operating field netback. This capital program is expected to result in production of 23,500 – 24,500 boe/d (64-66% oil and NGL), despite spending approximately 23% less than in 2018 while maintaining flat year over year average production. The 2019 budget anticipates drilling 125 net wells, including 110 Viking light oil wells (94 at Veteran), 13 Cardium light oil wells and two wells at Penny. In addition, the 2019 budget includes $19.8 million of waterflood investments, including 15 well conversions in H1/19 and the drilling and conversion of six additional injection wells in East Veteran. In the context of continued volatility in oil prices and supported by the Company’s exceptional operational execution, Tamarack remains committed to investing in longer-term projects, including the Veteran waterflood, which the Company expects will reduce the overall corporate decline rate in 2020 and enhance Tamarack’s sustainability.
Effective as of January 1, 2019, the Alberta government imposed mandatory oil curtailments designed to mitigate the wide price differential related to a lack of pipeline capacity, which is ultimately expected to lead to stronger oil prices. While the Company’s 2019 capital guidance assumes activity levels will be weighted evenly between H1 and H2 of 2019, the program timing for H1 has been designed to comply with the required production cuts. Following expected stable production levels in H1/19 due to the mandatory volume curtailments, Tamarack anticipates realizing a meaningful ramp-up in production volumes during the second half of 2019, assuming no additional government intervention.
Based on field estimates for December 2018, Tamarack achieved record Q4/18 production of 24,780 boe/d, exceeding the upper end of its annual average 2018 guidance range of 24,000 to 24,500 boe/d (66% oil and NGL).
As previously announced, Tamarack planned to accelerate $28.4 million of 2019 capital into Q4/18 for waterflood projects ($13.2 million) and for drilling to de-risk lands at Veteran ($15.2 million). However, in response to the rapid and extreme widening of Canadian oil price differentials, Tamarack elected to defer approximately $7.0 million of its Q4/18 drilling capital. As a result, the Company’s full year 2018 capital spending will be below its $230 to $235 millionguidance range. With the combination of lower Q4/18 capital spending and strong production performance, Tamarack anticipates that approximately $10-12 million of free cash flow was generated in Q4/18. The Company used approximately $4.1 million of this free cash flow to purchase common shares to either: (i) cancel under its normal course issuer bid (“NCIB”) (926,800 shares totaling $2.3 million); or (ii) hold in treasury to offset future dilution from potential restricted share unit settlements (834,009 shares totaling $1.8 million). The balance of the free cash flow was allocated to year-end debt reduction.
Tamarack’s increased liquids weighting, streamlined cost structure and operational performance have contributed to its ongoing financial flexibility. Should realized commodity prices strengthen through 2019, the Company anticipates generating additional adjusted operating field netback which could be directed to increased capital spending and / or further share purchases through its NCIB program.
Tamarack plans to release its Q4 and year-end 2018 financial and operating results and annual information form for the year ended December 31, 2018 before market on Wednesday, February 27, 2019.
About Tamarack Valley Energy Ltd.
Tamarack is an oil and gas exploration and production company committed to long-term growth and the identification, evaluation and operation of resource plays in the Western Canadian Sedimentary Basin. Tamarack’s strategic direction is focused on two key principles: (i) targeting repeatable and relatively predictable plays that provide long-life reserves; and (ii) using a rigorous, proven modeling process to carefully manage risk and identify opportunities. The Company has an extensive inventory of low-risk, oil development drilling locations focused primarily in the Cardium and Viking fairways in Alberta that are economic over a range of oil and natural gas prices. With this type of portfolio and an experienced and committed management team, Tamarack intends to continue delivering on its strategy to maximize shareholder returns while managing its balance sheet.