TSX: TVE – CALGARY, May 9, 2019 /CNW/ – Tamarack Valley Energy Ltd. (“Tamarack” or the “Company“) is pleased to announce its financial and operating results for the three months ended March 31, 2019. Selected financial and operational information is outlined below and should be read in conjunction with Tamarack’s unaudited condensed consolidated interim financial statements for the three months ended March 31, 2019 and related management’s discussion and analysis (“MD&A”) which are available on SEDAR at www.sedar.com and on Tamarack’s website at www.tamarackvalley.ca.
Q1 2019 Financial and Operating Highlights
- Production averaged 23,149 boe/d (64% oil and NGL weighting), reflecting the Company’s compliance with the production curtailment order imposed by the Government of Alberta that came into effect on January 1, 2019 (“Curtailment Order”). Tamarack adjusted the timing of its capital investment and activity in order to comply with the Curtailment Order and as a result, five wells were brought on production late in the period and had minimal contribution to average volumes in the quarter. The Company also exited Q1/19 with 18 Viking oil wells and two Cardium oil wells that were drilled awaiting completion. Based on field estimates, current production is 24,000 boe/d in line with estimated annual average production between 23,500 boe/d and 24,500 boe/d.
- Total adjusted operating field netback (see “Non-IFRS Measures”) of $57.5 million ($0.25/share basic and diluted) in Q1/19 was 50% higher than the $38.3 million generated in Q4/18 ($0.17/share basic and diluted).
- Operating netback (see “Non-IFRS Measures”) of $30.11/boe in Q1/19 was 58% higher than the Q4/18 netback of $19.03/boe and was equal to Q1/18 primarily due to the continuation of strong realized pricing supported by the Company’s 64% oil and NGL weighting and a reduction of operating and transportation expenses.
- Net production and transportation expenses in Q1/19 were 5% lower at $10.20/boe compared to $10.76/boe in Q1/18 primarily due to increased production from the lower-cost Veteran area and a reduction in transportation expenses as a result of the recently commissioned pipeline in the Provost area of Alberta (the “Provost Pipeline”).
- Invested $71.2 million in the quarter, with 76% directed to drill, complete and equip 31 (30.2 net) Viking oil wells, 7 (6.1 net) Cardium oil wells and 2.0 net Penny oil wells. In addition, 19 (18.5 net) Viking oil wells that were drilled in late Q4/18 were completed and brought on production. The Company also drilled 18 (17.7 net) Viking oil wells and 2.0 net Cardium oil wells that will be brought on production in Q2/19, resulting in the Company being able to increase production in Q2/19.
- Completed four minor tuck-in acquisitions of assets in Q1/19 totaling $1.1 million and subsequent to quarter end closed a Viking oil acquisition for $4.7 million in the Veteran/Consort area of Alberta, adding 130 boe/d and 9.4 net sections of undeveloped Viking land. These lands are adjacent to existing Tamarack lands.
Financial & Operating Results
Three months ended |
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March 31, |
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2019 |
2018 3 |
% change |
|
($ thousands, except per share) |
|||
Total Revenue |
95,047 |
98,736 |
(4) |
Adjusted operating field netback 1 |
57,503 |
58,545 |
(2) |
Per share – basic 1 |
$ 0.25 |
$ 0.26 |
(4) |
Per share – diluted 1 |
$ 0.25 |
$ 0.25 |
– |
Net income (loss) |
(4,826) |
3,294 |
(247) |
Per share – basic |
$ (0.02) |
$ 0.01 |
(300) |
Per share – diluted |
$ (0.02) |
$ 0.01 |
(300) |
Net debt 1 |
(219,348) |
(186,732) |
17 |
Capital Expenditures 2 |
71,243 |
69,630 |
2 |
Weighted average shares outstanding (thousands) |
|||
Basic |
226,341 |
228,621 |
(1) |
Diluted |
226,341 |
231,713 |
(2) |
Share Trading (thousands, except share price) |
|||
High |
$ 2.96 |
$ 3.09 |
(4) |
Low |
$ 2.03 |
$ 2.31 |
(12) |
Trading volume (thousands) |
64,864 |
30,945 |
110 |
Average daily production |
|||
Light oil (bbls/d) |
12,689 |
13,239 |
(4) |
Heavy oil (bbls/d) |
483 |
299 |
62 |
NGL (bbls/d) |
1,548 |
1,347 |
15 |
Natural gas (mcf/d) |
50,576 |
51,879 |
(3) |
Total (boe/d) |
23,149 |
23,532 |
(2) |
Average sale prices |
|||
Light oil ($/bbl) |
65.47 |
67.92 |
(4) |
Heavy oil ($/bbl) |
40.65 |
45.23 |
(10) |
NGL ($/bbl) |
40.85 |
45.14 |
(10) |
Natural gas ($/mcf) |
2.82 |
2.25 |
25 |
Total ($/boe) |
45.62 |
46.62 |
(2) |
Operating netback ($/Boe) 1 |
|||
Average realized sales |
45.62 |
46.62 |
(2) |
Royalty expenses |
(4.86) |
(5.16) |
(6) |
Production expenses |
(10.20) |
(10.76) |
(5) |
Operating field netback ($/Boe) 1 |
30.56 |
30.70 |
– |
Realized commodity hedging loss |
(0.45) |
(0.59) |
(24) |
Operating netback |
30.11 |
30.11 |
– |
Adjusted operating field netback ($/Boe) 1 |
27.60 |
27.64 |
– |
Notes: |
|
(1) |
Adjusted operating field netback, net debt, operating field netback and operating netback do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other issuers. See “Oil and Gas Metrics” and “Non-IFRS Measures“. |
(2) |
Capital expenditures include exploration and development expenditures, but exclude asset acquisitions and dispositions. |
(3) |
IFRS 16 was adopted January 1, 2019 using the modified retrospective approach; therefore, comparative information has not been restated. |
First Quarter Review
Tamarack’s Q1/19 production of 23,149 boe/d (64% oil and NGL weighting) was impacted by its required compliance with the Curtailment Order, which muted the Company’s previous growth trajectory as the timing of capital spending and activity were adjusted. As a result, three Cardium and two Viking wells were drilled in the first quarter and subsequently brought on production late in the quarter resulting in minimal contribution to average Q1/19 volumes. Based on field estimates, current production is 24,000 boe/d in line with estimated annual average production between 23,500 boe/d and 24,500 boe/d.
The Company was ahead of internal forecasts for production during January, but extreme cold weather in February impacted volumes such that they could not be sufficiently offset by new wells coming on in late March. The prolonged winter conditions allowed the Company to accelerate the drilling of second quarter wells into the first quarter. The Company exited Q1/19 with 18 Viking oil and two Cardium oil wells drilled and awaiting completion. All 20 wells drilled in the period were subsequently brought on production in the second quarter, which are expected to contribute to a ramp up in average production volumes assisting the Company in achieving its first half average production rate forecast of between 23,500 boe/d and 23,750 boe/d. This activity and spending will be assessed regularly in light of the Curtailment Order and prevailing commodity prices.
Tamarack’s oil and NGL weighting remained strong at 64% compared to 63% in Q1/18 and contributed to an average realized sales price of $45.62/boe in Q1/19. The 5% reduction in net production and transportation expenses in Q1/19 which averaged $10.20/boe from $10.76/boe in Q1/18, was attributable to higher volumes from Tamarack’s lower-cost Veteran area combined with lower transportation expenses associated with the December start-up of the Provost Pipeline and the effect of the new lease accounting standard, IFRS 16, “Leases”. These cost reductions drove an operating netback of $30.11/boe in Q1/19, on par with Q1/18. Even with the production impacts, Tamarack recorded strong Q1/19 total adjusted operating field netbacks (see “Non-IFRS Measures”) of $57.5 million ($0.25/share basic and diluted), which was 50% higher than the previous quarter due to improved oil prices and narrower differentials coupled with continued cost reductions.
Successful Execution of Strategy
The Company continued to invest in its long-term future with ongoing expansion of the Veteran waterflood. In 2018, reserves bookings attributable to waterflood only accounted for 4.9 million bbls of total proved plus probable reserves, which Tamarack estimates represents only 5% of the potential risked total waterflood upside in the area. During the quarter, the Company had ten active injector wells which increased waterflood injection volumes from 2,000 bbls/d to 12,000 bbls/d. Another water source well is expected to be drilled in Q2/19 along with completion of the remainder of the planned well conversions to injectors. Tamarack remains committed to enhancing its sustainability and anticipates positive impacts on decline rates and reserve bookings will be realized commencing in 2020.
With Q1/19 development capital spending of $71.2 million, the Company drilled, completed and equipped a total of 31 (30.2 net) Viking oil wells, 7 (6.1 net) Cardium oil wells and 2.0 net Penny oil wells. A further 19 (18.5 net) Viking oil wells that were drilled in late Q4/18 were completed and brought on production. The Company also drilled 18 (17.7 net) Viking oil wells and 2.0 net Cardium oil wells that will be brought on production in Q2/19, bringing the total drilling for the quarter to 49 (47.9 net) Viking oil wells, 9 (8.1 net) net Cardium oil wells and 2.0 net Penny oil wells. Tamarack continued to focus on improvements in capital program efficiencies and drilled the first of its two 3-mile long lateral wells in the Cardium. In moving to a 3-mile lateral, the Company expects to capture rate of return increases that are comparable to those realized when Tamarack increased lateral lengths from 1-mile to 2-miles. In addition to the positive impact of longer laterals, recently implemented modified well designs in the Cardium are also expected to improve capital efficiencies.
Further enhancing its existing asset base, Tamarack completed four minor tuck-in acquisitions in Q1/19 for $1.1 million, and subsequent to quarter end, closed an additional Viking oil tuck-in acquisition in the Veteran/Consort area for $4.7 million, adding 130 boe/d and 9.4 net sections of undeveloped Viking land. These lands are adjacent to existing Tamarack lands.
During the first four months of 2019, the Company purchased and cancelled 434,900 outstanding common shares under its normal course issuer bid (the “NCIB”) program, for a total investment of $1.1 million. The NCIB provides management a tool that can be employed when there is a perceived misalignment between the Company’s prevailing share price and the underlying current and future potential value of its assets. In addition, it helps to offset the dilutive impact that may be associated with the exercise and settlement of options, restricted share units and performance share units issued under Tamarack’s stock-based compensation programs. In April 2019, Tamarack received approval from the Toronto Stock Exchange to renew its NCIB under the same terms.
2019 Outlook
Tamarack’s first quarter production and modification to the timing of bringing wells on production reflects the Company’s compliance with the Curtailment Order. Based on the timing and allocation of capital through the first half of 2019, Tamarack anticipates that approximately 65% of its drilling program will occur in the second half of 2019 with a meaningful ramp-up in production volumes anticipated during the fourth quarter, subject to the Curtailment Order being lifted.
Based on current strip prices, the 2019 capital program is forecast to generate approximately $40 million to $50 million of adjusted operating field netback (see “Non-IFRS Measures”) over and above budgeted capital expenditures, which can be directed to further asset enhancements through acquisition or incremental share buy-backs under its active NCIB program. The Company will re-evaluate its capital allocation strategy in the second half of 2019 to determine whether changes are required to its original capital budget of $170 to $180 million based on the status of the Curtailment Order and the commodity price outlook. Supported by success in accumulating an inventory of Viking and Cardium locations that payout in 1.5 years or less at current commodity prices, the Company estimates it will achieve a 3% to 5% increase in debt-adjusted production per share(1) growth (see “Non-IFRS Measures”) in Q4/19 compared to Q4/18.
Tamarack’s 2019 budget anticipates drilling 125 net wells, including Viking wells in Alberta and Saskatchewan, Cardium oil wells in Wilson Creek and oil wells in Penny. In addition, the Company intends to continue directing capital to activities related to the Veteran waterflood with $20 million budgeted for 15 well conversions in the first half of 2019 and the drilling and conversion of six additional injection wells in Veteran. While the impact of the waterflood on overall corporate decline rates is expected to be realized in 2020, programs such as the Veteran waterflood are key initiatives that serve to enhance Tamarack’s long-term sustainability.
The Company’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. With approximately 30% of its 2019 production protected with hedges including a US$60.00/bbl WTI put option and another approximately 3% protected by fixed price contracts at US$64.60/bbl, Tamarack remains well positioned to withstand further crude oil price volatility.
Subject to the Curtailment Order being lifted by the end of Q3 2019, the Company’s 2019 guidance and assumptions are reaffirmed below.
- Annual average production between 23,500 boe/d and 24,500 boe/d (64% to 66% oil and NGL), with 2019 exit production estimated between 25,500 boe/d and 26,500 boe/d (64% and 66% oil and NGL).
- Capital expenditures between $170 million and $180 million to comply with the Curtailment Order.
- Estimated year end 2019 net debt to Q4 annualized adjusted operating field netback ratio (see “Non-IFRS Measures”) of approximately 1.0 times with an estimated $100 million of liquidity on existing credit facilities.
- 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.
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(1) |
Debt-adjusted production per share is a measure of changes in production on a per share basis, with the number of shares adjusted based on changes to net debt outstanding for the periods being compared. Debt adjusted share count is calculated as total shares outstanding plus incremental shares issued using $2.30 per share to eliminate the change in net debt or in the case where net debt decreases the reduction in shares using the same $2.30 per share. |
Tamarack’s strategy remains focused on preserving balance sheet strength and remaining flexible with capital spending in the face of continued commodity price and crude oil price differential volatility.
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.