Calgary, Alberta – Tamarack Valley Energy Ltd. (TSX: TVE) (“Tamarack” or the “Company“) today announces proactive revisions to its 2020 capital budget and associated guidance in response to events impacting the global oil and gas industry.
Tamarack remains committed to enhancing its long-term sustainability and to executing a measured capital program that is fully funded with internally generated adjusted funds flow (see “Non-IFRS Measures”), while ensuring that the Company is well positioned for 2021. Given low crude prices and the impact of the Coronavirus (COVID-19) pandemic, Tamarack has revised its capital plans and established a more defensive capital program with the focus on preserving liquidity and its balance sheet strength. The Company’s 2020 capital program has been adjusted to $95 – $105 million, which enables Tamarack to maintain a net debt to annualized adjusted funds flow ratio (see “Non-IFRS Measures”) of less than two times at current strip prices ($35.00/bbl WTI in 2020). The Company will continue to monitor changes in the market and adapt its capital and operating plans in response to these dynamic conditions. Despite the reduction in capital expenditures, Tamarack remains committed to ongoing environmental, social and governance (“ESG”) initiatives including a well abandonment program, methane capture projects and the continued support of Indigenous culture and education through engagement of its First Nations partners.
The Company is positioned to withstand further crude oil price volatility as approximately 43% of its first half 2020 oil production is protected with derivative contracts at US$58.21/bbl and 26% of its second half 2020 oil production is protected with derivative contracts at US$55.32/bbl. At the current strip prices noted below, Tamarack anticipates full year hedging gains of approximately $42 million.
Tamarack also confirms that the Company has a comprehensive risk management plan in place to deal with the impact of the COVID-19 pandemic. This plan includes proactive measures taken to ensure a safe workplace for all employees, contractors and consultants across the organization along with mitigation strategies for the various potential business risks which could be associated with COVID-19. Tamarack is prepared to implement additional measures in the event the number of infection cases continues to increase. The Company is also committed to ensuring effective stakeholder management around the pandemic, including the provision of organizational and financial support to the Kainai (Blood) Tribe.
Details of the revised 2020 capital program and associated guidance are outlined below.
Revised 2020 Capital Budget and Guidance
|Original Guidance||Amended Guidance|
|Full Year Capital Budget ($MM)||$170-$180||$95-$105|
|Annual Average Production (boe/d)||23,500-24,500||21,500-22,500|
|Annual Average Oil & Natural Gas Liquids Weighting (%)||~64-66%||~62-64%|
|Free Adjusted Funds Flow(1) ($MM)||$28-32||$18-23|
|Net Debt to Q4 Annualized
Adjusted Funds Flow Ratio(1) (times)
|2021 Estimated Corporate Decline Rate(2)||<30%||23-26%|
(1) See Non-IFRS Measures
(2) Based on December 2020 to December 2021 estimates
This guidance is based on average 2020 commodity price assumptions of WTI US$35.00/bbl, MSW/WTI differential of US$4.35/bbl and AECO at $1.85/GJ as well as a Canadian/US dollar exchange rate of $0.7277.
Under the Company’s amended and more defensive capital program, 2020 annual average production is forecast to be lower than 2019. However, management believes its revised plan will enhance the sustainability of the Company into 2021 and beyond through a lower corporate decline rate, lower maintenance capital requirements (see “Non-IFRS Measures”) and balance sheet preservation.
To facilitate these objectives, a greater percentage of 2020 capital (over 30%) will be allocated to Tamarack’s Veteran waterflood program. Incremental waterflood production is expected to improve the corporate decline rate to between 23% and 26% in 2021, compared to previous estimates of less than 30%. Lower decline rates will lead to a reduction in the maintenance capital required for 2021 (approximately $100 to $110 million), and will enable balance sheet strength with an estimated net debt to adjusted funds flow ratio of less than two times (Q4 annualized and annual trailing). Tamarack retains significant liquidity on its current bank line and will continue to be pragmatic in adjusting the capital program as deemed necessary.
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.