Message to Shareholders
Considerable market volatility has dominated 2020 to date, although the third quarter saw an improvement in WTI benchmark prices. Given the persistent uncertainty, Tamarack continues to effectively manage the business through a disciplined capital program and unwavering focus on generating free adjusted funds flow1 . This strategy is designed to protect our financial strength and enhance the long-term sustainability of the Company.
Looking forward, Tamarack remains well positioned to navigate the uncertain commodity environment and deliver shareholder value through:
- A strong balance sheet, with year-end net debt to trailing annual adjusted funds flow1 forecasted to be approximately 1.5 times exiting 2020;
- Free adjusted funds flow1 generation in 2020;
- Prudent risk management including a robust hedge book for the remainder of 2020 and the first half of 2021;
- A diverse drilling inventory which allowed us to accelerate natural gas drilling opportunities into Q4/20 from Q1/21 to capture strength in winter gas prices and take advantage of lower service costs;
- Enhanced sustainability due to lower corporate declines associated with a disciplined capital program, the impact of a low decline asset acquisition and the ongoing success of our Veteran Waterflood program; and
- Continued dedication to upholding the health and safety of our skilled and valued employees, as well as the residents in all of the communities where we operate.
I am particularly proud to highlight our commitment to environmental, social and governance (“ESG”) principles with the publication of our inaugural Sustainability Report. This report, titled “Future Forward Energy”, highlights Tamarack’s approach to sustainability including our commitment to greenhouse gas emissions management as well as building on our Indigenous and community partnerships within the areas where we operate. In addition, the report highlights specific and measurable goals and targets related to key priorities established by the Company.
On behalf of Tamarack’s management team and Board of Directors, we would like to thank our shareholders, employees and other stakeholders for their ongoing support during these turbulent times.
((signed))
Brian Schmidt
President and CEO
1 See “Non-IFRS Measures” |
Third Quarter 2020 Highlights
The third quarter was characterized by continued uncertainty facing the oil and gas sector, largely related to range-bound WTI prices caused by the demand outlook due to the COVID-19 pandemic. Despite these challenges, Tamarack was able to manage our business effectively through this cycle, as we recorded the following:
- Free adjusted funds flow1 of approximately $20.5 million, which represented a total payout ratio1 of approximately 34%;
- Average production of 21,533 boe/d in Q3/20, representing an increase of approximately 3% over Q2/20;
- Investment of approximately $10.4 million in exploration and development capital expenditures, directed to the equipping of one (1.0 net) Banff oil well plus continued investment in our Veteran Viking waterflood program with the drilling, completion and tie-in of a six-well pad along with one water source well;
- Completion of an asset acquisition on July 9, 2020 for $4.0 million which included approximately 2,500 boe/d of production;
- Operating netback1 of $17.93/boe which contributed to adjusted funds flow1 of $30.8 million ($0.14 per share basic and diluted); and
- Reduction of net debt1 to $199.6 million at quarter-end, a 6% decrease compared to $213.1 million at the end of Q2/20.
As at September 30, 2020, the Company had drawn $199.0 million against its $275 million bank syndicated credit facility, with redetermination of the facility currently ongoing. Tamarack expects to generate adjusted funds flow1 over and above planned capital expenditures and the Company continues to be well positioned from a liquidity standpoint.
1 See “Non-IFRS Measures” |
Financial & Operating Results
Three months ended |
Nine months ended |
|||||
September 30, |
September 30, |
|||||
2020 |
2019 |
% change |
2020 |
2019 |
% change |
|
($ thousands, except per share) |
||||||
Total oil, natural gas and processing revenue |
57,790 |
90,542 |
(36) |
157,200 |
284,686 |
(45) |
Cash flow from operating activities |
26,965 |
42,199 |
(36) |
101,431 |
150,608 |
(33) |
Per share – basic |
$ 0.12 |
$ 0.19 |
(37) |
$ 0.46 |
$ 0.67 |
(31) |
Per share – diluted |
$ 0.12 |
$ 0.19 |
(37) |
$ 0.46 |
$ 0.65 |
(29) |
Adjusted funds flow 1 |
30,837 |
49,283 |
(37) |
93,854 |
164,692 |
(43) |
Per share – basic 1 |
$ 0.14 |
$ 0.22 |
(36) |
$ 0.42 |
$ 0.73 |
(42) |
Per share – diluted 1 |
$ 0.14 |
$ 0.22 |
(36) |
$ 0.42 |
$ 0.71 |
(41) |
Net income (loss) |
(5,776) |
(111) |
5,104 |
(293,164) |
11,535 |
(2,642) |
Per share – basic |
$ (0.03) |
(0.00) |
– |
$ (1.32) |
$ 0.05 |
(2,740) |
Per share – diluted |
$ (0.03) |
(0.00) |
– |
$ (1.32) |
$ 0.05 |
(2,740) |
Net debt 1 |
(199,561) |
(213,140) |
(6) |
(199,561) |
(213,140) |
(6) |
Capital expenditures 2 |
10,364 |
58,867 |
(82) |
90,455 |
156,012 |
(42) |
Weighted average shares outstanding (thousands) |
||||||
Basic |
221,611 |
225,271 |
(2) |
221,610 |
225,864 |
(2) |
Diluted |
221,611 |
225,271 |
(2) |
221,610 |
231,565 |
(4) |
Share Trading ($ per share, except volume) |
||||||
High |
$ 1.09 |
$ 2.44 |
(55) |
$ 2.27 |
$ 3.09 |
(27) |
Low |
$ 0.70 |
$ 1.66 |
(58) |
$ 0.39 |
$ 1.66 |
(77) |
Trading volume (thousands) |
56,013 |
27,820 |
101 |
181,659 |
144,882 |
25 |
Average daily production |
||||||
Light oil (bbls/d) |
10,309 |
12,748 |
(19) |
11,424 |
12,892 |
(11) |
Heavy oil (bbls/d) |
159 |
440 |
(64) |
165 |
481 |
(66) |
NGL (bbls/d) |
2,162 |
1,779 |
22 |
1,766 |
1,584 |
11 |
Natural gas (mcf/d) |
53,420 |
55,224 |
(3) |
51,986 |
53,101 |
(2) |
Total (boe/d) |
21,533 |
24,171 |
(11) |
22,019 |
23,807 |
(8) |
Average sale prices |
||||||
Light oil ($/bbl) |
46.77 |
65.10 |
(28) |
39.58 |
66.96 |
(41) |
Heavy oil ($/bbl) |
38.31 |
56.74 |
(32) |
35.27 |
54.45 |
(35) |
NGL ($/bbl) |
23.57 |
19.08 |
24 |
19.29 |
26.91 |
(28) |
Natural gas ($/mcf) |
1.61 |
1.54 |
5 |
1.53 |
2.00 |
(24) |
Total ($/boe) |
29.02 |
40.28 |
(28) |
25.97 |
43.60 |
(40) |
Operating netback ($/Boe)1 |
||||||
Average realized sales |
29.02 |
40.28 |
(28) |
25.97 |
43.60 |
(40) |
Royalty expenses |
(2.87) |
(4.36) |
(34) |
(2.95) |
(4.46) |
(34) |
Net production and transportation expenses |
(10.64) |
(9.87) |
8 |
(10.21) |
(10.06) |
1 |
Operating field netback ($/Boe)1 |
15.51 |
26.05 |
(40) |
12.81 |
29.08 |
(56) |
Realized commodity hedging gain (loss) |
2.42 |
(1.55) |
(256) |
5.28 |
(1.21) |
(536) |
Operating netback |
17.93 |
24.50 |
(27) |
18.09 |
27.87 |
(35) |
Adjusted funds flow ($/Boe)1 |
15.57 |
22.16 |
(30) |
15.56 |
25.34 |
(39) |
Notes: |
|
(1) |
Net debt, adjusted funds flow, operating netback and operating field netback do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. See “Non-IFRS Measures”. |
(2) |
Capital expenditures include exploration and development expenditures but exclude asset acquisitions and dispositions. |
Updated Guidance & 2021 Capital Acceleration
Tamarack has elected to accelerate approximately $9.4 million of capital from our Q1/21 program into Q4/20 to take advantage of stronger winter gas pricing and lower service costs. The accelerated program includes drilling two Cardium horizontal wells in Alder Flats along with one Viking horizontal natural gas well in Saskatchewan. The capital will be funded through 2020 free adjusted funds flow[1]. Tamarack has increased our 2021 natural gas hedging program to lock in the rate of return on this accelerated capital. Tamarack expects to release a 2021 capital budget in January, 2021 which is anticipated to be fully funded by internally-generated funds.
Pro-Forma 2020 Updated Guidance
November 10, 2020 |
July 9, 2020 |
|
Full Year Capital Budget (including Acquisitions & ARO spend) ($MM) |
$111 |
$101 |
Annual Average Production (boe/d) |
21,500 |
20,850 – 21,250 |
Annual Average Oil & Natural Gas Liquids Weighting (%) |
~60% |
~60-62% |
Free Adjusted Funds Flow(1) (Inclusive of ARO Spend) ($MM) |
$10 |
$15-20 |
2021 Estimated Corporate Decline Rate(2) |
22-24% |
22-24% |
(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$38.50/bbl, MSW/WTI differential of US$5.30/bbl and AECO at $2.20/GJ as well as a Canadian/US dollar exchange rate of $1.3450.
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.
Abbreviations
AECO |
the natural gas storage facility located at Suffield, Alberta connected to TC Energy’s Alberta System |
bbls |
barrels |
bbls/d |
barrels per day |
boe |
barrels of oil equivalent |
boe/d |
barrels of oil equivalent per day |
GJ |
gigajoule |
IFRS |
International Financial Reporting Standards as issued by the International Accounting Standards Board |
mcf |
thousand cubic feet |
mcf/d |
thousand cubic feet per day |
MSW |
Mixed sweet blend, the benchmark for conventionally produced light sweet crude oil in Western Canada |
WTI |
West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for the crude oil standard grade |
__________________________ |
1 see “Non-IFRS Measures” |
Disclosure of Oil and Gas Information
Unit Cost Calculation. For the purpose of calculating unit costs, natural gas volumes have been converted to a boe using six thousand cubic feet equal to one barrel unless otherwise stated. A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms with Canadian Securities Administrators’ National Instrument 51–101 – Standards of Disclosure for Oil and Gas Activities. Boe may be misleading, particularly if used in isolation.