CALGARY, AB – Tamarack Valley Energy Ltd. (“Tamarack” or the “Company”) is pleased to announce a corporate five-year plan along with the continued consolidation of assets in the Clearwater. The five-year plan highlights the significant free funds flow(1) the Company’s assets generate and the flexibility to direct funds to achieving long-term debt targets, return of capital to shareholders, and incremental growth of the business both organically and through M&A opportunities. Tamarack continues to take a disciplined approach to consolidating its core assets and is pleased to announce the acquisition of approximately 53 net sections of land in the Southern Clearwater fairway, in the Jarvie area, with an inventory of >63 gross (59.7 net) future development locations and approximately 400 boe/d(2) of Clearwater oil production.
Five Year Plan
Tamarack’s five-year plan is expected to generate sustainable long-term growth in free funds flow(1). The strategic principles of the plan include 1) low leverage and balance sheet strength with a long-term target net debt to annualized adjusted funds flow of 0.5-1.0x; 2) low free funds flow breakeven(1) driven by highly economic inventory supporting positive free funds flow(1) down to the low to mid $30/bbl WTI price range; 3) inventory resiliency to ensure the duration of drillable locations and growth of free funds flow(1) beyond the five-year plan horizon and 4) the flexibility to direct a percentage of free funds flow(1) towards enhancing total shareholder return through the return of capital, which can be a combination of dividends and share buybacks.
Highlights of the five-year plan include:
- Generation of approximately $1.0 billion of free funds flow(1) at $55/bbl WTI and $2.50/GJ AECO flat pricing (the “planned pricing scenario”). This plan is sensitized down to $45/bbl WTI with $400 million of free funds flow(1) and torque to a $70/bbl WTI scenario with $1.7 billion of free funds flow(1), respectively.
- Free funds flow breakeven(1) in the low to mid $30/bbl WTI price range; affords downside protection with upside torque given the short payout and low breakeven nature of the Clearwater, Charlie Lake and waterflood core oil plays.
- The planned pricing scenario contemplates a sustaining production base of 41,000 to 43,000 boe/d(3) with the flexibility to target an incremental 2-3% growth annually, while balancing return of capital to shareholders.
- Sustaining capital representing approximately 40-45% of adjusted funds flow(1) supports a production base of between 41,000 to 43,000 boe/d(3), inclusive of ARO spend. Annual capital to achieve sustaining production plus moderate growth will range between $200–$250 million.
- Long-term net debt to annualized adjusted funds flow(1) target of 0.5-1.0x, achieved in 2022/2023 under the planned pricing scenario, with a path to eliminating debt by 2024. At current strip prices target debt is achieved in early 2022, paving a path to potential return of capital through a combination of dividends and share buybacks.
- Flexibility to enhance return of capital and growth, both organically and through M&A, as the lower end of the debt target is achieved.
- The five-year plan is underpinned with >10 years of drilling inventory capable of delivering payout in <1.5 years based on the five-year plan capital forecast.
- A strong commitment to ESG and sustainability with planned abandonment and reclamation spend incorporated into the sustaining capital assumptions which exceed government mandated levels along with capital focused on the lower emission Charlie Lake, Clearwater and waterflood assets.
Clearwater Update
On August 31st, the Company closed the acquisition of 53 net sections of highly prospective Clearwater lands which included approximately 400 boe/d(2) of heavy oil production for total consideration of $36 million. The acquisition includes 2.5 million boe of internally estimated proved plus probable reserves(4) and over 63 gross (59.7 net) highly prospective future development locations in the Southern Clearwater fairway. This acquisition fits with the Company’s strategic and disciplined approach of enhancing the free funds flow(1) of the business both on a short-term and long-term basis. The drilling inventory is expected to drive payouts of approximately 6 months per well at current strip prices and a free funds flow breakeven(1) of ~$32-33/bbl WTI. Tamarack’s Southern Clearwater lands represent some ~120 net sections along with over 226 gross (164.0 net) identified drilling locations and complements our core Nipisi and West Marten Hills core Clearwater development area.
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 three key principles: (i) targeting repeatable and relatively predictable plays that provide long-life reserves; (ii) using a rigorous, proven modeling process to carefully manage risk and identify opportunities; and (iii) operating as a responsible corporate citizen with a focus on environmental, social and governance (ESG) commitments and goals. The Company has an extensive inventory of low-risk, oil development drilling locations focused primarily in the Charlie Lake, Cardium, Clearwater 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 |
ARO |
asset retirement obligation |
bbls/d |
barrels per day |
boe |
barrels of oil equivalent |
boe/d |
barrels of oil equivalent per day |
bopd |
barrels of oil per day |
GJ |
gigajoule |
IFRS |
International Financial Reporting Standards as issued by the International Accounting Standards Board |
M&A |
mergers and acquisitions |
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 |
READER ADVISORIES
Notes to Press Release |
(1) See “Non-IFRS Measures”; free funds flow and free funds flow breakeven were previously referred to as free adjusted funds flow and free adjusted funds flow breakeven, respectively. |
(2) Comprised of 400 bbl/d heavy oil. |
(3) Comprised of 18,000-19,000 bbl/d light and medium oil, 8,500-9,000 bbl/d heavy oil, 3,300-3,500 bbl/d NGL and 67,000-70,000 mcf/d natural gas. |
(4) Proved plus probable reserves are derived from the Company’s internal Qualified Reserve Evaluators (“QRE”) and prepared in accordance with National Instrument 51-101 (“NI 51-101”) and the most recent publication of the Canadian Oil and Gas Evaluations Handbook (“COGEH”). “Internally estimated” means an estimate that is derived by the Company’s internal QRE and prepared in accordance with NI 51-101. All internal estimates contained in this news release have been prepared effective as of May 1, 2021. |
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 NI 51-101. Boe may be misleading, particularly if used in isolation.
Drilling Locations. This press release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the Company’s internal reserves evaluation as prepared by a member of management who is a qualified reserves evaluator in accordance with NI 51-101 and the most recent publication of the COGEH effective May 1, 2021 and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company’s assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Of the total 226 (164.0 net) drilling locations identified herein, 21 (21.0 net) are proved locations, 15 (13.0 net) are probable locations and 190 (130.0 net) are unbooked locations. Unbooked locations have been identified by management as an estimation of Company’s multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by the drilling of existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.