CALGARY, AB, Oct. 27, 2022 /CNW/ – Tamarack Valley Energy Ltd. (“Tamarack” or the “Company“) (TSX: TVE) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2022. Selected financial and operating information is outlined below and should be read with Tamarack’s consolidated financial statements and related management’s discussion and analysis (MD&A) for the three and nine months ended September 30, 2022, which are available on SEDAR at www.sedar.com and on Tamarack’s website at www.tamarackvalley.ca. The Company is also pleased to provide an operational update, fourth quarter 2022 guidance incorporating the acquisition of Deltastream Energy Corporation (“Deltastream“) and confirmation of application to renew the Normal Course Issuer Bid (NCIB) program.
Brian Schmidt, President and CEO of Tamarack commented: “During the third quarter, we delivered positive operating and financial results which were bolstered by the resilient netbacks and full cycle profitability of the Clearwater and Charlie Lake oil assets. Furthermore, the acquisition of Deltastream further solidifies Tamarack as the largest producer in the Clearwater and builds on our core position and long-life inventory in what is recognized as the most economic oil play in North America.”
Q3 2022 Financial and Operating Highlights
- Generated Q3/22 adjusted funds flow(1) of $177.8 million ($0.40/share basic and diluted).
- Achieved quarterly average production volumes of 43,476 boe/d(2) in Q3/22.
- Generated free funds flow(1), excluding acquisition expenditures, of $79.4 million.
- Generated net income of $124.8 million ($0.28/share basic and diluted) during the quarter.
- Declared dividends of $13.6 million ($0.01 per common share per month) and, in conjunction with the Deltastream acquisition, announced an increase to the base dividend of 25% to $0.15 per common share annually ($0.0125 per month).
- Repurchased 3.1 million common shares under our NCIB for $12.8 million during the quarter for a total of 4.4 million shares and $18.6 million in consideration year to date.
- Invested $93.5 million in exploration and development (E&D) capital expenditures and $4.7 million on undeveloped land in the Clearwater and Charlie Lake areas during Q3/22, which contributed to the drilling of twenty-three (23.0 net) Clearwater oil wells and six (5.4 net) Charlie Lake oil wells.
- Exited the quarter with $286.8 million of net debt(1), inclusive of current tax payable, and net debt to Q3/22 annualized adjusted funds flow(1) of 0.4x.
- Successfully closed the disposition of certain assets in the Viking CGU for gross consideration of $70 million(3) ($59.5 million net).
- Announced the acquisition of Deltastream during the quarter for total consideration of $1.425 billion consisting of 80.0 million shares of Tamarack, $300.0 million of deferred acquisition notes and $825.0 million in cash. The cash consideration was financed, in part, through a $100.0 million add-on offering to the Company’s existing 7.25% senior unsecured sustainability linked Notes due May 2027 and a $137.3 million net equity financing – both of which closed in September 2022.
Financial & Operating Results
Three months ended |
Nine months ended |
|||||
September 30, |
September 30, |
|||||
2022 |
2021 |
% change |
2022 |
2021 |
% change |
|
($ thousands, except per share) |
||||||
Total oil, natural gas and processing revenue |
329,304 |
212,265 |
55 |
1,035,394 |
457,867 |
126 |
Cash flow from operating activities |
229,927 |
100,558 |
129 |
577,488 |
179,247 |
222 |
Per share – basic |
$ 0.52 |
$ 0.25 |
108 |
$ 1.34 |
$ 0.53 |
153 |
Per share – diluted |
$ 0.52 |
$ 0.24 |
117 |
$ 1.33 |
$ 0.52 |
156 |
Adjusted funds flow (1) |
177,834 |
102,486 |
74 |
530,315 |
216,179 |
145 |
Per share – basic |
$ 0.40 |
$ 0.25 |
60 |
$ 1.23 |
$ 0.64 |
92 |
Per share – diluted |
$ 0.40 |
$ 0.25 |
60 |
$ 1.22 |
$ 0.63 |
94 |
Net income |
124,793 |
20,032 |
523 |
294,757 |
250,060 |
18 |
Per share – basic |
$ 0.28 |
$ 0.05 |
460 |
$ 0.68 |
$ 0.74 |
(8) |
Per share – diluted |
$ 0.28 |
$ 0.05 |
460 |
$ 0.68 |
$ 0.73 |
(7) |
Net debt (1) |
(286,762) |
(519,708) |
(45) |
(286,762) |
(519,708) |
(45) |
Capital expenditures (4) |
98,451 |
69,978 |
41 |
333,301 |
149,487 |
123 |
Weighted average shares outstanding (thousands) |
||||||
Basic |
440,388 |
406,152 |
8 |
431,672 |
335,913 |
29 |
Diluted |
443,351 |
414,342 |
7 |
435,053 |
344,072 |
26 |
Share Trading (thousands, except share price) |
||||||
High |
$ 4.62 |
$ 3.31 |
40 |
$ 6.48 |
$ 3.31 |
96 |
Low |
$ 3.28 |
$ 2.05 |
60 |
$ 3.28 |
$ 1.25 |
162 |
Average daily share trading volume (thousands) |
3,745 |
2,865 |
31 |
3,890 |
2,753 |
41 |
Average daily production |
||||||
Light oil (bbls/d) |
16,229 |
19,405 |
(16) |
17,437 |
14,720 |
18 |
Heavy oil (bbls/d) |
13,183 |
5,438 |
142 |
10,524 |
4,275 |
146 |
NGL (bbls/d) |
3,659 |
4,257 |
(14) |
3,769 |
3,243 |
16 |
Natural gas (mcf/d) |
62,428 |
72,935 |
(14) |
66,839 |
62,171 |
8 |
Total (boe/d) |
43,476 |
41,256 |
5 |
42,870 |
32,600 |
32 |
Average sale prices |
||||||
Light oil ($/bbl) |
111.80 |
79.12 |
41 |
119.53 |
74.43 |
61 |
Heavy oil ($/bbl) |
89.30 |
67.97 |
31 |
99.48 |
61.40 |
62 |
NGL ($/bbl) |
49.18 |
33.67 |
46 |
56.23 |
36.37 |
55 |
Natural gas ($/mcf) |
6.27 |
3.44 |
82 |
6.59 |
3.14 |
110 |
Total ($/boe) |
81.98 |
55.73 |
47 |
88.28 |
51.27 |
72 |
Operating netback ($/Boe) |
||||||
Average realized sales |
81.98 |
55.73 |
47 |
88.28 |
51.27 |
72 |
Royalty expenses |
(14.06) |
(8.97) |
57 |
(16.49) |
(7.51) |
120 |
Net production and transportation expenses |
(13.12) |
(10.53) |
25 |
(12.74) |
(10.75) |
19 |
Operating field netback ($/Boe) (1) |
54.80 |
36.23 |
51 |
59.05 |
33.01 |
79 |
Realized commodity hedging loss |
(2.90) |
(6.21) |
(53) |
(5.46) |
(5.62) |
(3) |
Operating netback ($/Boe) (1) |
51.90 |
30.02 |
73 |
53.59 |
27.39 |
96 |
Adjusted funds flow ($/Boe) (1) |
44.46 |
27.00 |
65 |
45.31 |
24.29 |
87 |
Deltastream Clearwater Assets
Deltastream Assets – Deltastream rig released 56 (56.0 net) wells year-to-date through the end of Q3 2023: 25 (25.0 net) in Nipisi; 21 (21.0 net) in Marten Hills; and 10 (10.0 net) in Canal. Tamarack will continue to operate three rigs on the Deltastream lands through the end of 2022, focused entirely on the Marten Hills and Nipisi assets. The Company expects to drill an additional 22 gross (22.0 net) wells prior to year end. Total capital of $50.0 million has been allocated to the Deltastream assets for the fourth quarter, which will include costs associated with ongoing pipeline, facility and surface construction projects.
The Marten Hills development program has produced average well rates in-line with expectations, with ongoing waterflood injection in the area proceeding in-line with forecasts to date. Infrastructure improvement and expansion is ongoing with additional compression capacity being added. In addition, a significant expansion to the in-field pipeline infrastructure has resulted in approximately 60% of Marten Hills oil production connected to the main 11-04 facility, including 5 mmcf/d of conserved natural gas
In Nipisi, the 14-18-076-06W5, 02-19-076-06W5 and 09-19-076-06W5 pads drilled in H1 2022 are currently producing over 4,000 bopd, on a combined basis, from 3.25 sections of land. Performance from this area is ahead of forecast with all 22 wells having been onstream for more than five months and still averaging ~180 bopd per well. These results provide confidence that Tamarack’s Nipisi waterflood fairway can be expanded to the east onto the acquired Deltastream lands. In addition, significant road construction was completed during Q3 to provide access to approximately 11 sections of high graded Nipisi inventory for future drilling.
Total production from the Deltastream assets averaged 20,400 boe/d(5) (19,300 bopd) through the first three weeks of October, with 13,300 boe/d(5) and 5,300 boe/d(5) coming from the Marten Hills and Nipisi areas respectively. Nipisi has experienced substantial growth in 2022, from a 2021 exit rate of 240 bopd to over 5,000 bopd oil in early Q3, reflecting a very active and successful H1 2022 drilling program.
Clearwater
Peavine/Seal – Tamarack has licensed its first eight leg multi-lateral well in Peavine. Surface construction is ongoing, with an estimated spud date in mid-November. At Seal, we are on track to spud our first three well pad in early December testing three separate Clearwater sands.
West Marten Hills Exploration – Tamarack has rig released four West Marten Hills wells, including a step out well in the Clearwater A sand. Two of the four wells are on production, with the Clearwater A sand results exceeding Company expectations at over 200 bopd, despite being facility constrained while awaiting completion of construction on the permanent oil facility in this area which is anticipated to be completed in early November. Additionally, Tamarack has spud its first of three extended reach multi-laterals from the 14-07-076-04W5 pad.
West Nipisi – Tamarack’s strategy at West Nipisi is focused on optimizing waterflood development moving forward. The Company has rig released 15 of 17 wells planned from four different pad sites, all of which are being developed under Tamarack’s Nipisi Clearwater waterflood configuration. Currently, 14 of the 15 rig released wells are on production and average initial rates are exceeding expectations with the new 13-23-076-08W5 six well pad producing over 2,000 bopd. Injection commenced on three wells at Tamarack’s waterflood pilot in early May, which is currently producing at 400 bopd, up from initial rates of 300 bopd. Tamarack has increased its H2 2022 injector drilling program from five wells to eight, including a trial three leg multi-lateral injector, given the positive response exhibited to date from the pilot. Currently three injectors from the 03-23-076-08W5 pad have been rig released.
Southern Clearwater – Tamarack continues to actively develop its Southern Clearwater assets with two rigs currently operating. Through area consolidation and development, Southern Clearwater production has increased from less than 500 bopd in Q4/21 to current rates of greater than 7,200 bopd. Development has been highlighted at West Perryvale, where production results have outperformed the area type curve and further inventory has been added through continued pool delineation. To date in 2022, 39 wells have been rig released, with 36 of those wells currently onstream. The wells currently producing have averaged peak oil rates of greater than 150 bopd. The Company plans to drill 45 gross (45.0 net) wells in the area in 2022 and execute on operational synergies on recently acquired production.
Charlie Lake
In the Charlie Lake, Tamarack has brought 15 of 18 planned wells onstream in 2022 and has achieved increased well performance by extending the average well length. During the quarter, the 100/15-24-071-09W6 well achieved an IP30 of 790 bopd (1,330 boe/d(6)).
During the quarter, the Company experienced downtime associated with scheduled third-party turnarounds which were included in our previous H2 2022 guidance, which resulted in a production impact of approximately 1,500 boe/d(7) for the quarter. Further to this, turnaround activity extended into early October at one third-party facility. Production from the area is currently in-line with the corporate forecast.
Tamarack is continuing to advance plans to construct a new owned and operated gas plant in the Grande Prairie area, with engineering, planning and design work currently underway. Phase 1 of the plant will add approximately 15-20 MMcf/d of gas processing capacity and is forecasted to be commissioned in the second quarter of 2023.
Veteran/Eyehill Waterfloods
Tamarack has drilled 13 wells in 2022 targeting the Viking (6.0 net) and Sparky (7.0 net) formations at the Veteran and Eyehill properties, all of which were onstream prior to the end of Q1. Field-wide production from the Eyehill Sparky assets continued to grow throughout Q3, demonstrating waterflood response from water injection which commenced in 2021. September oil production of ~2,300 bopd is tracking ahead of expectations.
Tamarack closed the disposition of approximately 2,000 boe/d(8) (~44 % liquids) of non-core Viking production for total gross proceeds of $70 million(3) in Q3/22. This disposition is consistent with the Company’s portfolio rationalization strategy which is focused on growing our core areas and long-term sustainable free funds flow(1) growth.
To reflect the Deltastream acquisition that closed on October 13, 2022, Tamarack is providing updated pro forma Q4/22 corporate guidance. The Company remains focused on capital discipline and sustainable free funds flow(1) growth. Tamarack expects to release its 2023 full year budget and guidance in early December 2022.
Q4 2022 |
|
E&D Capital Budget(9) ($millions) |
$125-$135 |
Q4 Average Production(10) (boe/d) |
62,000-64,000 |
Expenses: |
|
Royalty Rate (%) |
20–22% |
Operating ($/boe) |
$9.50–$10.00 |
Transportation ($/boe) |
$2.50–$3.00 |
General and Administrative ($/boe)(11) |
$1.25–$1.35 |
The Company remains committed to balancing long-term sustainable free funds flow(1) growth with returning capital to shareholders. As previously disclosed with the Deltastream acquisition, the Company further refined its return of capital framework to balance debt repayment, enable future strategic acquisitions that bolster long-term inventory resiliency and increase clarity around delivering enhanced returns to shareholders through opportunistic share buybacks and/or enhanced dividends.
The return of capital framework includes a base dividend, which is a structural component of the financial framework and is set at a level equivalent to approximately 25% of corporate free funds flow(1) at our long-term 5-year plan price deck of US$55/bbl WTI and $2.50/GJ AECO. The base dividend can be sustainably covered at bottom cycle pricing of less than US$40/bbl WTI. In addition to the base dividend, the Company will direct up to a given percentage of excess quarterly funds flow(1) to enhanced return as certain debt thresholds are met, as outlined below.
Base Dividend
As previously announced, the Company will increase the base dividend by 25% to $0.15/share annually for the November dividend declaration payable in December. In total, Tamarack has increased its annual base dividend by 50% year to date, from $0.10/share to $0.15/share. The increase in the base dividend year to date is driven by the enhanced sustainable free funds flow(1) achieved in conjunction with the success of the Company’s 2022 capital program and strategic Clearwater acquisitions which are accretive to the 5-year plan at flat pricing of US$55/bbl WTI and $2.50/GJ AECO.
Updated Enhanced Return Framework
In conjunction with the acquisition of Deltastream, Tamarack’s balance sheet will remain a priority. The enhanced return framework corresponds with specific debt range targets as outlined below:
- Net debt of less than $1.1 billion but greater than $900 million, the Company will target to deliver up to 25% of excess funds flow from the prior quarter to shareholders through enhanced dividends and/or tactical share buybacks.
- Net debt of between $500 million and $900 million, the Company will target delivery of up to 50% of excess funds flow from the prior quarter to shareholders.
- Net debt reaches the long-term debt floor of $500 million, representing approximately 1.0x net debt to quarterly annualized funds flow at US$45/bbl WTI and $2.50/GJ AECO, the Company will target to return up to 75% of excess funds flow to shareholders.
Any enhanced dividend will be paid to shareholders on a quarterly basis, one month following the declaration date. Tamarack looks forward to continuing to deliver on shareholder returns in 2022 with further incremental returns in 2023 based on the current commodity price outlook.
Tamarack in in the process of applying to the TSX to renew the NCIB for November 2022 through October 2023. The Company expects to receive confirmation and approval of program renewal in early November 2022.
Consistent with the strategy of protecting the balance sheet, sustaining capital and base dividend, the Company manages commodity price risk and volatility through a prudent and systematic hedging program. Tamarack has approximately 60% of gross oil production hedged against WTI for the remainder of 2022, through instruments including swaps, puts and enhanced collars. Tamarack also has WTI-MSW and WCS differential hedges in place on approximately half of remaining 2022 production. For 2023, the Company has a combination of WTI swaps, put floors and enhanced collars on approximately 50% of first half production. Additional details of the current hedges in place can be found in the corporate presentation on the Company website (www.tamarackvalley.ca).
On September 30, 2022, Tamarack released a report on sustainability performance target progress, detailing the progress that was made in 2021 on the key performance indicators outlined in the Company’s sustainability linked debt instruments. A copy of the report can be found on Tamarack’s website. The Company looks forward to sharing more information on the overall sustainability program in the annual sustainability report that will be published in early December 2022.
Investor Call Tomorrow 9:00 AM MDT (11:00 AM EDT)
Tamarack will host a webcast at 9:00 AM MDT (11:00 AM EDT) on Friday, October 28, 2022 to discuss the third quarter results and operations update. Participants can access the live webcast via this link or through links provided on the Company’s website. A recorded archive of the webcast will be available on the Company’s website following the live webcast. |
Tamarack is an oil and gas exploration and production company committed to creating long-term value for its shareholders through sustainable free funds flow generation, financial stability and the return of capital. The Company has an extensive inventory of low-risk, oil development drilling locations focused primarily on Charlie Lake, Clearwater and EOR plays in Alberta. Operating as a responsible corporate citizen is a key focus to ensure we deliver on our environmental, social and governance (ESG) commitments and goals. For more information, please visit the Company’s website at www.tamarackvalley.ca.