Tamarack Valley Energy Announces Second Quarter 2023 Financial Results and Provides Operational Update
Press Release
Calgary, Alberta – July 27, 2023 – Tamarack Valley Energy Ltd. (“Tamarack” or the “Company”) is pleased to announce its financial and operating results for the three and six months ended June 30, 2023. 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 six months ended June 30, 2023, which will be available on SEDAR+ at www.sedarplus.ca and on Tamarack’s website at www.tamarackvalley.ca.
Q2 2023 Financial and Operating Highlights
- Commissioned a newly constructed, owned and operated Wembley gas plant June 9, delivering the project on budget and ahead of schedule with production ramping to the nameplate 15 MMcf/d of initial capacity;
- Achieved quarterly volumes of 66,738 boe/d(2), representing a 52% year-over-year increase (or 21% on a per share basis). A successful second quarter development program was partially offset by the Company’s loss of ~1,500 boe/d(3) of production owing to the direct and indirect impacts of the Alberta wildfires situation and unplanned third-party outages. Production impacts were largely restored prior to June 30, with second half production levels forecasted to average between 68,000-70,000 boe/d(5);
- Despite the wildfire impacts, full year production guidance maintained at 67,000 to 71,000 boe/d(5) on the strength of better than anticipated drilling results in the Clearwater and Charlie Lake programs;
- Invested $117.8 million during the quarter, including drilling, completion and equipping of 19 (19.0 net) Clearwater wells and five (5.0 net) Charlie Lake wells. The enhanced scale and scope of our Clearwater operations has led to greater capital efficiencies offsetting the increase in unit cost inflation that occurred through 2022 and delivering costs not seen since the first quarter of 2022;
- Allocated $20 million in Q2/23 to strategic infrastructure, including costs associated with the Wembley plant and the Nipisi pipeline terminal. Both projects will drive lower operating and transportation costs enhancing free funds flow(1) in the second half of 2023 forward;
- Generated Q2/23 adjusted funds flow(1) of $157.3 million and free funds flow(1) of $39.4 million reflecting production impacts from the wildfires and third-party outages, along with lower year-over-year commodity prices and a wider WCS differential;
- Looking ahead the strengthening of WCS differentials coupled with the completion of our infrastructure initiatives will contribute to a stronger forecasted netback through the back half of the year and five-year plan;
- Published the 2023 annual sustainability report highlighting Tamarack’s commitment to environmental, social and governance (ESG) principles and sustainable practices during 2022; and
- Subsequent to the quarter, entered into a definitive agreement for the sale of a minority interest in the Wembley gas plant and a gross overriding royalty (GORR) on select Clearwater and Charlie Lake properties for total consideration of $39.5 million. Following closing of the sale, Tamarack will continue to be the operator of the Wembley gas plant and will retain full access to 100% of the capacity.
Brian Schmidt (Aakaikkitstaki), Tamarack’s President and CEO commented: “Tamarack’s dominant position in the Clearwater and Charlie Lake plays are the foundation of our long-term strategic plan which is underpinned by a leading low sustaining free funds flow(1) breakeven in North America’s most economic oil plays. Recent results at West Marten Hills, where the Company produced ~3,750 bopd from 13 wells on two pads in June, highlight the
prolific nature of our Clearwater program. At the same time, we are drilling top tier Charlie Lake wells and flowing into our owned and operated infrastructure, driving long-term value creation. Our business is focused on delivering the most economic barrels to enhance returns and free funds flow(1) for shareholders.”
Financial & Operating Results
| Three months ended | Six months ended | |||||||
| June 30, | June 30, | |||||||
| 2023 | 2022 | % | 2023 | 2022 | % | |||
| change | change | |||||||
| ($ thousands, except per share) | ||||||||
| Total oil, natural gas and processing revenue | 398,319 | 407,195 | (2) | 777,774 | 706,090 | 10 | ||
| Cash flow from operating activities | 156,265 | 214,708 | (27) | 215,889 | 347,561 | (38) | ||
| Per share – basic | $ 0.28 | $ 0.49 | (43) | $ 0.39 | $ 0.81 | (52) | ||
| Per share – diluted | $ 0.28 | $ 0.49 | (43) | $ 0.39 | $ 0.81 | (52) | ||
| Adjusted funds flow (1) | 157,253 | 203,622 | (23) | 314,524 | 352,481 | (11) | ||
| Per share – basic (1) | $ 0.28 | $ 0.47 | (40) | $ 0.57 | $ 0.83 | (31) | ||
| Per share – diluted (1) | $ 0.28 | $ 0.46 | (39) | $ 0.56 | $ 0.82 | (32) | ||
| Net income | 25,735 | 143,507 | (82) | 28,240 | 169,964 | (83) | ||
| Per share – basic | $ 0.05 | $ 0.33 | (85) | $ 0.05 | $ 0.40 | (88) | ||
| Per share – diluted | $ 0.05 | $ 0.33 | (85) | $ 0.05 | $ 0.39 | (87) | ||
| Net debt (1) | (1,373,620) | (470,563) | 192 | (1,373,620) | (470,563) | 192 | ||
| Capital expenditures (4) | 117,831 | 109,483 | 8 | 265,993 | 234,850 | 13 | ||
| Weighted average shares outstanding | ||||||||
| (thousands) | ||||||||
| Basic | 556,461 | 434,924 | 28 | 556,504 | 427,175 | 30 | ||
| Diluted | 560,016 | 438,206 | 28 | 560,437 | 430,406 | 30 | ||
| Share Trading | ||||||||
| High | $ 4.25 | $ 6.48 | (34) | $ 4.88 | $ 6.48 | (25) | ||
| Low | $ 2.99 | $ 4.12 | (27) | $ 2.99 | $ 3.90 | (23) | ||
| Average daily share trading volume (thousands) | 2,332 | 4,155 | (44) | 2,694 | 3,963 | (32) | ||
| Average daily production | ||||||||
| Light oil (bbls/d) | 16,382 | 18,233 | (10) | 16,706 | 18,052 | (7) | ||
| Heavy oil (bbls/d) | 35,373 | 10,805 | 227 | 34,889 | 9,172 | 280 | ||
| NGL (bbls/d) | 3,645 | 3,540 | 3 | 3,882 | 3,825 | 1 | ||
| Natural gas (mcf/d) | 68,027 | 67,195 | 1 | 71,143 | 69,082 | 3 | ||
| Total (boe/d) | 66,738 | 43,777 | 52 | 67,334 | 42,563 | 58 | ||
| Average sale prices | ||||||||
| Light oil ($/bbl) | 91.74 | 135.66 | (32) | 93.38 | 123.07 | (24) | ||
| Heavy oil, net of blending expense(1) ($/bbl) | ||||||||
| 73.02 | 115.51 | (37) | 67.42 | 106.91 | (37) | |||
| NGL ($/bbl) | 36.64 | 63.61 | (42) | 41.53 | 59.65 | (30) | ||
| Natural gas ($/mcf) | 2.39 | 7.81 | (69) | 2.97 | 6.73 | (56) | ||
| Total ($/boe) | 65.66 | 102.16 | (36) | 63.63 | 91.54 | (30) | ||
| Operating netback ($/Boe) | ||||||||
| Average realized sales, net of blending expense (1) | 65.66 | 102.16 | (36) | 63.63 | 91.54 | (30) | ||
| Royalty expenses | (12.70) | (19.64) | (35) | (12.34) | (17.75) | (30) | ||
| Net production and transportation expenses (1) | (14.23) | (13.00) | 9 | (14.31) | (12.55) | 14 | ||
| Operating field netback ($/Boe) (1) | 38.73 | 69.52 | (44) | 36.98 | 61.24 | (40) | ||
| Realized commodity hedging loss | (2.05) | (9.40) | (78) | (1.56) | (6.79) | (77) | ||
| Operating netback ($/Boe) (1) | 36.68 | 60.12 | (39) | 35.42 | 54.45 | (35) | ||
| Adjusted funds flow ($/Boe) (1) | 25.89 | 51.11 | (49) | 25.81 | 45.75 | (44) | ||
2023 Outlook & Guidance Update
The Company’s capital budget range remains unchanged at $425 million to $475 million(4). Tamarack continues to focus on maximizing free funds flow(1) for debt repayment and enhancing shareholder returns as debt thresholds are met. Second half 2023 free funds flow(1) is expected to increase given the tighter WCS differentials, increased operating netback(1) realizations through our infrastructure initiatives resulting in lower opex and transportation, along with lower capital expenditures relative to the first half of 2023. Our 2023 capital guidance balances maximizing free funds flow(1) generation over both the short and long term, with a focus on debt repayment and accelerating the timing of our enhanced return framework.
Tamarack is maintaining prior 2023 production guidance of 67,000 to 71,000 boe/d(5) which was outlined in May 2023. Production guidance reflects the impact of the wildfires which is expected to be offset through the second half of the year by strong performance from our Clearwater and Charlie Lake drilling programs. Guidance for operating costs, transportation expense, royalties, G&A and interest ranges remain unchanged.
| Unchanged Current | |||
| Guidance2023 | |||
| as presented May 10, 2023 | |||
| Capital Budget ($MM)(4) | $425 – $475 | ||
| Annual Average Production (boe/d)(5) | 67,000 – 71,000 | ||
| Average Oil & NGL Weighting | 81% – 83% | ||
| Expenses: | |||
| Royalty Rate (%) | 19% – 21% | ||
| Operating ($/boe) | $9.00 – $9.50 | ||
| Transportation ($/boe) | $3.50 – $4.00 | ||
| General and Administrative ($/boe)(6) | $1.25 – $1.35 | ||
| Interest ($/boe) | $3.80 – $4.00 | ||
| Taxes ($/boe)(7) | $3.75 – $4.10 | ||
| Leasing Expenditures ($MM) | $3.5 – $4.5 | ||
Operations Update
Infrastructure
Tamarack completed the construction and commissioning of its owned and operated 15 MMcf/d Wembley gas plant, which will process associated natural gas from the Company’s highly economic and core Charlie Lake play. The plant was completed on budget and brought onstream June 9, 2023, ahead of schedule.
As development continues to expand across Tamarack’s Clearwater lands, the Company is investing in gas conservation and recently acquired strategic natural gas infrastructure at West Marten Hills. This facility offers the potential to become a conservation hub for the area and is expected to initially conserve 6 MMcf/d of natural gas commencing in Q1/24. Expansion of this facility is underway and is expected to support long term regional development of the Clearwater play while also delivering line of sight to lowering Tamarack’s emissions intensity.
The Nipisi terminal and pipeline project continues to track on time, affording enhanced netback realizations through blending cost benefits and reduced transportation expense. In addition, Tamarack is working with third parties to establish a new Clearwater Heavy Oil benchmark which could provide for improved pricing over time.
Tamarack has significantly expanded its Clearwater and Charlie Lake infrastructure footprint year-to-date. Looking ahead, capital for the balance of 2023 will focus on the drill bit. The Company anticipates delivering increased free funds flow(1) and material debt reduction exiting the year, reflecting higher H2/23 production and narrowing WCS differentials.
Clearwater
Clearwater production averaged 37,800 boe/d(8) in the second quarter, representing 57% of corporate production. During the quarter, the Company drilled and brought onstream 19 (19.0 net) and 22 (22.0 net) wells respectively. In addition, Tamarack drilled two (2.0 net) injector wells. Tamarack currently has six rigs running (three at Nipisi / West Marten Hills, two at Marten Hills and one at Southern Clearwater). Operational and capital synergies are being realized through the execution of a larger Clearwater development program. Performance gains, enhanced well design and pad efficiency enabled Clearwater drilling costs in Q2/23 ($/lateral meter) to be realized at Q1/22 levels offsetting inflationary impacts experienced over the prior year.
Strong well results at West Marten Hills reflects success of the Company’s development program. In June, the Company averaged approximately 3,750 bopd of heavy oil from two multi-well pads that included the 11-10-076-05W5 ten-well pad and 15-15-076-05W5 three well pad. Further to this, certain wells averaged initial production rates in excess of 400 bopd from the aforementioned pads, significantly outperforming internal type curve forecasts.
Expansion of the Nipisi waterflood program is ongoing following the successful 102/13-19-076-08W5 pilot which continues to produce at ~390 bopd with cumulative production of over 190,000 barrels of oil to date. Water injection rates at Nipisi averaged ~2,100 bbl/d in June and completion of the centralized water facility at the 15-22-076-07W5 battery in Q4/23 will support the ongoing ramp of total injection exiting the year.
At Marten Hills, Tamarack has more than doubled the rate at the 103/15-02-075-25W4 injector since acquiring Deltastream Energy Corporation in Q4/22. Current injection is demonstrating a positive result as oil tests and the offsetting producer are now ~30% (>50 bbl/d) higher than production rates prior to increasing injection. Tamarack’s first “W” pattern well conversion has been online since May and shows very encouraging injectivity. With current water injection rates of ~900 bbl/d, the Company plans to further increase injection and accelerate fill-up.
Charlie Lake
Activity in the Charlie Lake resulted in the drilling of five (5.0 net) wells and completion of eight (8.0 net) wells with six (6.0 net) wells coming on stream during the second quarter. Production averaged 15,000 boe/d(9), representing 22% of the total corporate production for the period. Benefitting from the early commissioning of the Wembley plant, recent production in the Charlie Lake is achieving rates of ~17,000 boe/d(10). This compares to rates of ~12,500 boe/d(11) announced in Q2/21 underscoring Tamarack’s ability to successfully deliver on organic drilling and development and secure access to egress and ownership of key infrastructure, while executing on and integrating strategic acquisitions to become a dominant Charlie Lake producer.
Tamarack drilled five (5.0 net) wells ahead of the Wembley commissioning which are now flowing through the plant. These wells are all outperforming forecasts with initial rates averaging 800 – 900 bopd (1,100 – 1,200 boe/d)(12) per well. Despite limited planned activity for the remainder of the year, Charlie Lake rates are expected to remain stable in the 16,000 – 17,000 boe/d(13) range. Activity for the fall is expected to commence in August drilling one well (0.5 net) and continue in late September with three (3.0 net) operated wells planned for Q4/23.
Return of Capital
The Company remains committed to balancing long-term sustainable free funds flow(1) growth with returning capital to shareholders. The base dividend is currently $0.15/share annually which represents a 4.1% yield at the current share price. Debt repayment remains the immediate focus to achieve our enhanced return of capital thresholds whereby the Company will return from 25% up to 75% of excess funds flow on a quarterly basis.
Risk Management
The Company takes a systematic approach to manage commodity price risk and volatility to ensure sustaining capital, debt servicing requirements and the base dividend are protected through a prudent hedging management program. For the remainder of 2023, approximately 56% of net after royalty oil production is hedged against WTI with an average floor price of greater than US$67.50/bbl. Our strategy focuses on downside protection while maintaining upside opportunity. Tamarack will continue to utilize financial instruments, including base commodity, associated differentials and foreign exchange. Additional details of the current hedges in place can be found in the corporate presentation on the Company website (www.tamarackvalley.ca) or Tamarack’s consolidated financial statements and related MD&A for the three and six months ended June 30, 2023, which will be available on SEDAR+ (www.sedarplus.ca).
Investor Call Information July 27, 2023
9:30 AM MDT (11:30 AM EDT)
Tamarack will host a webcast at 9:30 AM MDT (11:30 AM EDT) on Thursday, July 27, 2023 to discuss the second quarter financial results and an operational 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.
About Tamarack Valley Energy Ltd.
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 enhanced oil recovery (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.
For additional information, please contact:
Brian Schmidt
President & CEO
Tamarack Valley Energy Ltd.
Phone: 403.263.4440
www.tamarackvalley.ca
Steve Buytels
VP Finance & CFO
Tamarack Valley Energy Ltd.
Phone: 403.263.4440
www.tamarackvalley.ca
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