TSX: TVE
CALGARY, AB,
Dec. 15,
2021 /CNW/ - Tamarack Valley Energy Ltd.
("Tamarack" or the "Company") is pleased to announce
that it has entered into a definitive agreement (the
"Agreement") to acquire Crestwynd Exploration Ltd.
("Crestwynd"), a privately held pure play Clearwater oil producer, for total
consideration of $184.7 million (the
"Acquisition"). The consideration consists of: (i)
$92.6 million in cash, subject to
adjustment; and (ii) the issuance of 26,298,396 common shares of
Tamarack ("Tamarack Shares") at a deemed price of
$3.50 per Tamarack Share.
Tamarack's syndicate has provided an extension of the Company's
existing $600 million revolving
credit facility to December 2023 and
transitioned the facility to a sustainability linked lending
facility ("SLL Facility"). In conjunction with the
Acquisition, National Bank Financial as syndicate lead, has
provided commitments for a separate and additional $100 million credit facility.
Brian Schmidt (Aakaikkitstaki),
Tamarack's President and CEO highlighted: "The Acquisition further
establishes Tamarack as a leading operator in the highly economic
Clearwater oil play. Acquiring
high quality assets with significant free funds flow(1)
where we can leverage our operational and technical expertise is a
core principle of Tamarack's returns focused strategy. In addition,
Tamarack's transition to the SLL Facility demonstrates our
commitment to responsible development."
Clearwater Acquisition Highlights
- Strategic sustainable, high quality Clearwater assets
-
- Forecast 2022 production of ~4,500 boe/d(2) is
expected to deliver $90 million of
operating netback
- Low annual sustaining capital of $30 to $35 million
required to hold production levels flat on the acquired
assets(3)
- 209 (153.7 net) future drilling locations(4), across
only 50% of the 99,360 net acres acquired which supports
maintaining current production levels for seven years
- Additional unbooked future exploration upside potential across
the balance of the acquired acreage
- Consolidates Tamarack's existing Southern Clearwater working interest to 95%
and solidifies its dominant position as the largest operator in the
area
- Attractive environmental & ESG profile
-
- Minimal asset retirement obligation (ARO) and limited
freshwater requirements
- Tamarack plans to implement gas conservation infrastructure
within the current Southern
Clearwater development plan
- Increased exposure to the Clearwater, one of the most economic plays in
North America
-
- Pro forma the Acquisition, Tamarack will control 445 net
sections of Clearwater land across
the Nipisi, West Marten Hills and Southern Clearwater areas
- Pro forma the Acquisition, over 650 net future drilling
locations(4) and expected average 2022 Clearwater
production of ~12,000 boe/d(5)
- Accretive to Tamarack shareholders
-
- The purchase price implies a multiple of 2.1x annualized
operating field netback(1,3)
- Accretive on a per share basis to forecast 2022 adjusted funds
flow(1,3) by 7% and free funds flow(1)
of 9% on strip prices(3)
- Maintains our strong sustaining free funds flow
breakeven(1), including the base dividend, of
~$US35/bbl WTI on an unhedged
basis
- Pro forma leverage neutral 2022 year-end net debt to trailing
annual adjusted funds flow(1,3) of <0.6x
- Further enhancing the five year plan & return of capital
framework
-
- Increases debt adjusted free funds flow(1,3) per
share by more than 5% throughout Tamarack's five-year plan at crude
oil prices of US$55/bbl WTI
- Enhances our long-term return of capital framework given the
accretion to debt adjusted free funds flow per share
Acquisition Metrics
Purchase
Price
|
$184.7
million
|
2022 Average
Production(2)
Oil and NGL
Weighting
|
~4,500 boe/d
~100%
|
Annualized Operating
Field Netback(1, 3)
|
$90.0
million
|
Drilling
Locations
|
209 gross (153.7
net)
|
Proved plus Probable
Reserves(6)
|
9.6 MMboe
|
Total Clearwater
Acreage
|
99,360 net
acres
|
Total ARO
(Undiscounted)
|
<$8.0
million
|
2022 Guidance
Tamarack plans on releasing its 2022 guidance in early
January 2022. This will incorporate
the pro forma outlook for the Acquisition.
Transaction Details
Contemporaneous with the execution of the Agreement, certain
shareholders of Crestwynd representing approximately 80% of the
outstanding common shares of Crestwynd executed voting support
agreements in connection with Acquisition. The Agreement provides
for, among other things, a non-solicitation covenant on the part of
Crestwynd, a right to match in favour of Tamarack and a break fee
in the amount of $10.0 million
payable to Tamarack in certain circumstances. A copy of the
Agreement will be filed on Tamarack's SEDAR profile at
www.sedar.com.
The Acquisition is expected to close on or about February 15, 2022 subject to certain customary
conditions and regulatory and other approvals, including the
approval of the Toronto Stock Exchange (the "TSX") and the
Commissioner of Competition pursuant to the Competition Act
(Canada).
At closing, Tamarack will enter into hold period agreements with
each of the directors, officers and insiders of Crestwynd who will,
prior to the completion of the Acquisition, collectively hold or
exercise control over approximately 73% of the issued and
outstanding common shares of Crestwynd. Pursuant to the hold period
agreements, each shareholder will agree not to sell or trade the
Tamarack Shares received pursuant to the Acquisition, except as
follows: (i) ½ shall be eligible for disposition on the date that
is three months after closing of the Acquisition; (ii) the
remaining ½ of such of such Tamarack Shares shall be eligible for
disposition on the date that is six months after closing of the
Acquisition; and (iii) all sales of Tamarack Shares within 12
months after closing of the Acquisition must be effected via block
trades facilitated by Tamarack.
SLL Facility
Tamarack has transitioned its existing $600 million revolving bank facility to an SLL
Facility that incorporates sustainability-linked incentive pricing
terms. Through the SLL Facility, three of Tamarack's long-term
goals have been identified as key performance indicators (KPIs) and
structured into sustainability performance targets (SPTs) that will
decrease Tamarack's cost of borrowing by up to 5 basis points if
the SPTs are achieved or increase the cost in the event SPTs are
missed. The SPTs include:
- GHG Emissions Intensity: 40% reduction in Scope 1 and 2
emissions by 2025 over the 2020 baseline, with a significant
decrease in 2021 and more ratable 5% decreases through 2022 to
2025. This SPT exceeds the previous set target due to 2021
acquisitions and positive progress in emissions reductions to
date.
- Decommissioning Management: committed annual capital
investment in abandonment, remediation and reclamation activities
at 150% of the Alberta Energy Regulator inventory reduction
voluntary closure program targets. This target is equivalent to
~4.33% of inactive liabilities in 2021 with a 5% annual
escalation.
- Indigenous Workforce Participation: target workforce
representation of 6% or greater by 2025 with annual milestones and
minimum of two additions each year.
National Bank Financial Markets is acting as sustainability
structuring agent, sole bookrunner and co-lead arranger with
respect to the SLL Facility, with Royal Bank of Canada and CIBC acting as co-lead arrangers
and syndicate support from ATB Financial, Federation des Caisses
Desdjardins, Canadian Western Bank and Business Development Bank of
Canada.
Advisors
Peters & Co. Limited and RBC Capital Markets are acting as
financial advisors to Tamarack with respect to the Acquisition.
CIBC Capital Markets and Stifel FirstEnergy are acting as
strategic advisors to Tamarack with respect to the Acquisition.
Stikeman Elliott LLP is acting as legal counsel to Tamarack with
respect to the Acquisition and the SLL Facility.
National Bank Financial Inc. is acting as exclusive financial
advisor to Crestwynd.
Burnet, Duckworth & Palmer LLP is acting as legal counsel to
Crestwynd.
Investor Call and Webcast
Tamarack will host a call and webcast at 9:00AM MT (11:00AM
ET) on December 15, 2021 to
discuss the Acquisition. Participants can access the live webcast
through 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 free funds flow generation and financial stability
through 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 on Charlie Lake, Clearwater and EOR plays 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
|
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, also referred to as Edmonton Par
differential
|
WCS
|
Western Canadian
Select, the benchmark for conventional heavy and oil sands
blended 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 4,500 bbl/d heavy oil
(3) Strip pricing refers to the forward strip
for WTI oil and AECO natural gas on December
8, 2021 and includes flat assumptions as follows with
respect to CAD/USD foreign exchange, WCS and MSW differentials.
|
2022
|
2023
|
2024
|
2025
|
2026
|
Dec 8
Strip
|
|
|
|
|
|
WTI
(US$/bbl)
|
$70.83
|
$66.98
|
$64.41
|
$62.83
|
$62.83
|
AECO ($/GJ)
|
$3.23
|
$3.02
|
$2.91
|
$2.89
|
$2.89
|
Tamarack Forecast
Pricing Inputs
|
|
|
|
|
|
CAD/USD FX
|
$1.28
|
$1.28
|
$1.28
|
$1.28
|
$1.28
|
WCS Diff
(US$/bbl)
|
-$12.50
|
-$12.50
|
-$12.50
|
-$12.50
|
-$12.50
|
MSW Diff
($/bbl)
|
-$4.00
|
-$4.00
|
-$4.00
|
-$4.00
|
-$4.00
|
(4) See "Disclosure of Oil and Gas
Information – Drilling Locations"
(5) Comprised of 12,000 bbl/d heavy oil
(6) 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 new release have been prepared effective as of February 1, 2022.
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.
Reserves Disclosure. All reserves information in this
press release relating to assets to be acquired pursuant to the
Acquisition (the "Assets") are internally estimated by the
Company's internal qualified reserve evaluators prepared
November 30, 2021 effective
February 1, 2022 in accordance with
NI 51-101 and the COGEH. The estimates of reserves and future net
revenue for the Acquisition may not reflect the same confidence
level as estimates of reserves and future net revenue for all of
Tamarack's properties, due to the effects of aggregation.
All reserve references in this press release are "gross
reserves". Gross reserves are a company's total working interest
reserves before the deduction of any royalties payable by such
company and before the consideration of such company's royalty
interests. It should not be assumed that the present worth of
estimated future cash flow of net revenue presented herein
represents the fair market value of the reserves. There is no
assurance that the forecast prices and costs assumptions will be
attained and variances could be material. The recovery and reserve
estimates of Tamarack's crude oil, NGL and natural gas reserves,
including those of the Assets, provided herein are estimates only
and there is no guarantee that the estimated reserves will be
recovered. Actual crude oil, natural gas and NGL reserves may be
greater than or less than the estimates provided herein.
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 November
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 780 (680.5 net)
drilling locations identified herein, 112 (106.2 net) are proved
locations, 43 (38.8 net) are probable locations and 625
(535.5 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.
Forward Looking Information
This press release
contains certain forward-looking information (collectively referred
to herein as "forward-looking statements") within the meaning of
applicable Canadian securities laws. Forward-looking statements are
often, but not always, identified by the use of words such as
"guidance", "outlook", "anticipate", "target", "plan", "continue",
"intend", "consider", "estimate", "expect", "may", "will",
"should", "could" or similar words suggesting future outcomes. More
particularly, this press release contains statements concerning:
Tamarack's business strategy, objectives, strength and focus; the
increased capacity under the Company's credit facilities, the
extension of the revolving facility and the transition to an SLL
Facility; the Acquisition and the timing thereof; satisfaction or
waiver of the closing conditions to the Acquisition; receipt of
required regulatory approvals for the completion of the Acquisition
(including approval of the TSX and the Commissioner of Competition
pursuant to the Competition Act (Canada)); the purchase price of the
Acquisition; the anticipated benefits of the Acquisition, including
the impact of the Acquisition on the Company's operations,
reserves, inventory and opportunities, financial condition, access
to capital and overall strategy; expectations with respect to
reserves, oil and natural gas production, operating field netbacks,
decline rates, abandonment and reclamation obligations, adjusted
funds flow, free adjusted funds flow and net debt to trailing
adjusted funds flow relating to the Assets and Tamarack following
the Acquisition; development and drilling plans for the Assets,
including the drilling locations associated therewith and timing of
results therefrom; expectations regarding the Clearwater; oil and NGL weighting; anticipated
operational results for 2022 including, but not limited to,
estimated or anticipated production levels, operating field
netbacks, decline rates, capital expenditures and drilling plans;
the estimated quantity of the oil and gas reserves associated with
the Assets and anticipated future cash flows from such reserves;
future operational, technical, cost and revenue synergies resulting
from the Acquisition; management's ability to replicate past
performance; the ability of Tamarack to optimize production from
the Assets; the Company's capital program, guidance and budget for
2022; expectations regarding commodity prices in 2022; deployment
of the Company's 2022 capital program; the expected allocation of
the Company's 2022 capital expenditure budget; including the
Company's five year plan and the anticipated benefits thereof,
future consolidation activity and organic growth, future intentions
with respect to return of capital including dividends and share
buybacks, debt targets, the ability of the Company to achieve
drilling success consistent with management's expectations;
Tamarack's commitment to ESG principles and the impact of the
Acquisition thereon; the source of funding for the Company's
activities including development costs; reserve life indexes;
expected levels of royalty rates; development costs, operating
costs, general and administrative costs, costs of services and
other costs and expenses; and projections of commodity prices and
costs including sustaining breakeven prices, and exchange rates.
Statements relating to "reserves" are also deemed to be forward
looking statements, as they involve the implied assessment, based
on certain estimates and assumptions, that the reserves described
exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.
The forward-looking statements contained in this document are
based on certain key expectations and assumptions made by Tamarack,
including relating to: the business plan of Tamarack, Crestwynd and
the Assets; the receipt of all approvals and satisfaction of all
conditions to the completion of the Acquisition; the timing of and
success of future drilling, development and completion activities;
the geological characteristics of Tamarack's properties; the
characteristics of the Assets; the successful integration of the
Assets into Tamarack's operations; prevailing commodity prices,
price volatility, price differentials and the actual prices
received for the Company's products; the availability and
performance of drilling rigs, facilities, pipelines and other
oilfield services; the timing of past operations and activities in
the planned areas of focus; the drilling, completion and tie-in of
wells being completed as planned; the performance of new and
existing wells; the application of existing drilling and fracturing
techniques; prevailing weather and break-up conditions; royalty
regimes and exchange rates; the application of regulatory and
licensing requirements; the continued availability of capital and
skilled personnel; the ability to maintain or grow the banking
facilities; the accuracy of Tamarack's geological interpretation of
its drilling and land opportunities, including the ability of
seismic activity to enhance such interpretation; and Tamarack's
ability to execute its plans and strategies.
Although management considers these assumptions to be reasonable
based on information currently available, undue reliance should not
be placed on the forward-looking statements because Tamarack can
give no assurances that they may prove to be correct. By their very
nature, forward-looking statements are subject to certain risks and
uncertainties (both general and specific) that could cause actual
events or outcomes to differ materially from those anticipated or
implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to: counterparty risk to
closing the Acquisition; unforeseen difficulties in integrating the
Assets into Tamarack's operations; incorrect assessments of the
value of benefits to be obtained from acquisitions and exploration
and development programs (including the Acquisition); risks
associated with the oil and gas industry in general (e.g.
operational risks in development, exploration and production; and
delays or changes in plans with respect to exploration or
development projects or capital expenditures); commodity prices;
the uncertainty of estimates and projections relating to
production, cash generation, costs and expenses; health, safety,
litigation and environmental risks; access to capital; and the
COVID-19 pandemic. Due to the nature of the oil and natural gas
industry, drilling plans and operational activities may be delayed
or modified to react to market conditions, results of past
operations, regulatory approvals or availability of services
causing results to be delayed. Please refer to the annual
information form for the year ended December
31, 2020 and the management's discussion and analysis for
the three and nine months ended September
30, 2021 for additional risk factors relating to Tamarack,
which can be accessed either on Tamarack's website at
www.tamarackvalley.ca or under the Company's profile on
www.sedar.com. The forward-looking statements contained in this
press release are made as of the date hereof and the Company does
not undertake any obligation to update publicly or to revise any of
the included forward-looking statements, except as required by
applicable law. The forward-looking statements contained herein are
expressly qualified by this cautionary statement.
This press release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about Tamarack's five year plan, including generating
sustainable long-term growth in free funds flow, prospective
results of operations and production, costs, capital expenditures,
profit, payouts, balance sheet strength, adjusted funds flow, free
funds flow, free funds flow breakeven, net debt, net debt to
annualized adjusted funds flow, debt targets, total returns and
components thereof, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set
forth in the above paragraphs. FOFI contained in this document was
approved by management as of the date of this document and was
provided for the purpose of providing further information about
Tamarack's future business operations. Tamarack disclaims any
intention or obligation to update or revise any FOFI contained in
this document, whether as a result of new information, future
events or otherwise, unless required pursuant to applicable law.
Readers are cautioned that the FOFI contained in this document
should not be used for purposes other than for which it is
disclosed herein.
Non-IFRS Measures
Certain measures commonly used in
the oil and natural gas industry referred to herein, including,
"adjusted funds flow", "free funds flow", "free funds flow
breakeven", "net debt", "net debt to annualized adjusted funds
flow", and "operating field netback" do not have a standardized
meaning prescribed by IFRS and therefore may not be comparable with
the calculation of similar measures by other companies. These
non-IFRS measures are further described and defined below. Such
non-IFRS measures are not intended to represent operating profits
nor should they be viewed as an alternative to cash flow provided
by operating activities, net earnings or other measures of
financial performance calculated in accordance with IFRS.
"Adjusted funds
flow" Adjusted funds flow is calculated by taking
cash-flow from operating activities and adding back changes in
non-cash working capital and expenditures on decommissioning
obligations since Tamarack believes the timing of collection,
payment or incurrence of these items is variable. Expenditures on
decommissioning obligations may vary from period to period
depending on capital programs and the maturity of the Company's
operating areas. Expenditures on decommissioning obligations are
managed through the capital budgeting process which considers
available adjusted funds flow. Tamarack uses adjusted funds flow as
a key measure to demonstrate the Company's ability to generate
funds to repay debt and fund future capital investment. Adjusted
funds flow per share is calculated using the same weighted average
basic and diluted shares that are used in calculating loss per
share.
"Free funds flow" (previously
referred to as "free adjusted funds flow") is calculated by taking
adjusted funds flow and subtracting capital expenditures, excluding
acquisitions and dispositions, Management believes that free funds
flow provides a useful measure to determine Tamarack's ability to
improve returns and to manage the long-term value of the
business.
"Free funds flow breakeven" (previously
referred to as "free adjusted funds flow breakeven") is determined
by calculating the minimum WTI price in US/bbl required to
generate free funds flow equal to zero sustaining current
production levels and all other variables held constant. Management
believes that free funds flow breakeven provides a useful measure
to establish corporate financial sustainability.
"Net debt" is calculated as bank
debt plus working capital surplus or deficit, including the fair
value of cross-currency swaps and excluding the fair value of
financial instruments and lease liabilities.
"Net Debt to Trailing Annual Adjusted Funds
Flow" is calculated as net debt divided by the adjusted
funds flow for the preceding quarters.
"Operating Field Netback" equals total
petroleum and natural gas sales, less royalties and net production
and transportation expenses.
Please refer to the MD&A for additional information relating
to Non-IFRS measures. The MD&A can be accessed either on
Tamarack's website at www.tamarackvalley.ca or under the
Company's profile on www.sedar.com.
SOURCE Tamarack Valley Energy