TSX: TVE
CALGARY, AB, Jan. 13, 2022 /CNW/ -Tamarack Valley Energy Ltd.
("Tamarack" or the "Company") (TSX: TVE) announces
that the Board of Directors (the "Board") has approved a 2022
capital budget, pro forma the acquisition of Crestwynd Exploration
Ltd. (the "Acquisition"), of $250 to
$270 million, designed to achieve
significant free funds flow(1), and generate annual
production of 45,000 to 46,000 boe/d(2), enabling return
of capital optionality and maintaining a strong balance sheet.
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"We are excited to roll out a strong 2022 plan with a continued
focus of building on and delivering sustainable free funds
flow(1). Our program is designed to provide an optimal
balance of investment across our asset base with the growth driven
by the Clearwater, free funds
flow(1) maximization in the Charlie Lake, and decline mitigation through
the Enhanced Oil Recovery (EOR) waterfloods. The updated five-year
plan(3), inclusive of the Acquisition, generates robust
free funds flow(1) of greater than $1.1 billion dollars at US$55/bbl WTI and greater than $2.1 billion dollars at US$70/bbl WTI." – Brian
Schmidt, President and Chief Executive Officer
Highlights of the 2022 Budget
- Capital Program – Tamarack plans to invest $250 to $270
million, which includes the drilling of 126 (116.3 net)
wells, funded through less than 50% of adjusted funds
flow(1) at budget pricing of US$70/bbl WTI and CAD$3.00/GJ Aeco.
- Production & Free Funds Flow(1) – This program
will drive production of 45,000 to 46,000 boe/d(2) with
a 73-75% oil and NGL weighting and is expected to generate
$250 to $300
million of free funds flow(1) (excluding
acquisitions).
- Capital Allocation – We will direct approximately 40% of our
capital program to the Clearwater,
inclusive of the waterflood program at Nipisi, 30% to the
Charlie Lake and 15% to our EOR
waterflood assets in Veteran and Eyehill. The portfolio of capital
investment is optimized to focus on free funds flow(1)
generation and managing our corporate decline through continued
investment in our waterflood projects.
- Uses of Free Funds Flow(1) – At budget pricing, free
funds flow(1) will enable a reduction of debt and return
of capital to shareholders.
- Sustaining free funds flow breakeven price(1) –
Inclusive of the base dividend, the budget achieves a free funds
flow breakeven(1) of ~US$35/bbl WTI.
- ESG Commitment – Tamarack has allocated $7.5 million to ARO spending and $3.5 million to gas conservation and other
emissions reduction capital projects.
The Company continues to manage commodity price risk and
volatility through a prudent hedging management program, with ~50%
of gross oil production hedged against WTI on average through 2022.
Our strategy provides protection to the downside while maximizing
upside exposure. Additional details of the current hedges in place
can be found in the corporate presentation on the Company website
(www.tamarackvalley.ca).
Five-year Plan Update
In conjunction with the 2022 Budget and the Acquisition,
Tamarack has updated its five-year plan(3) (2022-2026).
The five-year plan(3) highlights the significant free
funds flow(1) generated by the Company's assets and the
flexibility to direct funds to achieve long term debt targets,
return of capital to shareholders and incremental growth of the
business both organically and through M&A opportunities. The
updated five-year plan reflects expected inflationary cost
increases.
Highlights of the updated five-year plan(3)
include:
- Generation of approximately $1.1
billion of free funds flow(1) at US$55/bbl WTI and $2.50/GJ AECO flat pricing (the "planned pricing
scenario"). Utilizing a US$70/bbl
price through the plan would generate greater than $2.1 billion of free funds
flow(1).
- Free funds flow breakeven(1), inclusive of the base
dividend, of approximately US $35/bbl
WTI; affords downside protection with upside torque given the short
payout and high profit to investment nature of the Clearwater, Charlie
Lake and Waterflood core oil plays.
- The planned pricing scenario over the five years contemplates a
sustaining pro forma production base of 46,000 boe/d to 49,000
boe/d(4) which represents 2-3% annual growth, while
balancing return of capital to shareholders. The plan has the
Clearwater reaching production
rates of 18,000 to 19,000 boe/d(5) through
2025/2026.
- Sustaining capital, inclusive of the base dividend,
representing approximately 40-50% of adjusted funds
flow(1), supports a production base of between 46,000 to
49,000 boe/d(3), inclusive of ARO spend. Annual capital
to achieve sustaining production plus moderate growth will range
between $220 to $270 million.
- Maintains a strong balance sheet, driving less than 1x year-end
net debt to trailing annual adjusted funds flow(1), with
a path to being debt free over the five years. Under the
US$70/bbl WTI case, the Company
estimates to be debt free in 2023.
- The five-year plan(3) is underpinned with >10
years of drilling inventory capable of delivering payout in <1.5
years based on the five-year plan(3) capital
forecast.
- A strong commitment to ESG and sustainability with planned
abandonment and reclamation spend incorporated in the sustaining
capital assumptions which exceed government mandated levels along
with capital focused on lowering emissions through Clearwater gas conservations projects aligned
with the growth in the play.
Return of Capital Update
Pro forma the Acquisition, Tamarack's long-term debt target has
been updated to $325 to $375 million from the previous $250 to $300
million. The long-term debt target is predicated on a
forecasted year-end net debt to trailing annual adjusted funds
flow(1) of 1.0x at US$45/bbl WTI. Pending market conditions and once
the Company reaches this target; Tamarack plans to return up to 50%
of the previous quarter's free funds flow(1) inclusive
of base dividends to its shareholders through tactical share
buybacks and/or special dividends. The remaining 50% of free funds
flow(1) will be allocated to further debt repayment and
future acquisition opportunities.
Declaration of Inaugural Dividend
Tamarack is pleased to announce that it will proceed with the
implementation of its previously announced dividend program.
Tamarack's board of directors has declared an inaugural monthly
cash dividend on its common shares of C$0.0083 per share. The dividend will be payable
on February 15, 2022, to shareholders
of record at the close of business on January 31, 2022. This monthly cash dividend is
designated as an "eligible dividend" for Canadian income tax
purposes.
2022 Budget Details
Clearwater
Approximately 40% of our capital program will be directed to the
Clearwater program in 2022 where
we are forecasting to average 12,000 boe/d(6) annually,
pro forma the Acquisition with the plan to drill and bring on 92
(82.6 net) wells. As part of the investment in the Clearwater, Tamarack plans to direct
approximately $25 million into the
Nipisi waterflood pilot program.
Our first quarter winter drilling program is currently underway
with the anticipation of running a four-rig program that will see
27 net wells drilled in Nipisi and the Southern Clearwater inclusive of four
injection wells in our Nipsi waterflood project.
Charlie Lake
Approximately 30% of our program will be directed to the
Charlie Lake program with 14 (13.7
net) wells planned to be drilled and 15.7 net brought on stream
where we forecast stable production and significant free funds
flow(1) generation from the asset. Tamarack will have
two rigs running with seven wells planned during the first
quarter.
Veteran/ Eyehill Waterflood Assets
We plan to direct approximately 15% of our capital program to
our Veteran and Eyehill waterflood assets for 2022. Two rigs are
planned to be running in our Veteran and Eyehill properties during
the first quarter program on a planned 13 well program.
Exploration/De-Risk Capital
Tamarack plans to allocate approximately 10% of our program to
exploration and de-risk initiatives for 2022, which is comprised of
land, seismic and the drilling of 3 to 4 exploratory wells. This
capital will be used to further enhance our exploratory and
exploitation opportunities within our portfolio and continue to
expand and improve our inventory base in the Company.
Environmental, Social and Governance
To support the commitments and goals outlined in Tamarack's
sustainability report and the sustainability performance targets
identified in Tamarack's sustainability linked loan, Tamarack has
allocated $7.5 million to ARO spend
and $3.5 million to gas conservation
and other emissions reduction capital
projects.
2022 Guidance(7)
The following table summarizes our 2022 annual
guidance(7).
Capital Budget
(including ARO)(8) ($mm)
|
$250–$270
|
Annual Average
Production (boe/d)
|
45,000–46,000
|
|
|
Expenses:
|
|
Royalty Rate
(%)
|
16%–17%
|
Operating
($/boe)
|
$8.50–$8.70
|
Transportation
($/boe)
|
$2.00–$2.10
|
General and
Administrative ($/boe)
|
$1.30–$1.35
|
Interest
($/boe)
|
$1.35–$1.45
|
Taxes
($/boe)
|
$1.60–$1.70
|
Leasing Expenditures
($mm)
|
$3.7
|
Asset Retirement
Obligations ($mm)
|
$7.5
|
|
|
Revenue:
|
|
Average Oil &
Natural Gas Liquids Weighting
|
74%
|
Light Oil Wellhead
Differential
|
$3.00-$3.50
|
Heavy Oil Wellhead
Differential
|
$4.50-$5.00
|
|
|
Sustaining FFF
Breakeven(1) (WTI US$/bbl)
|
~$35.00
|
2022 Adjusted
Funds Flow(1) Sensitivities
|
|
|
Increase in
Adjusted
Funds Flow(1) ($mm)
|
Increase of $1.00 WTI
($US/bbl)
|
$11
|
Decrease of $1.00 MSW
($US/bbl)
|
$4
|
Decrease of $1.00 WCS
($US/bbl)
|
$4
|
Increase of $0.25
AECO ($CAD/GJ)
|
$3
|
Budget
Pricing
|
|
Crude Oil – WTI
($US/bbl)
|
$70.00
|
Crude Oil – MSW
Differential ($US/bbl)
|
$4.00
|
Crude Oil – WCS
Differential ($US/bbl)
|
$14.00
|
Natural Gas – AECO
($CAD/GJ)
|
$3.00
|
Foreign Exchange –
$US/$CAD
|
0.78
|
Capital
Expenditures Breakdown
|
|
|
|
Wells
Drilled
|
Capital
|
Clearwater Heavy Oil
– including Crestwynd ($mm)
|
92 (82.6
net)
|
$105.0-110.0
|
Charlie Lake Light
Oil ($mm)
|
14 (13.7
net)
|
$75.0-80.0
|
Viking Waterflood
& Other ($mm)
|
20 (20.0
net)
|
$35.0-38.0
|
Land, Seismic and
Other ($mm)
|
|
$25.0-30.0
|
ARO & ESG
Initiatives ($mm)
|
|
$10.0-12.0
|
Total
|
|
$250.0-270.0
|
We would like to thank our employees, shareholders and other
stakeholders for all of their support over the past year and look
forward to continuing to develop our high-quality assets to create
shareholder value in a sustainable and responsible way.
Investor Webcast
Tamarack will host a webcast at 9:00 AM
MT (11:00 AM ET) on
January 13, 2022 to discuss the 2022
budget and provide an investor 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 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.
Abbreviations
AECO
|
the natural gas
storage facility located at Suffield, Alberta connected to TC
Energy's Alberta System
|
ARO
|
asset retirement
obligation
|
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
|
mmcf/d
|
million 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 (FFF) and free funds flow breakeven were
previously
referred to as free adjusted funds flow and free adjusted funds
flow breakeven, respectively
|
(2)
|
Comprised of
16,750-17,250 bbl/d light and medium oil, 13,000-13,250 bbl/d heavy
oil, 3,750-4,000
bbl/d NGL and 69,000-71,000 mcf/d natural gas
|
(3)
|
All five-year plan
numbers are presented before tax
|
(4)
|
Comprised of
16,000-18,000 bbl/d light and medium oil, 15,000-17,000 bbl/d heavy
oil, 3,000-4,000
bbl/d NGL and 60,000-75,000 mcf/d natural gas
|
(5)
|
Comprised of
15,000-17,000 bbl/d heavy oil, 50-250 bbl/d NGL and 4,000-5,000
mcf/d natural gas
|
(6)
|
Comprised of
11,600-11,700 bbl/d heavy oil, 20-30 bbl/d NGL and 1,800-2,200
mcf/d natural gas for
current production
|
(7)
|
Pro forma the closing
of the Acquisition of Crestwynd on February 15, 2022
|
(8)
|
Capital budget
includes exploration and development capital, ARO, ESG initiatives,
facilities land and
seismic but excludes asset acquisitions and dispositions
|
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 ("NI 51-101"). Boe may be misleading, particularly
if used in isolation.
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, including the Company's updated
five year plan and the anticipated benefits thereof; the
Acquisition and the timing thereof; future consolidation activity
and organic growth; future intentions with respect to return of
capital including dividends and share buybacks; the increased
capacity under the Company's credit facilities, the extension of
the revolving facility and the transition to an SLL Facility and
the terms thereof; net debt reduction and debt targets; Tamarack's
intention to return free funds flow to shareholders; the dividend
policy; the granting of any special dividends or any share buybacks
or other supplements to the base dividend; statements regarding
plans or expectations for the declaration of future dividends and
the amount thereof; oil and natural gas production levels, decline
rates, adjusted funds flow, free funds flow; anticipated
operational results for 2022 including, but not limited to,
estimated or anticipated production levels, capital expenditures
and drilling plans; the Company's revised capital program, guidance
and budget for 2022 and 2022 capital program; expectations
regarding commodity prices; the performance characteristics of the
Company's oil and natural gas properties; the ability of the
Company to achieve drilling success consistent with management's
expectations; Tamarack's commitment to ESG principles; the source
of funding for the Company's activities including development
costs; Without limitation of the foregoing, future dividend
payments, if any, and the level thereof, is uncertain, as the
Company's dividend policy and the funds available for the payment
of dividends from time to time is dependent upon, among other
things, free funds flow financial requirements for the Company's
operations and the execution of its growth strategy, fluctuations
in working capital and the timing and amount of capital
expenditures, debt service requirements and other factors
beyond the Company's control. Further, the ability of Tamarack to
pay dividends will be subject to applicable laws (including the
satisfaction of the solvency test contained in applicable corporate
legislation) and contractual restrictions contained in the
instruments governing its indebtedness, including its credit
facility.
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 to be acquired pursuant to the Acquisition; 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
recently acquired assets; the successful integration of recently
acquired 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: the risk that future
dividend payments thereunder are reduced, suspended or cancelled;
unforeseen difficulties in integrating of recently acquired 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 period ended
September 30, 2021 (the "MD&A")
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, dividends and
share buybacks, prospective results of operations and production,
weightings, operating costs, capital budget and expenditures,
decline rates, profit, balance sheet strength, adjusted funds flow,
free funds flow, free funds flow breakeven, net debt, year-end net
debt to trailing annual adjusted funds flow, debt targets, total
returns and components thereof, including pro forma the
Acquisition, 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" and
"year-end net debt to trailing annualized adjusted funds flow", 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.
"Year-end Net Debt to Trailing
Annual Adjusted Funds Flow" is calculated as estimated year-end
net debt divided by the estimated adjusted funds flow for the four
preceding quarters at year-end.
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