TSX: TVE
CALGARY,
AB, April 21, 2022 /CNW/ - Tamarack Valley
Energy Ltd. ("Tamarack" or the "Company") is pleased
to announce it has entered into a definitive agreement (the
"Agreement") to acquire Rolling Hills Energy Ltd.
("Rolling Hills"), a
privately held pure play Clearwater oil producer, for total
consideration of $93.0 million (the
"Corporate Acquisition"). Tamarack has also entered into
additional agreements to further consolidate its Clearwater position through the addition of
undeveloped lands in the Peavine area (together with the
Corporation Acquisition, the "Clearwater Transactions").
In conjunction with these transactions the Company is pleased to
announce a return of capital update, including a 20% base dividend
increase and shareholder guidance with respect to delivering
enhanced returns through tactical share buybacks and/or enhanced
dividends.
Brian Schmidt (Aakaikkitstaki),
Tamarack's President and CEO highlighted: "Tamarack's announcements
today are the result of our disciplined focus on sustainable free
funds flow(1) growth and accretive acquisitions. Through
our strategic focus over the past two years, we have positioned the
Company for long-term sustainable free funds flow(1)
growth and shareholder returns. The acquisition of Rolling Hills completes the consolidation of
our core operating area in the Southern
Clearwater, which will allow us to fully optimize
development and maximize returns from this area. The Corporate
Acquisition coupled with our second strategic Peavine Metis
Settlement agreement and additional land sales in the Peavine area
will expand our total Clearwater
footprint to 593.2 net sections (379,650 net acres)."
Clearwater Transactions
Southern Clearwater
Consolidation
The Corporate Acquisition represents another step forward in
Tamarack's consolidation and expansion of our holdings in the
prolific Clearwater fairway. The
$93.0 million of consideration
consists of: (i) $46.5 million in
cash, subject to adjustment; and (ii) the issuance of 9,276,623
common shares of Tamarack ("Tamarack Shares") at a deemed
price of $5.0126 per Tamarack Share.
Key aspects of the Corporate Acquisition include:
- Strategic fit with Tamarack's existing Southern Clearwater portfolio
-
- The Corporate Acquisition fully consolidates Tamarack's working
interest and operatorship to 100% in the greater Jarvie play in the Southern Clearwater area
- Significant Clearwater
development and exploration potential
-
- 70 (54.0 net) future development drilling
locations(3), across only 1/3 of the 34,560 net acres
acquired
- Additional unbooked future exploitation and drilling
upside
- Attractive environmental, social and governance (ESG)
profile
-
- Consistent with Tamarack's previous acquisitions in the
Clearwater, the assets have
minimal asset retirement obligations and limited freshwater
requirements
- Tamarack expects to realize synergies in gas conservation and
other infrastructure, lowering the GHG intensity of the assets, due
to the strategic fit of the acquired assets in the Southern Clearwater
- Accretive to Tamarack shareholders
-
- Forecast production of ~2,100 boe/d(2) is expected
to deliver $61.0 million of
annualized operating field netback(1)
- Low sustaining capital of $15 to
$20 million required to hold
production levels flat
- Purchase price implies on an annualized basis 1.5x operating
funds flow
- Rolling Hills has
approximately 63% of remaining 2022 oil production hedged through a
combination of WTI swaps and collars that ensure a minimum average
WTI price >C$83/bbl
- The Corporate Acquisition is accretive on a per share basis to
forecasted 2023 adjusted funds flow(1) by 5% and to free
funds flow(1) by 7% on strip prices
- Further enhances the 5-year plan and return of capital
framework
-
- Increases debt adjusted free funds flow per share(1)
by more than 3% throughout Tamarack's 5-year plan at WTI oil prices
of US$55/bbl
Corporate Acquisition
Metrics
Purchase
Price
|
$93.0
million
|
7 Months 2022 Average
Production
|
2,100
boe/d(2)
|
Annualized Operating
Field Netback(1)
|
$61.0
million
|
Drilling
Locations
|
70 gross (54.0
net)(3)
|
Proved Plus Probable
Reserves
|
3.8
MMboe(4)
|
Total Clearwater
Acreage
|
34,560 net
acres
|
Total ARO
(Undiscounted)
|
<$1.0
million
|
Peavine Metis Settlement
Agreement & Land Acquisitions
- Second strategic Peavine Metis Settlement agreement
-
- Tamarack is pleased to announce it has entered into a second
partnership with the Peavine Metis settlement on an additional 15
net sections (9,600 net acres) of prospective Clearwater land
- Together, the strategic Peavine Metis Settlement agreements
encompass a total of 44.5 net sections (28,500 net acres) of
Clearwater land
- Greater Peavine area land acquisitions
-
- Tamarack has amassed 26 net sections (16,640 net acres) in the
greater Peavine Clearwater trend, providing further scale in the
region. These lands are highly prospective offsetting recent drill
results in up to three prospective Clearwater sand intervals
- Exploration program plan set to commence
-
- Tamarack plans to commence with its initial exploration program
on these lands in Q3 2022
Return of Capital Update
20% Monthly Dividend
Increase
Tamarack is pleased to announce that it plans to increase its
base cash dividend by 20% to $0.010
per share per month beginning with the June dividend declaration,
with an anticipated payment date of July 15,
2022. The increase in Tamarack's monthly cash dividend
reflects the improvement in sustainable free funds flow
(FFF)(1) per share the Company has generated since
implementation of its dividend policy in October 2021. The Company's improved
FFF(1) per share profile is a cumulative result of
enhanced sustainable FFF(1) along with the acquisitions
of Crestwynd Exploration Ltd. (closed February 2022) and Rolling Hills, which will continue to drive
accretion at flat pricing of US$55/bbl WTI and $2.50/GJ AECO.
Enhanced Return
Update
Based on current forward commodity prices, Tamarack is pleased
to announce that it expects to implement an enhanced return to
shareholders payable in Q3 2022 that will be funded through free
funds flow(1) that the Company generates during Q2 2022,
prior to giving effect to the Clearwater Transactions. Tamarack's
implementation of the enhanced return is based on Tamarack's
expectation that, prior to giving effect to the Clearwater
Transactions, it would have achieved the upper end of its current
long-term debt threshold of $325 to
$375 million during Q2 2022. Details
of the enhanced return will be specified with Tamarack's release of
Q2 2022 results in August 2022.
Upon closing of the Clearwater Transactions, Tamarack will
increase its long-term debt threshold to $350 to $400
million, predicated on a forecasted net debt to annual
adjusted funds flow of 1.0x at US$45/bbl WTI. Pending market conditions and
subject to the stated debt targets, 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 free funds flow(1) will be
allocated to further debt repayment and future acquisition
opportunities.
Updated 2022 Outlook
Tamarack will provide updated 2022 guidance, including pro forma
estimates, in conjunction with Q1 2022 results on May 3, 2022.
Corporate Acquisition
Details
Contemporaneous with the execution of the Agreement, certain
shareholders of Rolling Hills,
representing approximately 50% of the outstanding common shares of
Rolling Hills, executed voting support agreements in connection
with Corporate Acquisition. The Agreement provides for, among other
things, a non-solicitation covenant on the part of Rolling Hills, a right to match in favour of
Tamarack and a break fee in the amount of $5.0 million payable to Tamarack in certain
circumstances. Pursuant to the Agreement, certain assets of
Rolling Hills will be conveyed to
a newly created company owned by the existing shareholders of
Rolling Hills. A copy of the
Agreement will be filed on Tamarack's SEDAR profile at
www.sedar.com.
The Corporate Acquisition is expected to close on or about
June 10, 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 Rolling Hills who will, prior to the
completion of the Corporate Acquisition, collectively hold or
exercise control over approximately 34% of the issued and
outstanding common shares of Rolling Hills (on a non-diluted
basis). One-third (1/3) of the Tamarack Shares issuable to
such shareholders of Rolling Hills
will be subject to escrow and released as to one-half on each of
the dates that is three and six months following the closing, to be
facilitated via block trades, with Tamarack approval. In addition,
for a period of 12 months following closing, all trades of escrowed
shares by such shareholders must be facilitated in block trades
facilitated by Tamarack.
Advisors
- Peters & Co. Limited and RBC Capital Markets are acting as
financial advisors to Tamarack with respect to the Corporate
Acquisition.
- Stikeman Elliott LLP is acting as legal counsel to Tamarack
with respect to the Corporate Acquisition.
- National Bank Financial Inc. is acting as financial advisor to
Rolling Hills.
- Burnet, Duckworth & Palmer LLP is acting as legal counsel
to Rolling Hills.
Investor Webcast
Tamarack will host a webcast at 9:00 AM
MT (11:00 AM ET) on
April 21, 2022 to discuss the
acquisitions and return of capital updates. Participants can access
the live webcast via this link or through the link
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 "Specified
Financial Measures"; free funds flow (FFF) was previously
referred to as free adjusted funds flow
|
(2)
|
Comprised of 2,100
bbl/d heavy oil
|
(3)
|
See "Disclosure of
Oil and Gas Information – Drilling Locations"
|
(4)
|
Proved plus probable
reserves have been internally estimated by 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") effective as of June 1, 2022. "Internally estimated"
means an estimate that is derived by the Company's internal QRE and
prepared in accordance with NI 51-101 and COGEH.
|
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'
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 June 1,
2022 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 70 (54.0 net)
drilling locations identified herein, 22 (18.0 net) are proved
locations, 14 (11.2 net) are probable locations and
30 (24.8 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 Clearwater Transactions and the
timing thereof; satisfaction or waiver of the closing conditions to
the Clearwater Transactions; receipt of required regulatory
approvals for the completion of the Corporate Acquisition
(including approval of the TSX and the Commissioner of Competition
pursuant to the Competition Act (Canada)); the purchase price of the Corporate
Acquisition; the anticipated benefits of the Clearwater
Transactions, including the impact of the Clearwater Transactions
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, , abandonment and reclamation
obligations, adjusted funds flow, free adjusted funds flow and net
debt to trailing adjusted funds flow relating to the assets to be
acquired following the Clearwater Transactions (the "Assets");
development and drilling plans for the Assets, including the
drilling locations associated therewith and timing of results
therefrom; expectations regarding the Clearwater; the Company's five year plan,
including regular dividends, enhanced dividends and share buybacks;
future consolidation activity and organic growth; future intentions
with respect to return of capital; oil and natural gas production
levels, 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 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 and sustainability; and the
source of funding for the Company's activities including
development costs. 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, Rolling Hills and the Assets; the receipt of
all approvals and satisfaction of all conditions to the completion
of the Corporate 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 Clearwater Transactions; the risk that future dividend
payments thereunder are reduced, suspended or cancelled; unforeseen
difficulties in integrating of 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 Clearwater Transactions); 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, including increased operating and capital costs
due to inflationary pressures; 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, 2021 and the
management's discussion and analysis for the year ended
December 31, 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 generating sustainable long-term growth in free funds
flow, prospective results of operations and production, weightings,
operating costs, 2022 capital budget and expenditures, balance
sheet strength, adjusted funds flow, free funds flow,
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
and its management believe that FOFI has been prepared on a
reasonable basis, reflecting management's best estimates and
judgments, and represent, to the best of management's knowledge and
opinion, the Company's expected course of action. However, because
this information is highly subjective, it should not be relied on
as necessarily indicative of future results. 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. Changes in forecast commodity prices, differences
in the timing of capital expenditures, and variances in average
production estimates can have a significant impact on the key
performance measures included in Tamarack's guidance. The Company's
actual results may differ materially from these estimates.
Specified Financial
Measures
This press release includes various specified financial
measures, including non-IFRS financial measures, non-IFRS financial
ratios and capital management measures as further described herein.
These measures do not have a standardized meaning prescribed by
International Financial Reporting Standards ("IFRS") and,
therefore, may not be comparable with the calculation of similar
measures by other companies.
"Adjusted funds flow (capital management measure)" is
calculated by taking cash-flow from operating activities and adding
back changes in non-cash working capital, expenditures on
decommissioning obligations and transaction costs 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 (capital management
measure)" (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
per share is calculated using the same weighted average basic and
diluted shares that are used in calculating loss per share.
"Operating field netback (non-IFRS financial measure
or ratio)" is calculated as total petroleum and natural gas
sales, less royalties, net production expenses and transportation
expense. These metrics can also be calculated on a per boe basis.
Management considers operating netback and operating field netback
important measures to evaluate Tamarack's operational performance,
as it demonstrates field level profitability relative to current
commodity prices. A reconciliation of operating field netback to
the most directly comparable measure calculated and presented in
accordance with IFRS is as follows:
|
June-December 2022
Forecast
|
2022 Annualized
|
($millions)
|
|
|
Average realized
sales
|
45.6
|
78.2
|
Royalty
expenses
|
(4.2)
|
(7.2)
|
Net production and
transportation expense
|
(5.7)
|
(9.7)
|
Operating field
netback
|
35.7
|
61.3
|
"Net debt (capital management measure)" is calculated as
bank debt plus working capital surplus or deficit, plus other
liability, including the fair value of cross-currency swaps and
excluding the fair value of financial instruments and lease
liabilities.
"Net Debt to Annual Adjusted Funds Flow (capital management
measure)" is calculated as estimated net debt at a point in
time divided by the forecasted annual adjusted funds flow.
Please refer to the MD&A for additional information relating
to specified financial measures including non-IFRS financial
measures, non-IFRS financial ratios and capital management
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