Tamarack Valley Energy Q2 2023 Earnings Call Transcript

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July 27, 2023

There are 4 speakers on the call.

Operator

Morning, and welcome everybody to the Tamarac Valley Energy Limited Conference Call and Webcast on Thursday, July 27, 2023, discussing the recent Q2 2023 results press release. I would like to introduce today's 20, Mr. Brian Schmidt, President and CEO and Mr. Steve Vittells, Vice President, Finance

Speaker 1

20

Operator

20. Thank you. Mr. Schmidt, you may now begin your conference.

Speaker 2

20. Good morning, and thank you, Daryl. I welcome everyone to the call to discuss our Q2 operating financial highlights. I am here this morning with Steve Beitelz, VP Finance and CFO. The Q2 remained focused on developing Tamarac's core areas by drilling 24 wells in the Clearwater and Charlie Lake Tamarac's dominant position in the Clearwater and Charley Lake plays are the foundation of our long term strategic plan, which is underpinned by leading low sustaining free funds 2020.

Speaker 2

I'm excited to share with you that we have completed the construction and commissioning of our owned and operated 15,000,000 standard cubic feet a day Wembley Gas Plant, which will process associated natural gas from the company's 2020. The plant was commissioned on budget and brought on stream June 9, 2023, 3 weeks ahead of schedule. Secondly, as development continues to expand across Tamarac's Clearwater lands, 20. The company is investing in gas conservation and recently acquired strategic natural gas infrastructure at West Martin Hills. This facility Commencing Q1, 2024.

Speaker 2

The expansion of this facility is underway and expected to support long term regional development of the Clearwater play, while also delivering line of sight to lowering Tamarac's emissions intensity. 2019. Lastly, Nipissippi Terminal and Pipeline Project continues to track on time affording enhanced netback realizations 2019 through blending cost benefits and reduced transportation expense. In addition, Tamarac is working with 3rd parties to establish a new Clearwater Heavy Oil benchmark, which could provide improved pricing over time. West Martin Herald's results continue to exceed the company's expectations.

Speaker 2

Recent activity has Tamarac producing 3,750 barrels of oil per day in June from 13 wells on 2 pads 2019. The expansion of the Nipissippi waterflood is ongoing with successful 2019 pilot, which continues to produce at 3.90 barrels of oil per day, 20. Having delivered a cumulative production of over 190,000 barrels of oil to date, water injection rates at Nipissie averaged 2,100 barrels per day in June and completion of the centralized water facility at the 15 to 22 battery in Q4 2023 will support the ongoing ramp of total injection exiting the year. At Martin Hills, Tamarac has more than doubled the rate of the 15:two injectors since acquiring Delta Stream in Q4 2022. 20.

Speaker 2

The current injection is demonstrating a positive result as the offsetting producer are now 30% or 50 barrels higher than the production rates prior to increasing injection. 20. Moving to Charlie Lake, production averaged 15,000 barrels of oil per day, representing 22% of the corporate production for the period. Benefiting from early commissioning of the Wembley plant, recent production at Charlie Lake is achieving rates of approximately 17,000 BOE per day. 20.

Speaker 2

This compares to rates of 12,500 BOE per day at the announcement Q2 2021 underscoring 20. Production for the Q2 averaged 66,738 BOE per day, which represents a 52% year over year increase. 2019. A successful second quarter drilling program was partially offset by the company's loss of about 1500 BOE per day Production impacts were largely restricted prior to June 30 with H2 production. I will now pass it on to H2 production expected to average 68,000 to 70000 BOE per day.

Speaker 2

I'll now pass it on to Steve Beitel to run through the financial results as well as our outlook for the remainder of the year.

Speaker 1

Thank you, Brian. 2nd quarter adjusted funds flow came in at approximately $157,000,000 with free funds flow of $39,000,000 Looking ahead, the strengthening of the WCS differentials, coupled with the 20. The completion of our infrastructure initiatives that Brian alluded to will contribute to a stronger forecasted netback through the back half of the year and over our 5 year plan. 20. From a capital perspective, we spent $118,000,000 during the quarter, including the drilling, completion and equipping of 2019 Clearwater Wells and 5 Charlie Lake Wells.

Speaker 1

The enhanced scale and scope of our Clearwater operations 2020, has led to greater capital efficiencies offsetting the increase in unit cost inflation that occurred through 2022 and delivering costs not seen since the Q1 of 2022. We spent approximately $20,000,000 in the second quarter on strategic infrastructure, 2018, including costs associated with the Wembley plant and the Nipissippi pipeline terminal. These two initiatives have the potential to reduce the company's 20.3 funds flow breakeven by approximately $1 to $1.10 per barrel U. S. WTI and are key to enhancing free funds flow generation 20, within the context of Tamarac's 5 year plan and return of capital framework.

Speaker 1

We also published the 2023 Annual Sustainability Report 2019, highlighting Tamarac's commitment to environmental, social and governance principles and sustainable practices during the year. 22nd to the quarter, we entered into a definitive agreement for the sale of a minority interest in the Wembley Gas Plant and a gross overriding royalty on select Charlie Lake Properties for total consideration of 39,500,000 2020. Following the closing of the sale, Tamarac will continue to be the operator of the Wembley Gas Plant and will retain full access to 100% of the capacity. 2020. In terms of outlook, Tamara continues to focus on managing or maximizing free fund flow for debt repayment and enhancing shareholder returns 2019.

Speaker 1

2nd half twenty twenty three free funds flow is expected to increase given the tighter WCS differentials, 20. We expect to continue to expect to increase our operating netback realizations through our infrastructure initiatives, resulting in lower OpEx and transportation expense, 20.5 million to $475,000,000 and we maintain our prior 2023 production guidance 20.6% to 71,000 BOE a day. The production guidance includes the impacts of the wildfires through the 2nd quarter, but is expected to be offset through the second half of the year by strong performance from our Clearwater and Charlie Lake programs.

Speaker 2

2020. While the first half of twenty twenty three saw significant investments

Speaker 1

in

Speaker 2

2023 second half will be more focused on the drill bit. 2020. The company anticipates delivering increased free funds flow and material debt reduction exiting the year, reflecting a higher second half twenty twenty three production 2020, and a narrowing of WDCs differentials. I would like to thank my our employees, the Board of Directors and shareholders and stakeholders 20. I'll pass it back to the moderator for questions.

Speaker 2

Thank you.

Operator

And thank you, ladies and gentlemen. We will now begin the question and answer session. 20. 20.

Speaker 3

Ladies and gentlemen, our first question for today Do you have any updates on the 8,000 barrels per day Cardium sale? And what type of pricing are you looking for here

Speaker 1

20. Yes. Thank you and great question. Update on the sale would be we're in the middle 2020. Here currently, we would expect bids to come in sort of through mid August to late August.

Speaker 1

20. And in terms of the ranges on pricing and so forth, we won't get into that. I think the key here is the commodity price strength over the 20. Past month or so should help there. But we'll have to see how the bids come in and then the financing risk elements around some of those.

Speaker 1

But Again, let's kind of target a mid-ten to August timeframe in terms of when the bids will be due.

Speaker 3

And our next question is for Steve Vittells again. Given the positive free funds flow outlook for TBE, what made the infrastructure 20.

Speaker 1

Yes. So really what we got to look at here in terms of the 20. Infrastructure, when we look at our cost of capital relative to the infrastructure company's cost of capital, It makes sense to crystallize that. We own and control 100% of the throughput on that plant in doing 20. So we're not giving up anything from an operating standpoint there.

Speaker 1

The it is a little bit convoluted as there was a gore element to it. And the Gore was really there's 2 pieces. There's some new Charlie Lake lands and then an amendment to one of the Clearwater Gores or existing Gores. So Again, we won't get into much more there. But again, in an effort to ensure that we're maximizing our free funds flow, our debt repayment here through the back half of twenty twenty three.

Speaker 1

Strategically, this was always something we were looking at to ensure we maintained 20. 100% of that throughput, but could look at crystallizing some of the differences in cost of capital in an accretive manner with respect to the plant.

Speaker 3

20. Our next question is for Brian Schmidt. Do you expect continued or even better capital efficiencies as a result of scale and scope in the Clearwater?

Speaker 2

Yes. I think one thing we're that we had good results with in the first half And we expect that to bring in some good results, not just in lower costs, but actually an increased profitability through reservoir access. 2019.

Speaker 3

Our next question is for Brian Schmidt again. Has the successful completion and start up of the Wembley plant relieved your Charlie Lake egress challenges? And will it change your capital programs in the coming years from the current 8 year plan?

Speaker 2

Yes. So on The whole story about the Grand Prairie area is getting control of your infrastructure. So we were relying on a number of shorter term contracts that were due to expire. This plant takes we're able to cancel a number of those contracts and put that volume through our own operated plant. And therefore, we think we can increase reliability and drop some costs.

Speaker 2

Moreover, we still have the sour side of the Charley Lake and we've committed to some gas processing that will come on in early 2025 That will handle that part of it. So slowly and surely, we are getting into more secure contracts on our processing And we continue to take egress out of that area as well. The fact is that we have way more 20.

Speaker 3

Our next question is for Steve Vitels. How does the $39,500,000 disposition announced

Speaker 1

20. Yes. So when we look at that $39,500,000 on a stand alone basis, that debt obviously accelerates that debt repayment and gets us Closer to the initial threshold. When we look at strip as of today or over the past week here in the move coupled with that, 20. I think we'd be getting close into that Q4, Q1 time frame where we potentially could get to a spot where we would trigger that first 20.

Speaker 1

However, we are working on you heard the question on the disposition of some non core assets and some other initiatives here. 2019. Our goal and our priority continues to be on accelerating debt repayment to get to those enhanced return thresholds as quickly as we can in a profitable manner. So again, that is the ultimate goal here and accelerating that enhanced return timing is top of mind.

Speaker 3

20. Our next question is for Brian Schmidt. When do you expect to start utilizing fanfishbone designs in your Clearwater program?

Speaker 2

Yes. So we'll have wells drilling here in the second half that will test that concept, in fact, in the Q3. 20. So, we're pretty excited about it. But generally, I don't I expect that well to come in as we progged.

Speaker 2

I don't see much risk

Speaker 3

20. Our next question is for Steve Vittell. 20. Have the current market changes adjusted your short term risk managementhedging tactics?

Speaker 1

Yes. 2020. So we obviously have a systematic program to our risk management and hedging. We're always moving out through 6 months 20 to a year out, to ensure we protect our funds flow and our committed capital requirements or debt servicing requirements. 2020.

Speaker 1

The nice thing here with the move in price is we've been able to not only use collars and nice wide collars to make sure we capture price 20. We expect depreciation to the upside to enhance and accelerate debt repayment and cash flow, but also bring our floors up to ensure even higher floor protection as we look out through Q4 and into the first half of twenty twenty four.

Speaker 3

Thank you. Ladies and gentlemen, we have no more questions. So we will turn it back over to the moderator.

Operator

20 to close out the call or do you want to re prompt for questions?

Speaker 3

We will close out the call.

Speaker 2

20.

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Key Takeaways

  • We completed and commissioned our 15 MMcf/day Wembley Gas Plant on budget and three weeks ahead of schedule, enhancing processing capacity.
  • We acquired and are expanding gas infrastructure at West Martin Hills to support gas conservation and lower emissions intensity, with commissioning expected in Q1 2024.
  • The Nipissippi Terminal and Pipeline Project remains on schedule and is expected to improve netback realizations through blending benefits and reduced transportation costs, while we work on establishing a new Clearwater heavy oil benchmark.
  • Second-quarter production rose 52% year-over-year to 66,738 BOE/d, and we maintain full-year guidance of 66,000–71,000 BOE/d with H2 production forecast of 68,000–70,000 BOE/d.
  • We generated Q2 adjusted funds flow of C$157 million and free funds flow of C$39 million; strategic infrastructure initiatives and the sale of a minority interest in the Wembley plant (C$39.5 million) are expected to lower breakeven costs, boost free funds flow and accelerate debt repayment.
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Earnings Conference Call
Tamarack Valley Energy Q2 2023
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