Tamarack Valley Energy Q3 2024 Earnings Report

Tamarack Valley Energy EPS Results

• Actual EPS: C$0.17
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Tamarack Valley Energy Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Tamarack Valley Energy Announcement Details

• Quarter: Q3 2024
• Date: 10/31/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, October 31, 2024
• Conference Call Time: 11:30AM ET

Tamarack Valley Energy (TSE:TVE). engages in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids in the Western Canadian sedimentary basin. It primarily holds interests in Cardium light oil plays in Wilson Creek/Alder Flats/Pembina, and Garrington and Lochend areas in Alberta; Viking light oil resource plays in Redwater and Westlock in Alberta, as well as in the Consort area of southeast Alberta and Hoosier area of southwest Saskatchewan; Barons Sands light oil plays located in the Penny area of Southern Alberta; and heavy oil properties located in Hatton area of Saskatchewan. The company was formerly known as Tango Energy Inc. and changed its name to Tamarack Valley Energy Ltd. in June 2010. Tamarack Valley Energy Ltd. was incorporated in 2002 and is headquartered in Calgary, Canada.

Tamarack Valley Energy Q3 2024 Earnings Call Transcript

Key Takeaways

• Record production: Q3 averaged 65,024 BOE/day, driven by Clearwater volumes of 43,300 BOE/day (up 15% yoy) and Charney Lake at 16,200 BOE/day outperformance.
• Capital efficiency gains led to a 5% reduction in perimeter costs (≈$10 million in Martin Hills) and fan‐design drilling delivered lower declines with higher estimated recoveries.
• Waterflood initiatives saw injection ramp from 2,000 to 8,650 bpd, forecast to reach 14,000 bpd by year‐end, adding ≈1,500 bpd of incremental oil and supporting 9% of Clearwater production.
• Strong financial performance with $220 million adjusted funds flow in Q3, $109 million free cash flow, $298 million YTD (72% yoy growth), net debt down $176 million, $83 million in buybacks, and a 2% dividend hike.
• Full‐year production guidance increased to 63,000–64,000 BOE/day at a $440 million capital program, benefiting from improved drilling and facility efficiencies.

Presentation

[Moderator]

Good morning, everyone. Welcome to the Tamarack Valley Energy Limited Conference Call and webcast on Thursday, 31 October 2024, discussing the recent Q3 2024 results press release. I would like to introduce today's speakers: Mr. Brian Schmidt, President and CEO, and Mr. Steve Buytels, Chief Financial Officer. If you would like to ask a question, please press Star, then the number one on your telephone keypad to join the queue. If you would like to withdraw your question, please press Star, then the number two. Thank you. Mr. Schmidt, you may begin your conference.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Good morning, and thank you, Ina. Welcome to everyone to the call to discuss our Q3 operating and financial results. My name is Brian Schmidt, President and CEO, and I'm joined here today by Steve Buytels, our CFO. The focus of the company in this phase of our strategic transition is to deliver consistent, reliable, and improving results. This quarter backstops that objective, with Q3 delivering yet another outstanding quarter for Tamarack and highlighted by the outperformance on our production volumes that averaged 65,000 BOE per day, driven by exceptional Clearwater and Charlie Lake drilling programs and our ongoing waterflood initiatives. Starting with our Clearwater portfolio, Q3 24 Clearwater production increased to 43,300 BOE per day, reflecting a 15% or 19% per share increase year on year as Tamarack continues to expand its heavy oil operations.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

At West Marten, the company continues to see positive results from the Stacked C Sand Delineation program, with an IP30 rate of 200 barrels a day observed at the 213 well. Stacked Sand Development continues in the area, where the company rig release six B Sand and two C Sand wells in Q3 2024 from its Section 14 pad. Given the strength of initial productivity in the area, the company plans to pursue waterflood in both sands. Our continued refinement of drilling designs and program optimizations are driving overall efficiency enhancement and lowering overall capital costs throughout our Clearwater development program. It has so far resulted in a 5% reduction in per meter costs across the Clearwater, highlighted by a 15% or approximately $10 million reduction in capital in the Marten Hills area.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

The application of fan designs in Clearwater has improved efficiency through lower costs and increased recoveries in areas where secondary recovery potential has not been established. Success of the fan is demonstrated through results in the South Clearwater, with a new Brodie 13-30 pad continuing to exhibit strong production in both terms of IP rate and lower decline. The average daily oil rate exceeds 235 barrels per day after seven months of production. This pad represents the best wells drilled by industry across the trend to date, and Tamarack's overall South Clearwater fan production has grown to 650 barrels per day. Results demonstrate the fan design contributes to lower shallow declines and higher per well estimated ultimate recoveries compared to the conventional design historically applied in the area. Clearwater secondary recoveries are exhibiting strong results across multiple areas and sands in the play.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Pilots initiated by Tamarack continue to demonstrate strong performance from secondary recovery, with wells trending ahead of expectations, indicating the potential to more than double primary EUR per well. Total water injection across the Clearwater started the year at 2,000 barrels per day and is currently doing 8,650, and forecast to grow to 14,000 barrels a day injection by year-end, representing a 60% growth through Q4 2024. Waterflood activity to date has resulted in an estimated 1,500 barrels a day of incremental oil production, and the company expects to have over 9% of its Clearwater production supported by waterflood by year-end 2024. Moving on to Charlie Lake, during the quarter, Tamarack achieved production of 16,200 BOEs a day, which continued to benefit from sustained outperformance related to wells brought on in the first half of 2024, primarily in the Wembley area.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Tamarack resumed drilling in the Charlie Lake play in July, rig released four horizontal wells in Q3 2024. Two of the wells were brought online in a Pipestone area that were drilled from the 14-34 pad and achieved IP30 rates of 1,320 BOEs per day per well. Also, in Q3 2024, the company has brought online two Wembley area wells from Section 11 pad that have exhibited encouraging test rates similar to the prior Q4 2023 drills from this location. Looking ahead, we remain focused on our core assets. Our strategy is continuing to reduce sustaining capital requirements through waterflood initiative, improve pricing margins, and implement projects with multiple payouts. I'll now pass it on to Steve Buytels to run through the financial results as our outlook.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

Thanks, Brian. Tamarack delivered adjusted funds flow of approximately CAD 220 million during the Q3 and generated free funds flow of approximately CAD 109 million. Year to date, Tamarack has generated approximately CAD 298 million of free funds flow, which on a per share basis represents a 72% increase year over year. A couple of other key highlights from the quarter to mention. You know, the strong production performance exceeded the high end of our prior guidance, and we'll get to more of that a little bit later with respect to an update to guidance. Continued cost reductions and better wellhead realizations are driving stronger margins across the business. We see the majority of these cost reductions carrying forward on the back of our infrastructure investments over the past few years.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

The expanded Clearwater Infrastructure Limited Partnership added a 13th Indigenous community and transferred an additional CAD 50.8 million of Clearwater assets to the partnership for CAD 43.2 million in cash and retained 15% operative working interest in the assets. During the quarter, we repurchased 12.3 million common shares. In total, during the first nine months of the year, the company has bought back approximately 22 million shares, representing 4% of the year-end 2023 shares outstanding. So a total repurchase value of approximately CAD 83 million. Total shareholder return value for the first nine months of 2024 was CAD 144.7 million for approximately CAD 0.26 per share, including base dividends of CAD 61.4 million.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

In addition, during this period, we further strengthened our balance sheet with Q3 exit net debt of just over CAD 807 million. In total, net debt has been reduced by approximately CAD 176 million year to date.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

While share buybacks remain our preferred method to return capital to shareholders, the company has elected to modestly raise our monthly dividend by 2% per share. This will represent the fourth increase and a 53% uplift since announcing the inaugural dividend in December of 2021. In response to the continued strong well performance and benefits from the infrastructure optimization during the year, the company has increased the full year production guidance range to 63,000-64,000 BOE a day. The 2024 program, which is delivering higher production than originally budgeted, is forecasted to be achieved at a lower cost, benefiting from drilling and facility efficiencies. As previously released and utilizing a portion of the Clearwater Infrastructure Partnership expansion proceeds, we will drill four Charlie Lake wells in the Q4, expand regional pipeline capacity in advance of the third-party plant commissioning of the CSV gas plant in early 2025.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

In addition to this, we will expand our waterflood investment program in the Clearwater. Tamarack anticipates spending for the year to be approximately CAD 440 million, consistent with our prior guidance, which is inclusive of the incremental Charlie Lake wells I just mentioned and the waterflood investment as the company continues to out deliver against the capital deployed. Tamarack is also updating our 2024 corporate cost guidance on the back of a continued focus on reducing costs and enhancing margin with improved expenses for transport cost, carbon tax, and interest. I'm going to pass it back over to Brian here to wrap up our call.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

These Q4, Q3 2024 results continue to highlight the quality of the Clearwater and the Charlie Lake asset base that has been built over the past three years, as well as the operational excellence of the team that's driving this performance. Growth in the Clearwater of 15% relative to the same period of 2023 was achieved, while at the same time, debt has been materially reduced and enhanced return to shareholders has been increasing. By demonstrating improved efficiencies, the company continues to deliver more while spending less. I'd like to thank our employees and all their hard work, the board of directors, shareholders, stakeholders for all your continued support. I'll pass it back to the moderator for questions. Thank you.

[Moderator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question over the phone, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you, and your first question comes from the line of Jeremy McCrea, BMO Capital Markets. Please go ahead.

[Jeremy McCrea, Oil & Gas Analyst at BMO Capital Markets]

Yeah, hi guys. Question on your waterflood here. You talk about growing and putting a lot more expansion to play much more into 2025. Is there anything you're doing differently, though, in terms of accelerating the reserve replacement here? And how much of your guidance reflects the improvement in potentially some of this waterflood? Like, how easy is that to forecast when you expect to see the response from waterflood? And how conservative have you guys been with that guidance, I guess? And then kind of the second part there is, what do you expect to see? Anything on your reserves here or some preliminary results that you may be having so far?

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Yeah, good questions, Jeremy, and listen, there's a lot of questions on water flood because it's been a while since the basin itself has been doing much water flood, but the way I would look at it here, Jeremy, is that we have our 2025 guidance with respect to what we're going to get out of the water flood. I would look to be able to give you some more clarity when we do that. I think that what I'm really excited about is that ramp up from 2,000 barrels a day to 14,000 barrels a day, and if you don't put the water in, you're not going to get the oil out, so that's going to be a good leading indicator.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

If you kind of dissect the pattern by pattern, I would tell you, Jeremy, that most of the response has been a little bit faster than what the engineers have thought. And I'm encouraged by that. So I'm hoping that this ramp up to 14,000 barrels a day is going to significantly increase the percent hydrocarbon pore volume we inject per year. And we should see some decent response coming here in 2025. The good thing on all our patterns, and I think we all compare notes between we're all watching each other's waterflood between Headwater ourselves and Spur. None of the operators have seen some breakthrough problems that the water breaks through. And so it's really encouraging that we're injecting water, it's soaking in, it's building up pressure, and you're much more confident of a nice uniform sweep when you see waterfloods exhibited that way.

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

As one of the specialists told me that I worked with for years, he said, "You guys are too careful with these waterfloods." He said, "You got to get something to break." And we just haven't seen that. It's a real exciting waterflood. And I've worked on a lot of these over my years, and this is really encouraging.

[Jeremy McCrea, Oil & Gas Analyst at BMO Capital Markets]

Yeah. Thanks, Brian.

[Moderator]

Thank you. There are no questions over the phone. Please proceed.

[Operator]

Thank you. We will now go to the online Q&A. Our first question is for Mr. Steve Buytels. How should we think about Tamarack potentially being interested in M&A at current levels? Respecting that 2025 guidance has not been an issue, how should we think about the company's strategic priorities/general outlook for 2025 based on current oil pricing?

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

Yeah, thanks, Jamie. Let's start with 2025. You're right. We haven't issued 2025 yet, but I think when we look back to June at our investor day, we laid out a plan, the five-year plan for investors, which contemplated roughly CAD 450 million of capital annually that we're going to spend and generate around a 3%-5% CAGR over those five years. So that's kind of how we look at it right now and what we'd say about it. I think we're pretty excited when you see this momentum around the cost reductions we're seeing in the business, as well as the wellhead realizations and the increasing realized pricing we're seeing as well. That's going to help drive margin enhancement, but for now, I think that's what we can give.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

I think it'll be pretty consistent when we look at 2025 in December here with respect to the budget. In terms of M&A, the way Brian and I really look at it is we're always going to look at the small, little, good, strategic, synergistic pieces that could bolt onto our core areas. But I think you all would have seen that we've really done nothing major. In fact, it's all been taking pieces out of the portfolio that don't compete for capital. We have such a significant amount of resource in the Clearwater here on the lands that we have. We really have to focus on bringing that value forward. And Brian just talked about the waterflood opportunity. It is just significant. We've got 8.7 billion barrels of OIP here we have to go after.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

So for us, the best M&A right now is buying back our stock and bringing forward value through the waterflood as we look at things right now.

[Operator]

Thank you, Steve. Our next question is for Mr. Brian Schmidt. Are you seeing the potential for further consolidation across either of your plays?

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Yeah. Like Steve said, most of this consolidation we're going to do is kind of where you get a 1 plus 1 equals 3. And I think the way investors would have to look at Tamarack is that we have so much inventory, drilling inventory, and waterflood inventory that the priority for us is, as Steve said, buying back shares and executing, doing your business such that you can accelerate that inventory and create value for shareholders.

[Operator]

Thank you. Our next question is for Mr. Steve Buytels. With the significant reductions in transportation and operating cost, how should investors look to this going forward?

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

Yeah, no thanks. When we look at the cost going forward, we provided updated guidance here on the OpEx side. Obviously, we're seeing some nice reduction with the infrastructure we've put in, seeing savings around not having as much water disposal and taking something that really was a cost to us and injecting that in the reservoir and turning that into something that actually is going to help drive a ton of value. So you're picking up margin on both sides of that equation. When we look at transportation, the one caution I will have, we did have a one-time item in the quarter with respect to some toll credits. That being said, we have taken a lot of trucks off the road as we've tied in more to pipe throughout the Clearwater.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

So we have seen a very nice increase with respect to that efficiency and lowering the overall transportation costs. And I think when we come out with our 2025 budget, that's something that we will see as an aggregate, something that's more reflective of the back half operating and transportation costs. The other one I'd mentioned too is carbon tax. You would have seen that come down quite a bit here in the quarter. And that's really a function of us bringing on and tying in and conserving a good chunk of gas here throughout the Clearwater. And I think that's going to be something that obviously moving forward here is important, but it's going to be a lot less from an expense standpoint for us as we look into 2025 and beyond.

[Operator]

Thank you. Our next question is for Mr. Brian Schmidt. With continued strong well results from the Charlie Lake, will Tamarack look to grow that more aggressively with further infrastructure expansion beyond the new capacity planned for early 2025?

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Yeah. So in Charlie Lake, on the sweet side, we've constructed our own gas plant there. On the sour side, there's some limited processing capacity, some of which will come on with the CSV plant next year. But the best economics that you could hope for are arrived by not burdening those wells with much infrastructure. So I think what we're going to be doing is, if you're planning for that asset, it's kind of a drill-to-fill strategy, and then trying to be opportunistic where you can pick up or move some gas through low-cost infrastructure. But I would not, just because of these well results, I think we're happy still to drill to fill and generate free cash flow for the rest of the company.

[Operator]

Thank you. Our next question is for Mr. Steve Buytels. With the startup of TMX, how is it affecting the pricing of your barrels?

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

Yeah, that's a great question, and it's timely. We're really excited to see the pull on barrels in the province here as a result of the startup of the TMX. So I think it took some time to really start to figure out and see the benefit coming through. But one of the things we're noticing for sure is you're pulling on some of the other heavy grades throughout the province. So you're seeing CHV, CWH, things like that, not only tightening the differential that they normally trade at relative to WCS, but you're actually going to see potentially the opportunity to realize a premium to WCS here. And that's something we won't forecast, but our marketing group has done a really great job maximizing the value of our barrels here.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

I think you see that through this quarter, some of the fruits of their labor and also, obviously, the effects of TMX coming through. That's going to be something to watch moving forward. Overall, it's an extremely positive event for our barrels here in terms of pricing and the competitiveness of those barrels moving forward.

[Operator]

Thank you. Our next question is for Mr. Brian Schmidt. How pervasive is sour in the Charlie Lake, and how would you break down your forward inventory between the play sorry, between in the play between sweet and sour targets?

[Brian Schmidt, President and CEO at Tamarack Valley Energy Limited]

Yeah. So roughly speaking, when you go to the west side of the field, that's where you start to get a little bit of sour. When I say a little bit, we're probably talking in the PPMs kind of range, so nothing too drastic. There are a couple of cases in industry where you can get much higher than that, but we're not in that part of the play. I would say roughly about a third of our inventory is in that PPM sour range, and the rest is sweet. So managed properly, I think you can do well on both the sweet and the sour side, just given the availability of processing and the cost structure.

[Operator]

Thank you. We have no more questions from the Q&A, so we'll pass it back to the moderator.

[Moderator]

Thank you. Once again, should you have a question over the phone, please press star and one on your telephone keypad. No further question at this time. Please proceed.

[Steve Buytels, CFO at Tamarack Valley Energy Limited]

Thank you, everybody, for attending today. Good questions. If there's follow-up questions, please reach out to Tamarack, and we'd be happy to answer. Thank you.

[Moderator]

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.

Participants

Executives

• Steve Buytels, CFO
• Brian Schmidt, President and CEO

Analysts

• Moderator
• Jeremy McCrea, Oil & Gas Analyst at BMO Capital Markets