Tamarack Valley Energy Q4 2023 Earnings Call Transcript

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February 28, 2024

There are 5 speakers on the call.

Operator

Good morning. Welcome everyone to Tamarac Valley Energy Limited Conference Call on Wedbush on Thursday, February 28, 2024. Discussing the recent Q4 2023 results press release, I would like to introduce today's speakers, Mr. Steve Beitel, CFO Mr. Kevin Squeen, COO and Mr.

Operator

Ben Stoodley, Vice President, Engineering. Thank you. Mr. Beitelz, you may begin your conference.

Speaker 1

Good morning, and thank you, Louis. Welcome everyone to the call to discuss our year end operating and financial results. Brian Schmitt is currently presenting at an industry conference. So today, I'm joined this morning by Kevin Screen, Chief Operating Officer and Mr. Ben Studley, Vice President, Engineering.

Speaker 1

Tamarac completed its strategic transformation in 2023, integrating the 3 corporate Clearwater transactions that closed in 2022 and divesting our non core West Central Alberta Cardium assets. The success of our transformation is highlighted by the significant value generation we continue to see from the assets acquired Persuane to the $1,400,000,000 acquisition of Delta Stream Energy Corp. That closed in October of 2022. Tamarac has grown production on these assets by 29%, delivered approximately $230,000,000 of free NOI in 2023 off the assets. And incremental to that, the 2023 year end 2P PV-ten of the assets has increased to over $1,800,000,000 Overall, this transaction continues to exceed our expectations while providing long term development visibility for the company.

Speaker 1

Most importantly, in 2023, we delivered on key commitments to our shareholders. We improved our balance sheet, whereby we paid down $373,000,000 of debt equal to approximately $0.67 per share. We exited the year with net debt of $984,000,000 We improved our overall cost structure and focused on margin enhancement. This includes a 16% savings in operating cost per BOE year over year. In addition to that, we continue to drive better wellhead realizations through our marketing efforts on our heavy oil.

Speaker 1

We've added reserves to the drill bit at a highly competitive cost with PDP F and D costs of approximately $16.49 a BOE, driving a recycle ratio of 2.6 times. We achieved our goal to get to our enhanced return of capital threshold for shareholders. We delivered on our commitment with buybacks that commenced in January. As of February 2023 sorry, as of February 23, 2024, Tamarac has repurchased approximately 3,900,000 shares for $12,300,000 to date. Our plan will be to continue to use our NCIB here with respect to our return on capital threshold.

Speaker 1

And as we highlighted in our corporate presentation this morning, the enhanced return that is available to for shareholders here, which will be done through buyback equated to approximately $28,000,000 in Q4. I will now turn it over to Kevin for an update on operations and some key accomplishments in the field with regards to our indigenous engagement. Kevin?

Speaker 2

Thanks, Steve. Our oil weighting continues to increase relative to total production, reflecting the focus and high quality nature of our asset base, Including NGLs, Tamarac's Q4 2023 oil and liquids weighting was 85%. This highlights significant increase in recent years in comparison to Q4, twenty one when liquids represented 69% of total production. A few of the specific drivers on our operating cost improvements include our scale of operations and geographic concentration, our field efficiency gain through ongoing multi wealth pad development and increased volumes flowing through company owned infrastructure. On February 22, Tamarac held a celebration amendment in the commemoration success of our recent Clearwater Infrastructure Limited Partnership.

Speaker 2

In In 2023, we entered into a series of agreements with 12 First Nation and Metis communities to establish the CIT, enhancing both the long term relationships with indigenous communities. As a result of this transaction, Samaron received gross proceeds of $146,000,000 and a 15% working interest in the CIT assets, while retaining full operatorship and access to 100% of Tamarac's existing midstream capacity. As part of this, Tamarac's 2023 capital included CAD21 1,000,000 of gas conservation projects sanctioned with the CIT, which was incremental to our development program. Overall, when we look at Tamarac's 2023 capital program, we were also able to take advantage of both favorable field conditions and service pricing to accelerate approximately $20,000,000 of planned 2024 spending into Q4 2023. Overall, our development capital of $475,000,000 was in line with guidance and total spending of CAD516,000,000 reflected the CIT gas conservation project and the accelerated 2024 example.

Speaker 2

I'd like to touch on a few operational highlights at this point. We continue to see success through development of our Charlie Lake assets where our recent 11 of 11 pad developed that delivered IV30 rates of approximately 1400 BOE a day per well. We continue to build our footprint in this play, adding both reserves and ongoing development efficiencies. In the Clearwater, development of our assets is advancing across the play with success at Martin Hills and Nippersee through both the B and C sands. Oil production from North Clearwater assets averaged approximately 19,000 BOE a day exiting in 2023, representing a year on year increase of approximately 40%.

Speaker 2

Tamarac continues to leverage our waterflood experience with water injection volumes expected to more than triple at Martin Hills and Nipissippi during 2024. At this point, I'd like to hand it on to Ben Stoodley to comment on our reserves. Thanks, Kevin.

Speaker 3

Tamarac's capital program and successful integration of the Clearwater assets acquired in 2022 delivered a very strong year with respect to reserves. Prior to the considerations of net dispositions completed in 2023, the company realized material reserves growth and strong production replacement metrics in all categories. PDP reserves grew 15% the added volumes replaced 137 percent of 2023 produced volumes. Total proved reserves grew 18% and the added volumes replaced 189 percent of 2023 production and total proved plus probable reserves grew 13% and replaced 2 14% of 2023 production. Focused execution and operational efficiency resulted in PDP reserves being added at an attractive finding and development cost of $16.49 per barrel oil equivalent.

Speaker 3

Coupled with an annual operating netback of $42.47 per BOE, a PDP recycle ratio of 2.6 was achieved, demonstrating the profitability of our highly economic oil plays. In the Charlie Lake, the company continues to expand its inventory and extend well lateral length through optimization and additions to our land position. This contributed to 4% year over year reserves growth and 147% production replacement in the asset on a total proved plus probable basis. In the Clearwater, we realized significant reserves growth in 2023 while integrating the Delta Stream assets into the company. The company's Clearwater assets delivered reserves growth of 43% 28% for total proved and total proved plus probable reserves respectively.

Speaker 3

The total 2P increase replaced 2 79 percent of 2023 Clearwater production, demonstrating the sustainability of the assets. Clearwater reserves growth was driven by excellent results in both the B and C Sands in the West Martin Hills area and expansion of the waterflood in both Nipsey and Martin Hills. At year end 2022, only 3% of the company's total 2P reserves were associated with waterflood. At year end 2023, this has grown to 12%, which is indicative of the expansion of the waterflood program this year and substantial runway that remains as we continue to invest in secondary recovery. Now I'll provide some information regarding contingent perspective resources.

Speaker 3

With the integration of the 3 Clearwater consolidating transactions from 2022 completed, the company retained McDaniel and Associates to evaluate the contingent perspective resources of the company's Clearwater assets. The resource report indicates Tamarac's Clearwater heavy oil assets have a estimate of unrisked contingent resources of 89,500,000 barrels and unrisked prospective resources of 118,400,000 barrels. Inventory attributed to the company's Clearwater assets within the report totals 592 net contingent and 1182 net prospective drilling locations. Those locations are over and above the company's 3.81 net total 2P locations included in the year end reserves valuation. The resulting identified Clearwater inventory now exceeds 2,100 locations.

Speaker 3

The contingent perspective resource evaluation validates our internal view of the depths of inventory exceptional runway for both primary and secondary recovery and ultimately the long term sustainability of the assets. With that, I pass it back to Steve to discuss guidance.

Speaker 1

Thank you, Pat. As Kevin mentioned, we were able to, due to favorable weather conditions, approximately $20,000,000 of our dedicated first half twenty twenty four budget into Q4 of 2023. We want to ensure that we highlight to shareholders here and investors that $20,000,000 will serve as to $390,000,000 to $440,000,000 In addition to this, 2024 carbon tax expense guidance has been reduced from $1 to $1.50 per BOE down to $0.50 to $1 per BOE. And that really owes to the investment in the last couple of years that the company has made in gas conservation projects along with the CIP partnership that Kevin talked about earlier. It is important to note that our production guidance range remains unchanged and we look forward to continuing to drive enhanced margin in the business through 2024.

Speaker 2

All told, when

Speaker 1

we look at the 2024 capital reduction in conjunction with the carbon tax reduction, we will see an increase in free funds flow by approximately $30,000,000 to $35,000,000 which will serve to accelerate additional enhanced return throughout 2024 to shareholders. In conclusion, when we look at our 3 year transition that we embarked on, we look at the significant transactions that we've been able to integrate and build out in the Clearwater. We look out the repositioning of the core portfolio with the disposition, in 2023 of our West Central Cardium assets. We're now set to deliver on our core portfolio and enhanced play types and economics moving through 2024. With that, we would like to thank our employees, our stakeholders and our shareholders for their continued support.

Speaker 1

I'm going to turn it back to the operator. Thank you.

Speaker 4

Thank you, Moody. Our first question is for Mr. Ben Stoodley. What was the reason for moving the evaluation of Clearwater reserves to McDaniel?

Speaker 3

Thanks Dakota. We had retained McDaniel to provide some consulting services supporting the Clearwater Infrastructure Partnership transaction. Following that, we had decided to proceed with contingent prospective resources study and we wanted continuity with reserve booked through that process.

Speaker 4

Thank you, Ben. Our next question is for Mr. Steve Beitelz. Is the sale of any more assets being considered to shore up the balance sheet? When does the company see being debt free?

Speaker 1

Yes. Thank you and great question. We're always looking at obviously our portfolio and ensuring that what we have here is going to compete for capital and obviously enhances the margin in the business. So the way I look at it is, are maybe some small parts of the portfolio that There are maybe some small parts of the portfolio that we continue to look to rationalize and guess that would serve to continue to pay down debt. But when we look at the question of being debt free, we have a plan here, a 5 year plan that would see approximately $2,000,000,000 of free funds flow generation over that 5 years.

Speaker 1

So as we look at that, we could be there within that time frame. However, we do see debt as being a part of our capital structure moving forward to help lever returns, but we would like to get that debt down to what we see as our floor at about $500,000,000 which really represents about one times debt to funds flow at a US45 dollars WTI price.

Speaker 4

Thank you, Steve. Our next question is for Mr. Ben Stoodling. Does the contingent resource and prospective resource include waterflood?

Speaker 3

Yes, it does.

Speaker 4

Thank you. Your next question is for Mr. Kevin Scrink. It looks like ARO is excluded from the latest guidance. What is that bigger in 2024 roughly?

Speaker 2

So we're budgeting about $13,000,000 spend on ARO projects in 2024. And with the success of our ARO program to date, over time, we'll be reducing that number. The $100,000,000 sorry, the $12,000,000 $13,000,000 that we're spending 2024 represents a 50% increase over and above our regulatory required spend.

Speaker 4

Thank you, Simon. Our next question is for Mr. Ben Stoodley. How many wells do you expect to bring on production in the Clearwater and Charlie Lake in 2024?

Speaker 3

Yes. In the Charlie Lake, we're going to bring on about 10 net wells. We have some park joint venture wells as well, so 13 close wells. In the Clearwater across the areas, we'll be drilling about 23 net wells in Spartan Hills, 69 net wells in Nipissippi and West Martin Hills. That includes 15 water injectors and 15 wells in the Southern Clearwater.

Speaker 4

Thank you, Ben. Our next question is for Mr. Kevin Screey. What is the water situation in your Charlie Lake and Clearwater assets? Is there sufficient water availability for fracking operations in the Charlie Lake or water floods in the Clearwater?

Speaker 2

So those are great questions. In the Clearwater, our water flood is based on non potable water. So we're using saline source that we have acquired from both the Grand Rapids and Clearwater zones. So no concerns about availability for current or future water flood expansions in the Clearwater. On the Charlie Lake side, obviously, freshwater is a concern.

Speaker 2

One of the advantages that Tamarac has is our completion design for our Charlie Lake wells is cross linked polymer, which uses substantially less water than folks that are using slickwater typically in the Montney. So our volumes are much smaller. And as Ben mentioned, we've only got about 13 wells planned. So we don't foresee a water availability concern for our 2024 Charlie Dade drilling program.

Speaker 4

Thank you. Our next question is for Mr. Steve Vitels. Should we expect CBE to further contract volumes in the NIPC pipeline in 2024?

Speaker 1

Yes. We don't comment on those specific things publicly, but what we would say is just given the success and growth of the Clearwater, we will look to continue to find ways to enhance margins there and a lot of that will be through bringing that production to market through pipe. So all of those options are on the table and I could see us doing more there given there is room on that pipe. But again, we won't get too specific at this time.

Speaker 4

Thank you. Our next question is for Mr. Kettenscray. Can you speak to ongoing opportunities in Martin Hills and how costs are evolving there?

Speaker 2

So as we discussed, we're continuing to develop our Martin Hills asset. One of the things we're actually in the process of here in Q1 and through Q2 is construction of a large gathering both emulsion and gas gathering line that will allow us to reduce our transportation expense for many pads that are currently trucked. So that's just one example of our scale of the operation and the opportunities that we can bring to bear.

Speaker 4

Thank you, Kevin. Our next question is for Mr. Steve Beitchell. The plan for asset acquisition basically simply to the point management is satisfied with inventory debt?

Speaker 1

Yes, that's a very good question. So the way we look at it is, yes, the transformation of the company with respect to moving into the Clearwater and the Jersey Lake is complete. We do not see the need for additional acquisitions or major acquisitions in the company. And as Ben highlighted earlier, we've got significant resource and inventory depth in the Clearwater and in the Charlie Lake. So we're as a management team here, we are content with what we have for years years years of development moving forward.

Speaker 4

Thank you, Steve. Our next question is for Steve Vittells again. You had previously spoken to an accelerated CSB budget. Can you provide an update on this?

Speaker 1

Yes, thanks. Another great question. So we talked about the potential with our budget in December of spending $40,000,000 to $50,000,000 in the second half of twenty twenty four with respect to the CSB gas plant being commissioned later this year. The way we're looking at that right now is that capital spend is going to be really flexible on our side. A few things will go into play there.

Speaker 1

1, commodity price, gas prices obviously are in a very tough spot right now. 2, we'll use discretion in terms of how much. It could be nothing and it could be but there could be something. We gave a range there depending on again commodity, what we want to do internally with respect to the allocation of capital. But I think it is also worth noting the UDCs with that gas plant for us around the take or pays are very small.

Speaker 1

And we do have other production that we would be swinging into that plant as it is as part of our development plan. So we don't see any need to rush there. And we'll really manage and monitor commodity price and then the capital outlook for the company to ensure we're balancing. Obviously, the growth of the company long term from that standpoint, but also ensuring that we're delivering on our commitment to shareholders for enhanced returns here in 2024.

Speaker 4

Thank you. Our next question is for Mr. Ben Stoodley. Tamarac noted a new contingent resource study showing significant water resource. How should investors think about the pace of converting resource to fund flows?

Speaker 3

I think all the contingent perspective resources will follow behind what we've got identified as reserves from a pace. Our current 5 year plan has us providing modest growth within the 5 years. That's largely in some of our active assets such as the Clearwater. But I would say the contingent perspective resources provide long life runway at that growth rate. And in the interim it will be largely focused on the reserves booked.

Speaker 4

Thank you, Ben. Our next question will be for Ben Stifel again. What is the reserve life now?

Speaker 3

Based on our 2023 exit rates, our current reserve life index on a 2P basis is about 10 years.

Speaker 4

Thank you. Our next question will be for Steve Mitel. You've lowered the capital spending outlook to reflect some acceleration into 2023. Given the volatility in commodity prices, can you speak to your ability to respond to price signals?

Speaker 1

Yes, thanks. We alluded a little bit to this on the CSV Capital 2. Again, commodity price will dictate a lot of our decisions there and we do retain a significant amount of flexibility in our budget guidance for 2024 specific to our capital. So again, we see opportunity where we have the ability probably to take out if need be another $20,000,000 to $25,000,000 that would have no real impact to that production guidance that we've set out. However, that would impact some longer term initiatives around some derisk and delineation on some of our assets or certain infrastructure build out that supports future development.

Speaker 1

So again, we'll look to balance those through the year. I think it is important to highlight differentials here as we move into Q2 will come in significantly both on the heavy oil side, but also the light oil side. We'll see some significant tailwinds. So as we look out there on the price of our barrels that we're going to be selling in the market,

Speaker 3

you are going to see

Speaker 1

a pretty good step change moving forward. So I think that's something to keep in mind. But again, we'll monitor our capital spend with respect to our funds flow outlook for the year and again balancing shareholder returns.

Speaker 4

Thank you, Steve. Our last question for Steve Vitale. What are management's views on hedging into the future?

Speaker 1

That's a great question. I think if you look in our corporate presentation or in our press release, we do highlight that we have a significant amount of our volume hedged, approximately 50% corporately here through 2024. And that really doesn't change for us. The way we look at risk management would be we have a commitment with our base dividend of about $80,000,000 a year and we have a commitment to sustain our business. And we've talked about that sustaining capital number of about $330,000,000 So what we look to do there is really solve for price and for that amount of capital or committed outflow that we need to ensure that we can sustain our business with and deliver on our commitments to our shareholders.

Speaker 1

So that will always continue to be near and dear to management's hearts, if you will. And that risk management or hedging process will continue to move forward. And again, as debt levels come down, maybe the view on how much you have to protect could come down with it. But for now, that is the strategy that we embark on here year on

Speaker 4

year. Thank you, Steve. We have another question for Mr. Kevin Scrane. Can you please comment on the ways in which you are presently achieving efficiencies at Charlie Lake?

Speaker 2

Good question. I would say there's a few key ways that we're managing our efficiencies there. One is with our expansion of egress capacity that allows us to drill more multi well pad wells, which of course drilling multiple wells in a pad both drilling and completions allows us to realize some capital efficiencies. And then the addition of well lengths and we addressed that in our press release noting that we've got 46% of our PPP locations exceed 2.5 miles. So longer wells results in fewer well count ultimately and increased efficiency.

Speaker 2

So those are some of the key things that we've done.

Speaker 4

Thank you, Kevin. We will now turn the call back to the moderator to read the analyst questions.

Operator

Thank you. And there are no questions at this time. And this concludes today's conference call and webcast. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Tamarac completed its 2023 strategic transformation by integrating three Clearwater transactions and divesting non-core assets, resulting in 29% production growth, $230 million of free NOI and a 2P PV-10 value exceeding $1.8 billion.
  • The company paid down $373 million of debt (≈$0.67/share), ending the year with net debt of $984 million, achieved a 16% reduction in operating costs per BOE and improved heavy oil wellhead realizations.
  • Reserve metrics were strong: PDP reserves grew 15% (137% of 2023 production replaced), total proved grew 18% (189% replacement), and 2P grew 13% (214% replacement), at an attractive F&D cost of $16.49/BOE and a recycle ratio of 2.6×.
  • Tamarac advanced its indigenous engagement by forming a Clearwater Infrastructure Partnership with 12 First Nation and Métis communities, garnering $146 million in proceeds, a 15% working interest and sanctioning $21 million in gas conservation projects.
  • For 2024, capital spending is guided to $390–$440 million, carbon tax expense reduced to $0.50–$1.00/BOE, and free cash flow is expected to increase by $30–$35 million, supporting ongoing share buybacks under the NCIB.
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Earnings Conference Call
Tamarack Valley Energy Q4 2023
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