News Oil & Gas

Tamarack Valley Energy announces 2023 corporate budget


“Our strategy of building a resilient asset portfolio coupled with a disciplined approach to profitable investment is delivering consistent year on year sustainable free funds flow(1) growth. In 2023, capital is allocated to highlight economic value in the Clearwater driven by the quick payback & multi-year cash flow resiliency of the shallower decline assets, free funds flow(1) maximization in the Charlie Lake, and multi year decline mitigation through the enhanced oil recovery (EOR) waterfloods.” – Brian Schmidt, President and Chief Executive Officer.

Highlights of the 2023 Budget

  • Capital Program – Tamarack plans to invest capital of $425 to $475 million, funded entirely through adjusted funds flow(1) and equal to approximately 50 to 60% of total 2023 adjusted funds flow(1) at budget pricing of US$80/bbl WTI and CAD$4.00/GJ AECO. Tamarack will remain flexible and adjust capital accordingly to address volatility in commodity prices, including WCS differentials.
  • Production – This program will drive production of 68,000 to 72,000 boe/d(2) with an 82% oil and NGL weighting.
  • Capital Allocation – The capital investment portfolio is optimized to focus on free funds flow(1) generation, managing our corporate decline through continued investment in our enhanced recovery projects and lower long-term costs through strategic infrastructure investment. We will direct approximately:
    • ~55% of our capital program to primary development;
    • ~20% to EOR waterflood projects;
    • ~10% to infrastructure initiatives in the Charlie Lake and Clearwater assets;
    • ~5% to exploration/delineation to expand our inventory; and
    • ~10% to ESG & corporate initiatives.
  • Uses of Free Funds Flow(1) – At budget pricing, free funds flow(1) will be directed to debt repayment and enhanced return initiatives as debt thresholds are met.
  • Sustaining Free Funds Flow Breakeven Price(1) – Inclusive of the base dividend, the budget achieves a free funds flow breakeven(1) of ~US$37/bbl WTI.
  • ESG Commitment – Tamarack has allocated $12 million to ARO spending and $15.0 million to gas conservation and other emissions reduction capital projects.

2023 Budget Details

The 2023 budget is focused on delivering long-term sustainable free funds flow(1). Our balanced approach to investment across our portfolio includes:

Primary Development Expenditures

The primary development capital expenditures for 2023 are expected to range between $225 to $255 million. Area specific details as follows:

  • Clearwater oil – $125 to $140 million of E&D capital with plans to drill a total of 69 (69.0 net) wells across Nipisi, Marten Hills and the Southern Clearwater.
  • Charlie Lake light oil – $90 to $105 million of E&D capital with plans to drill a total of 19 (19.0 net) wells
  • Cardium gas/light oil – approximately $10 million of E&D capital to drill two (2.0 net) wells with production set to come onstream in Q1/23

Enhanced Oil Recovery (EOR) Waterflood Expenditures

Building on the success of waterflood initiatives, the Company will be directing $95 to $100 million towards EOR projects in 2023, with a focus on the Clearwater assets. Investment into EOR waterfloods across our asset base is on strategy with delivering and growing long-term sustainable free funds flow(1). Every 1% reduction in corporate decline rate equates to an estimated $10 to $15 million reduction in annual sustaining capital. Management estimates the potential success of the 2023 waterflood investment program could drive an annual $20-30 million reduction in sustaining capital over the long-term.

Infrastructure Initiatives

Investing in key infrastructure to drive long-term operating and transportation expense savings is key to enhancing sustainable free funds flow(1). It enables optimal flexibility to manage corporate production and enhance operating netbacks.

  • Nipisi Clearwater oil pipeline terminal project – Tamarack has signed on as an anchor tenant in a new Nipisi oil terminal project with a third-party infrastructure partner. The project will provide pipeline transportation for 7,000 to 10,000 bopd of Tamarack operated production from the Company’s major Nipisi battery directly to Edmonton.  Projected transportation expense reductions of between $2 and $4 per barrel are expected to drive annual savings of $8 to $15 million and will require Tamarack to invest capital of approximately $20 million. The terminal and associated infrastructure are anticipated to be commissioned and on-stream in the fourth quarter of 2023.
  • Charlie Lake Gas Processing Plant – Tamarack has completed the Wembley gas plant design phase, with construction scheduled to begin in early 2023. The project is estimated to be onstream by the end of the second quarter. The gas plant project includes a new and dedicated meter station on the Alliance gas transportation system and secures gas egress for the facility. In addition to delivering long-term operating expense reductions, this strategic investment secures required processing capacity to enable solution gas egress and to mitigate the risks associated with third-party downtime.

Exploration/Delineation Capital

Tamarack plans to allocate approximately $20 to $25 million of our program budget to exploration and delineation initiatives for 2023, which is comprised of land, seismic and exploratory wells. This capital will be used to further enhance the exploratory and exploitation opportunities within our portfolio and will continue to expand and improve the Company’s inventory base to underpin our long-term free funds flow(1) growth. This activity in 2023 will be focused in the greater Clearwater and Charlie Lake plays.

Environmental, Social and Governance & Corporate

To support the commitments and goals outlined in Tamarack’s sustainability report and the sustainability performance targets identified in Tamarack’s sustainability linked lending, Tamarack has allocated $12 million to ARO spend and $15 million to gas conservation and emissions reduction capital projects in 2023.

2023 Guidance(3)

The following table summarizes our 2023 annual guidance(3).

Capital Budget ($mm)(4)

$425 – $475

Annual Average Production (boe/d)(2)

68,000 – 72,000

Average Oil & NGL Weighting

81% – 83%

Expenses:

Royalty Rate (%)

19% – 21%

Operating ($/boe)

$9.00 – $9.50

Transportation ($/boe)

$2.75 – $3.25

General and Administrative ($/boe)(5)

$1.25 – $1.35

Interest ($/boe)

$2.00 – $2.25

Taxes (%)

10% – 12%

Leasing Expenditures ($mm)

$3.5 – $4.5

Capital Expenditures Breakdown

Capital

Primary Development Capital ($mm)

$225 – $255

Enhanced Oil Recovery/Waterflood Capital ($mm)

$95 – $100

Infrastructure Capital ($mm)

$45 – $50

Delineation Capital including Land ($mm)

$20 – $25

Corporate & ESG Initiatives ($mm)

$40 – $45

Total ($mm)

$425 – $475

2023 Adjusted Funds Flow(1) Sensitivities

After Tax AFF(1), Including Hedges

($ millions)

Change of $2.00 WTI ($US/bbl)

$27

Change of $0.50 MSW differential ($US/bbl)

$3

Change of $1.00 WCS differential ($US/bbl)

$9

Change of $0.25 AECO ($CAD/GJ)

$4

Change of 0.01 FX (CAD/USD)

$6

Budget Pricing

Crude Oil – WTI ($US/bbl)

$80.00

Crude Oil – MSW Differential ($US/bbl)

($3.00)

Crude Oil – WCS Differential ($US/bbl)

($22.00)

Natural Gas – AECO ($CAD/GJ)

$4.00

Foreign Exchange – CAD/USD

1.32

Return of Capital

The Company remains committed to balancing long-term sustainable free funds flow growth with returning capital to shareholders. With the transformational acquisition of Deltastream Energy Corporation (“Deltastream“), debt repayment remains the immediate focus to achieve our enhanced return of capital thresholds whereby the Company will return from 25% up to 75% of excess funds flow(1) on a quarterly basis. Our return of capital framework includes base dividends and enhanced returns as described below.

Base Dividend

The base dividend is currently $0.15/share annually which represents a 3.2% yield at the current share price. Given the accretive nature of the Clearwater acquisitions carried out in 2022 and the impact of those acquisitions to our long-term sustainable free funds flow(1), the Company was able to increase the base dividend by 50% through 2022. The base dividend is predicated on 25% of free funds flow(1) at $55/bbl WTI and $2.50 /GJ AECO.

Enhanced Return Framework

The enhanced return framework corresponds with specific debt range targets as outlined below:

  • Net debt(1) of less than $1.1 billion but greater than $900 million, the Company will target returns of up to 25% of excess funds flow(1) from the prior quarter to shareholders through enhanced dividends and/or tactical share buybacks.
  • Net debt(1) of between $500 million and $900 million, the Company will target returns of up to 50% of excess funds flow(1) from the prior quarter to shareholders.
  • Net debt(1) reaches our long-term debt target of $500 million, representing approximately 1.0x net debt to quarterly annualized adjusted funds flow(1) at $US45/bbl WTI and $2.50/GJ AECO, the Company will target to return up to 75% of excess funds flow to shareholders.

Any enhanced dividend will be paid to shareholders on a quarterly basis, one month following the declaration date. Tamarack looks forward to delivering on its return of capital framework.

Risk Management

The Company takes a systematic approach to manage commodity price risk and volatility to ensure sustaining capital, debt servicing requirements and the base dividend are protected through a prudent hedging management program. For 2023, approximately ~50% of net after royalty oil production is hedged against WTI with an average floor price of greater than $65/bbl. 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).

We would like to thank our employees, shareholders and other stakeholders for all of their support over the past year. It was a transformative year and would not have happened without the dedication and hard work of our employees. We look forward to continuing to develop our high-quality assets to create shareholder value in a sustainable and responsible way.

Investor Call Today

9:00 AM MDT (11:00 AM EDT)

Tamarack will host a webcast at 9:00 AM MDT (11:00 AM EDT) on Wednesday, December 7, 2022 to discuss the 2023 budget and operational 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 LakeClearwater 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; may also be referred to as decommissioning obligation

bbls

barrels

bbls/d

barrels per day

boe

barrels of oil equivalent

boe/d

barrels of oil equivalent per day

Bopd

barrels of oil per day

CGU

cash generating unit

GJ

gigajoule

IFRS

International Financial Reporting Standards as issued by the International Accounting Standards Board

IP30

average production for the first 30 days that a well is onstream

Mcf

thousand cubic feet

mcf/d

thousand cubic feet per day

MM

Million

mmcf/d

million cubic feet per day

MSW

Mixed sweet blend, the benchmark for conventionally produced light sweet crude oil in Western Canada

NGL

Natural gas liquids

WCS

Western Canadian select, the benchmark for conventional and oil sands heavy production at Hardisty in Western Canada

WTI

West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for the crude oil standard grade





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