CALGARY, AB, Dec. 4, 2024 /CNW/ - Tamarack Valley Energy Ltd. ("Tamarack" or the "Company") (TSX: TVE) is pleased to announce its 2025 capital and operating budget. The 2025 budget continues to generate free funds flow(1) in support of ongoing returns to shareholders, and further investment to capture value across Tamarack's significant asset base.
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Highlights of the 2025 Budget
Production Growth and Capital Allocation – Budgeted capital of $430MM – $450MM expected to deliver annual production of 65,000 – 67,000 boe/d(2), representing annual growth of ~4% on a mid-point basis, and achieving ~6% growth on an exit-to-exit basis.
Returns to Shareholders – Tamarack targets allocating 60% of 2025 free funds flow(1) to shareholders through a sustainable dividend and share buybacks, while balancing continued debt repayment. At US$70/bbl WTI(3) the 2025 budget is expected to deliver ~$300MM of free funds flow(1), representing a potential total shareholder return(4) of ~16%.
Financial Strength and Resiliency– The strength of Tamarack's balance sheet, and low sustaining free funds flow breakeven cost(1) in 2025 (including hedging and base dividends, of approximately US$38/bbl WTI), underscores the robust nature of the asset base and resilience of the budget to commodity price volatility.
Clearwater Waterflood Expansion – The Company remains highly encouraged by results to date, demonstrated by projects in Marten Hills and Nipisi. In 2025, Tamarack will continue to invest in expanding waterflood operations with Clearwater water injection rates expected to increase by ~60% by year-end.
Margin Enhancement – Material improvements to heavy oil differentials, driven by the TMX pipeline, and pipeline connectivity, are supporting enhanced realizations as margin capture continues to increase. Improved production expense on a per boe basis reflects production growth, reduced water disposal costs as produced water is utilized for waterflood injection, and lower costs reflecting expanded owned and operated infrastructure capacity.
2025 Annual Corporate Guidance Summary at 2025 Budget Pricing(3)
The 2025 budget builds on success delivered in 2024, which saw production guidance increase through the year while costs remained within plan. Leveraging prior infrastructure investments, the 2025 plan optimizes free funds flow(1) generation while offering near- and long-term growth upside.
Units
2025 Guidance
2025 Capital Budget(5)
$MM
$430 – $450
Annual Average Production(2)
boe/d
65,000 – 67,000
Average Oil & NGL Weighting
%
83% – 85%
Expenses:
Royalty Rate (%)
%
20% – 22%
Wellhead price differential – Oil(6)
$/bbl
$1.50 – $2.50
Production(7)
$/boe
$8.40 – $8.90
Transportation
$/boe
$3.75 – $4.25
General and Administrative (8)
$/boe
$1.30 – $1.45
Interest(9)
$/boe
$2.90 – $3.30
Income Taxes(10)
%
10% - 12%
2025 Budget Details
Production growth and the overall cost structure improvements, which leverages owned and operated infrastructure, are increasing operating margins and delivering capital savings. Annual production guidance of 65,000 – 67,000 boe/d(2) is inclusive of major planned turnaround activity at key facilities in both the Charlie Lake and Clearwater in Q3/25. The 2025 budget is expected to deliver annual mid-point growth(11) of ~4%, and ~6% growth on an exit-to-exit basis. The midpoint of the budget is comprised of ~$315MM of sustaining capital, focused on Clearwater and Charlie Lake drilling programs, and approximately ~$125MM of growth and waterflood investment supporting near term production increases and long-term decline mitigation consistent with Tamarack's five-year plan. Growth capital is inclusive of exploration and delineation activities with Tamarack testing additional Clearwater sands and pursuing exploration of new zones across its extensive land base.
Given encouraging Clearwater waterflood results across the Nipisi, Marten Hills and West Marten assets, the Company will expand waterflood initiatives in 2025. Tamarack expects virtually all 'B' and 'C' sand future activity across its core areas in Nipisi, Marten Hills and West Marten will be developed for eventual waterflood. These projects serve to mitigate corporate declines, driving reductions to future sustaining capital requirements. In 2025, Tamarack plans to increase water injection by ~60% to >20,000 bbl/d by year-end.
The Charlie Lake remains positioned to deliver increased production to the new CSV Albright sour gas plant which is expected to be commissioned in Q1/25. Leveraging 4 (4.0 net) wells drilled in Q4/24, which will be completed in 2025, this incremental capacity is expected to drive higher growth though the latter part of the year with no incremental volumes included in Tamarack's Q1/25 production outlook. Through 2025, the Charlie Lake will see the execution of a continuous one rig program with development focused at Pipestone and Wembley.
Tamarack would like to thank our employees, shareholders and other stakeholders, including the Wapiscanis Waseskwan Nipiy Holding Limited Partnership, for their ongoing support. We would also like to thank our board of directors for their continued guidance and insights which steward the advancement and execution of our strategic plan. Tamarack continues to deliver on its commitment to operational excellence which is underpinned by a culture focused on safety, having increased production, improved overall efficiencies, and delivered increasing returns to shareholders.
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(3) generation, financial stability and the return of capital. The Company has an extensive inventory of low-risk, oil development drilling locations focused primarily on Clearwater and Charlie Lake plays in Alberta while also pursuing EOR upside in these core areas. 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
EOR
enhanced oil recovery
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
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
WTI
West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for the crude oil standard grade
YoY
Year-over-year
YTD
Year-to-date
Reader Advisories
Notes to Press Release
See "Specified Financial Measures".
Production of 65,000 – 67,000 boe/d: 39,150-40,350 bbl/d heavy oil, 13,300-13,700 bbl/d light and medium oil, 2,300-2,360 bbl/d NGL and 61,550-63,550 mcf/d natural gas.
Annual guidance numbers are based on 2025 average pricing assumptions of:
2025 Budget Pricing
Crude Oil – WTI ($US/bbl)
$70.00
Crude Oil – MSW Differential ($US/bbl)
($4.00)
Crude Oil – WCS Differential ($US/bbl)
($14.00)
Natural Gas – AECO ($CAD/GJ)
$2.00
Foreign Exchange – USD/CAD
1.35
Return per share calculated based on the weighted average basic shares outstanding for the relevant periods. Total shareholder return includes base dividends, share buybacks, and debt repayment yield plus production growth.
Capital budget includes exploration and development capital, facilities land and seismic but excludes ARO of $7MM in 2025, and asset acquisitions and dispositions.
Oil wellhead deductions for grade specific trading differential (ex CHV), blending requirements, quality differential, and pipeline tolls if Tamarack is not marketing (lease transactions).
Production expense budget includes Clearwater Infrastructure Limited Partnership (the "CIP") fee for service and minimal carbon tax.
G&A noted excludes the effect of cash settled stock-based compensation.
Budgeted interest includes CIP take-or-pay capital fee.
Tamarack estimates a tax rate as a percentage of adjusted funds flow.
Annual production growth references the mid-point of 2025 guidance of 66,000 boe/d (comprised of 39,750 bbl/d heavy oil, 13,500 bbl/d light and medium oil, 2,330 bbl/d of NGL and 62,550 mcf/d natural gas) relative to the midpoint of 2024 guidance 63,500 boe/d (comprised of 38,300 bbl/d heavy oil, 13,650 bbl/d light and medium oil, 2,350 bbl/d of NGL and 55,200 mcf/d natural gas).
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' National Instrument 51 101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Boe may be misleading, particularly if used in isolation.
Product Types. References in this press release to "crude oil" or "oil" refers to light, medium and heavy crude oil product types as defined by NI 51-101. References to "NGL" throughout this press release comprise pentane, butane, propane, and ethane, being all NGL as defined by NI 51-101. References to "natural gas" throughout this press release refers to conventional natural gas as defined by NI 51-101.
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 Company's five-year plan, including with regard to sustaining capital, growth and waterflood investment and decline mitigation; the Company's exploration and development plans and strategies; improved efficiencies, margin enhancements and cost structure improvements; future intentions with respect to debt repayment and reduction and the Company's return of capital framework, including share buybacks and monthly dividends; oil and natural gas production levels, adjusted funds flow and free funds flow; the Company's capital program, guidance and budget for 2025 and the funding thereof; anticipated operational results for 2025 including, but not limited to, estimated or anticipated production levels (including average production of 64,500 to 66,500 boe/d in 2025), capital expenditures, drilling plans and infrastructure initiatives, expectations regarding commodity prices; the performance characteristics of the Company's oil and natural gas properties; decline rates and EOR, including waterflood initiatives; the continued successful integration of acquired assets; the ability of the Company to achieve drilling success consistent with management's expectations; and risk management activities, including hedging positions and targets. Future dividend payments and share buybacks, if any, and the level thereof, are uncertain, as the Company's return of capital framework and the funds available for such activities 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 and buyback shares 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 those relating to: the business plan of Tamarack; the timing of and success of future drilling, development and completion activities; the geological characteristics of Tamarack's properties; the continued successful integration of acquired 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; impact of inflation on costs; 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: risks with respect to unplanned third party pipeline outages and risks relating to inclement and severe weather events and natural disasters, such as fire, drought and flooding, including in respect of safety, asset integrity and shutting-in production, delivering on 2025 guidance; the risk that future dividend payments thereunder are reduced, suspended or cancelled; unforeseen difficulties in integrating of recently acquired assets into Tamarack's operations; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs; 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, including the impact of the actions of OPEC and OPEC+ members; changes in legislation, including but not limited to tariffs, tax laws, royalties and environmental regulations (including greenhouse gas emission reduction requirements and other decarbonization or social policies and including uncertainty with respect to the interpretation of omnibus Bill C-59 and the related amendments to the Competition Act (Canada)); 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 pandemics. In addition, ongoing military actions between Russia and Ukraine and the recent crisis in Israel and Gaza have the potential to threaten the supply of oil and gas from those regions. The long-term impacts of the actions between these nations remains uncertain. Due to the nature of the oil and natural gas industry, drilling plans and operational activities may be delayed or modified to respond to market conditions, results of past operations, regulatory approvals or availability of services causing results to be delayed. Please refer to the Company's annual information form for the year ended December 31, 2023 and management's discussion and analysis for the period ended September 30, 2024 (the "Q3 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.sedarplus.ca. 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 (including the 2025 budget delivering over $275MM of free funds flow at US$70/bbl WTI), targeting allocation of 60% of free funds flow to dividends and share buybacks, prospective results of operations and production (including annual average production 64,500 – 66,500 boe/d in 2025), average oil & NGL weighting, hedging, operating costs, 2025 capital budget, guidance and expenditures, decline rates, balance sheet strength, growth, debt repayments, total returns and components thereof, all of which are subject to the same assumptions, risk factors, limitations and 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 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 defined as cash provided by operating activities excluding decommissioning obligation expenditures, transaction costs and changes in non-cash working capital. Decommissioning obligation expenditures and transactions costs from business combinations both result from the Company's capital budgeting and strategic planning processes which first considers available adjusted funds flow. Decommissioning obligation expenditures also vary from period to period depending on capital programs, government regulations and the maturity of the Company's operating areas. By also excluding changes in non-cash working capital from cash provided by operating activities, the adjusted funds flow measure provides a meaningful metric for Tamarack and others by establishing a clear link between the Company's cash flows, income statement and operating netbacks by isolating the impact of changes in the timing between accrual and cash settlement dates which are generally within management's control. Tamarack uses adjusted funds flow to assess the Company's financial performance and cash generated from operating activities.
"Free funds flow (capital management measure)" is defined as adjusted funds flow less investments in oil and natural gas assets and decommissioning expenditures. Management utilizes free funds flow to assess how much cash was generated in excess of the Company's capital investment and decommissioning programs within the same period, which can be utilized to reduce net debt, fund acquisitions or return capital to shareholders.
"Free funds flow breakeven (capital management measure)" is determined by calculating the minimum WTI price in US/bbl required to generate free funds flow equal to zero, sustaining current production levels and all other variables held constant. Management believes that free funds flow breakeven provides a useful measure to establish corporate financial sustainability.
Please refer to the Q3 MD&A for additional information relating to specified financial measures including non-IFRS financial measures, non-IFRS financial ratios and capital management measures. The Q3 MD&A can be accessed either on Tamarack's website at www.tamarackvalley.ca or under the Company's profile on www.sedarplus.ca.
