Tamarack Valley Energy Ltd. announces that the Board of Directors (the "Board") has approved a 2022 capital budget, pro forma the acquisition of Crestwynd Exploration Ltd. (the "Acquisition"), of $250 to $270 million, designed to achieve significant free funds flow(1), and generate annual production of 45,000 to 46,000 boe/d(2), enabling return of capital optionality and maintaining a strong balance sheet.
"We are excited to roll out a strong 2022 plan with a continued focus of building on and delivering sustainable free funds flow(1). Our program is designed to provide an optimal balance of investment across our asset base with the growth driven by the Clearwater, free funds flow(1) maximization in the Charlie Lake, and decline mitigation through the Enhanced Oil Recovery (EOR) waterfloods. The updated five-year plan(3), inclusive of the Acquisition, generates robust free funds flow(1) of greater than $1.1 billion dollars at US$55/bbl WTI and greater than $2.1 billion dollars at US$70/bbl WTI." – Brian Schmidt, President and Chief Executive Officer
Highlights of the 2022 Budget
- Capital Program – Tamarack plans to invest $250 to $270 million, which includes the drilling of 126 (116.3 net) wells, funded through less than 50% of adjusted funds flow(1) at budget pricing of US$70/bbl WTI and CAD$3.00/GJ Aeco.
- Production & Free Funds Flow(1) – This program will drive production of 45,000 to 46,000 boe/d(2) with a 73-75% oil and NGL weighting and is expected to generate $250 to $300 million of free funds flow(1) (excluding acquisitions).
- Capital Allocation – We will direct approximately 40% of our capital program to the Clearwater, inclusive of the waterflood program at Nipisi, 30% to the Charlie Lake and 15% to our EOR waterflood assets in Veteran and Eyehill. The portfolio of capital investment is optimized to focus on free funds flow(1) generation and managing our corporate decline through continued investment in our waterflood projects.
- Uses of Free Funds Flow(1) – At budget pricing, free funds flow(1) will enable a reduction of debt and return of capital to shareholders.
- Sustaining free funds flow breakeven price(1) – Inclusive of the base dividend, the budget achieves a free funds flow breakeven(1) of ~US$35/bbl WTI.
- ESG Commitment – Tamarack has allocated $7.5 million to ARO spending and $3.5 million to gas conservation and other emissions reduction capital projects.
- The Company continues to manage commodity price risk and volatility through a prudent hedging management program, with ~50% of gross oil production hedged against WTI on average through 2022. 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).
Five-year Plan Update
In conjunction with the 2022 Budget and the Acquisition, Tamarack has updated its five-year plan(3) (2022-2026). The five-year plan(3) highlights the significant free funds flow(1) generated by the Company's assets and the flexibility to direct funds to achieve long term debt targets, return of capital to shareholders and incremental growth of the business both organically and through M&A opportunities. The updated five-year plan reflects expected inflationary cost increases.
Highlights of the updated five-year plan(3) include:
Generation of approximately $1.1 billion of free funds flow(1) at US$55/bbl WTI and $2.50/GJ AECO flat pricing (the "planned pricing scenario"). Utilizing a US$70/bbl price through the plan would generate greater than $2.1 billion of free funds flow(1).
Free funds flow breakeven(1), inclusive of the base dividend, of approximately US $35/bbl WTI; affords downside protection with upside torque given the short payout and high profit to investment nature of the Clearwater, Charlie Lake and Waterflood core oil plays.
The planned pricing scenario over the five years contemplates a sustaining pro forma production base of 46,000 boe/d to 49,000 boe/d(4) which represents 2-3% annual growth, while balancing return of capital to shareholders. The plan has the Clearwater reaching production rates of 18,000 to 19,000 boe/d(5) through 2025/2026.
Sustaining capital, inclusive of the base dividend, representing approximately 40-50% of adjusted funds flow(1), supports a production base of between 46,000 to 49,000 boe/d(3), inclusive of ARO spend. Annual capital to achieve sustaining production plus moderate growth will range between $220 to $270 million.
Maintains a strong balance sheet, driving less than 1x year-end net debt to trailing annual adjusted funds flow(1), with a path to being debt free over the five years. Under the US$70/bbl WTI case, the Company estimates to be debt free in 2023.
The five-year plan(3) is underpinned with >10 years of drilling inventory capable of delivering payout in <1.5 years based on the five-year plan(3) capital forecast.
A strong commitment to ESG and sustainability with planned abandonment and reclamation spend incorporated in the sustaining capital assumptions which exceed government mandated levels along with capital focused on lowering emissions through Clearwater gas conservations projects aligned with the growth in the play.
Return of Capital Update
Pro forma the Acquisition, Tamarack's long-term debt target has been updated to $325 to $375 million from the previous $250 to $300 million. The long-term debt target is predicated on a forecasted year-end net debt to trailing annual adjusted funds flow(1) of 1.0x at US$45/bbl WTI. Pending market conditions and once the Company reaches this target; Tamarack plans to return up to 50% of the previous quarter's free funds flow(1) inclusive of base dividends to its shareholders through tactical share buybacks and/or special dividends. The remaining 50% of free funds flow(1) will be allocated to further debt repayment and future acquisition opportunities.
Declaration of Inaugural Dividend
Tamarack is pleased to announce that it will proceed with the implementation of its previously announced dividend program. Tamarack's board of directors has declared an inaugural monthly cash dividend on its common shares of C$0.0083 per share. The dividend will be payable on February 15, 2022, to shareholders of record at the close of business on January 31, 2022. This monthly cash dividend is designated as an "eligible dividend" for Canadian income tax purposes.
2022 Budget Details
Approximately 40% of our capital program will be directed to the Clearwater program in 2022 where we are forecasting to average 12,000 boe/d(6) annually, pro forma the Acquisition with the plan to drill and bring on 92 (82.6 net) wells. As part of the investment in the Clearwater, Tamarack plans to direct approximately $25 million into the Nipisi waterflood pilot program.
Our first quarter winter drilling program is currently underway with the anticipation of running a four-rig program that will see 27 net wells drilled in Nipisi and the Southern Clearwater inclusive of four injection wells in our Nipsi waterflood project.
Approximately 30% of our program will be directed to the Charlie Lake program with 14 (13.7 net) wells planned to be drilled and 15.7 net brought on stream where we forecast stable production and significant free funds flow(1) generation from the asset. Tamarack will have two rigs running with seven wells planned during the first quarter.
Veteran/ Eyehill Waterflood Assets
We plan to direct approximately 15% of our capital program to our Veteran and Eyehill waterflood assets for 2022. Two rigs are planned to be running in our Veteran and Eyehill properties during the first quarter program on a planned 13 well program.
Tamarack plans to allocate approximately 10% of our program to exploration and de-risk initiatives for 2022, which is comprised of land, seismic and the drilling of 3 to 4 exploratory wells. This capital will be used to further enhance our exploratory and exploitation opportunities within our portfolio and continue to expand and improve our inventory base in the Company.
Environmental, Social and Governance
To support the commitments and goals outlined in Tamarack's sustainability report and the sustainability performance targets identified in Tamarack's sustainability linked loan, Tamarack has allocated $7.5 million to ARO spend and $3.5 million to gas conservation and other emissions reduction capital projects.