Tamarack Valley Energy Q3 2024 Earnings Call Transcript

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October 31, 2024

There are 5 speakers on the call.

Operator

Good morning, everyone. Welcome to the Tamarac Valley Energy Limited Conference Call and Webcast on Thursday, October 31, 2024, discussing the recent Q3 2024 results press release. I would like to introduce today's speakers, Mr. Brian Schmid, President and CEO and Mr. Steve Beitel, Chief Financial Officer.

Operator

Thank you. Mr. Schmidt, you may begin your conference.

Speaker 1

Good morning and thank you, Ina. Welcome to everyone to the call to discuss our Q3 operating and financial results. My name is Brian Schmitt, President and CEO, and I'm joined here today by Steve Beidels, 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 Tamarac and highlighted by the outperformance on our production volumes that averaged 65,024 BOE per day driven by exceptional Clearwater and Charny Lake drilling programs and our ongoing waterflood initiatives.

Speaker 1

Starting with our Clearwater portfolio, Q3 2024 Clearwater production increased to 43,300 BOE per day, reflecting a 15% or 19% per share increase year on year as Tamarac continues to expand its Saviolo operations. At West Martin, 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 2 thirteen well. Stacked sand development continues in the area where the company rig released 6 B sand and 2 C sand wells in Q3, twenty twenty four from its Section 14 pad. Given the strength of initial productivity in the area, the company plans to pursue waterflood in both sets. Our continued refinement of drilling designs and program optimizations are driving overall efficiency enhancement and lowering overall capital costs throughout our Clearwater development program.

Speaker 1

It is so far resulted in a 5% reduction in perimeter costs across the Clearwater highlighted by a 15% or approximately 10,000,000 dollars reduction in capital in the Martin Hills area. The application of fan designs in Clearwater has improved efficiency to 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 Newbrook 13 to 30 pad continued to exhibit strong production in terms in both in terms of IP rate and lower decline. The average daily oil rate exceeds 235 barrels per day after 7 months of production. This pad represents the best wells drilled by industry across the trend to date and Tamarac's overall salt Clearwater fan production has grown to 6.50 barrels per day.

Speaker 1

Results demonstrate the fan design contributes to lower shallower 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 into play. Pilots initiated by Tamarac continue to demonstrate strong performance from secondary recovery with wells trending ahead of expectations indicating the potential to more than double primary EOR of the well. Cold 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 1500 barrels day of incremental oil production and the company expects to have over 9% of its Clearwater production supported by Waterflood by year end 2024.

Speaker 1

Moving on to Charti Lake during the quarter, Tamarac achieved production of 16,200 BOEs Day, which continued to benefit from sustained outperformance related to wells brought on in the first half of twenty twenty four primarily in the Wyndhamu area. Tamarac resumed drilling in the Charley Lake play in July, rig released 4 horizontal wells in Q3 twenty twenty four. 2 of the wells were brought online in a Pipestone area that were drilled from the 1434 pad and achieved IP30 rates of 13 20 boes per day per well. Also in Q3 2024, the company has brought online 2 Windley 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.

Speaker 1

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 Vitels to run through the financial results as our outlook.

Speaker 2

Thanks, Bryce. Tamarac delivered adjusted funds flow of approximately $220,000,000 during the Q3 and generated free funds flow of approximately $109,000,000 Year to date, Tamarac has generated approximately $298,000,000 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. 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.

Speaker 2

We see the majority of these cost reductions carrying forward on the back of our infrastructure investments over the past few years. The expanded Clearwater Infrastructure Limited Partnership added a 13th indigenous community and transferred an additional $50,800,000 of Clearwater assets to the partnership for $43,200,000 in cash and retained 15% operating working interest in the assets. During the quarter, we repurchased 12,300,000 common shares. In total, during the 1st 9 months of the year, the company has bought back approximately 22,000,000 shares, representing 4% of the year end 2023 shares outstanding for a total repurchase value of approximately 83,000,000 dollars Total shareholder return value for the 1st 9 months of 2024 was $144,700,000 or approximately $0.26 per share, including base dividends of $61,400,000 In addition, during this period, we further strengthened our balance sheet with 3rd quarter exit net debt of just over $807,000,000 In total, net debt has been reduced by approximately $176,000,000 year to date. 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.

Speaker 2

This will represent the 4th 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 to 64,000 BOE A. 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 4 Charlie Lake wells in the 4th quarter, expand regional pipeline capacity in advance of the 3rd party plant commissioning of the CSV gas plant in early 2025. In addition to this, we will expand our waterflood investment program in the Clearwater.

Speaker 2

Tamarac anticipates spending for the year to be approximately $440,000,000 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. Panorak 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 costs, carbon tax and interest. I'm going to pass it back over to Brian here to wrap up our call.

Speaker 1

These Q4 Q3, twenty twenty four results continue to highlight the quality of the Clearwater and the Chardewychase base that has been built over the past 3 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.

Speaker 1

Thank you.

Operator

Thank you. And your first question comes from the line of Gerry MacKlee, BMO Capital Markets.

Speaker 3

Question on your waterflood here. You talked about showing and putting a lot more, expanding the play much more into 2025. Is there anything you're doing differently though in terms of, accelerating the voyage 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?

Speaker 3

And how conservative have you guys been with that guidance, I guess? And then kind of the second part there is, would you expect to see anything on your reserves here or some preliminary results that you may be having so far?

Speaker 1

Yes. Good questions, Jeremy. Listen, there's a lot of questions on waterflood and because it's been a while since we since the basin itself has been doing much waterflood. But the way I would look at it here, Jeremy, is that we haven't issued 2025 guidance with respect to what we're going to get out of the water flood. I would look to get be able to give you some more clarity when we do that.

Speaker 1

I think that what I'm really excited about is that ramp up from 2,000 barrels a day to 14,000 barrels

Speaker 3

a day. And

Speaker 1

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. 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 up to 14,000 barrels a day is going to significantly increase the percent hydrocarbon pour volume you inject per year.

Speaker 1

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 breakthrough. And so it's really encouraging that we're injecting water, it's soaking in, it's building up pressure and you'd be much more you're much more confident of a nice uniform sweep when you see waterfloods exhibited that way. As one of the specialists told me that I worked for 3 years, he said, you guys are too careful with these floods, you got to get something to break.

Speaker 1

And just haven't seen that. It's been it's a real exciting waterflood and I've worked on a lot of these over my years and this is really encouraging. Thanks, Brian.

Operator

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

Speaker 4

Thank you. We will now go to the online Q and A. Our first question is for Mr. Steve Vitale. How should we think about Tamarac potentially being interested in M and A at current levels?

Speaker 4

Respecting that 2025 guidance has not been an issue, how should we think about the company's strategic prioritiesgeneral outlook for 2025 based on current oil pricing?

Speaker 2

Yes. Thanks, Jamie. Let's start with 25. You're right. We haven't issued 25 yet.

Speaker 2

But I think when we look back to June at our Investor Day, we laid out a plan, the 5 year plan for investors, which contemplated roughly $450,000,000 of capital annually that we're going to spend and generate around a 3% to 5% CAGR over those 5 years. So that's kind of how we'd 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 well ahead 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 and I think it will be pretty consistent when we look at 25% in December here with respect to the budget.

Speaker 2

In terms of M and 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 on to 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.

Speaker 2

And Brian just talked about the waterflood opportunity. It is just significant. We've got 8,700,000,000 barrels of OIP here we have to go after. So for us, the best M and A right now is buying back our stock and bringing forward value to the waterflood as we look at things right now.

Speaker 4

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

Speaker 1

Yes. Like Steve said, most of this consolidation we're going to do is kind of where you get a 1 plus 1 equal 3. And I think the way investors would have to look at ChemRac 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 make great value for shareholders.

Speaker 4

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

Speaker 2

Yes. No, thanks. When we look at the costs 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, getting seam savings around not having as much water disposal and taking something that really was a cost to us and injecting that 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.

Speaker 2

When we look at transportation, the one caution I will have, we did have a one time item. 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. 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.

Speaker 2

The other one I'd mentioned to you 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.

Speaker 4

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

Speaker 1

Yes. So in Charlie Lake, on the sweet side, we've been 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 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.

Speaker 1

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 the fill and generate free cash flow for the rest of the company.

Speaker 4

Thank you. Our next question is from Mr. Steve Beitel. With the start up of TMX, how is it affecting the pricing of your barrels?

Speaker 2

Yes, 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 start up 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.

Speaker 2

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

Speaker 4

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?

Speaker 1

Yes. 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 like 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.

Speaker 1

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.

Speaker 4

Thank you. We'll have no more questions from the Q and A. So I will pass it back to the moderator.

Operator

Thank you.

Speaker 1

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

Operator

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

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Earnings Conference Call
Tamarack Valley Energy Q3 2024
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