Tamarack Valley Energy announces 2024 corporate budget – Canadian Energy News, Top Headlines, Commentaries, Features & Events – EnergyNow

Highlights of the 2024 Budget

• Two Phase Capital Budget – Tamarack has designed a two-phase capital budget, which allows the Company to align spending with on-stream timing of the new CSV Albright sour gas plant in the Charlie Lake area. Capital spending for 2024 will be funded through adjusted funds flow⁽¹⁾ at US$75/bbl WTI budget pricing:
  • Base Budget: $410 to $460MM
  • CSV Albright Growth Budget: $450 to $500MM assumes Q4/24 CVS Albright on-stream timing
• Oil Weighted Production – Base Budget average 61,000 to 63,000 boe/d⁽²⁾ (84 to 86% oil and NGLs); CSV Albright Growth Budget average 61,000 to 64,000 boe/d⁽³⁾ (84 to 86% oil and NGLs).^.
• Optimizing Capital Programs – Spending allocated 60% and 40% for H1 and H2 2024 respectively, reflecting higher Clearwater activity in H1 to align with expected TMX expansion onstream timing.
• Generating Free Funds Flow⁽¹⁾ – At US$75/bbl WTI budget pricing, the Base Budget expects to deliver over $250MM of free funds flow⁽¹⁾. Free funds flow⁽¹⁾ will be directed to further debt repayment and enhanced return initiatives.
• Top Tier Margins Driven by Low Corporate Breakeven⁽¹⁾ – Low corporate cost structure will achieve a sustaining free funds flow breakeven⁽¹⁾ of ~US$37/bbl WTI, inclusive of the base dividend over our five year plan.
• Delivering ESG Performance – Allocated $13MM to ARO spending. Investing $27MM to expand gas conservation in support of ongoing success with our Clearwater development. These gas conservation projects are expected to mitigate approximately 276,000 tonnes of CO2e while saving an estimated $32MM⁽⁴⁾ of carbon tax within the window of our 5-year plan.

“Our top priority remains maintaining a culture of safe and responsible operations that continues to drive near and long-term value creation for our investors. Tamarack’s portfolio, focused on our highly economic Clearwater and Charlie Lake plays, supports scalable development capable of delivering long term sustainable free funds flow⁽¹⁾. Building on assets acquired in 2022, organic drilling and waterflood projects increased our Clearwater production by ~16% year over year. Success of the 2023 capital program and strategic divestments are accelerating our debt repayment with 2023 exit net debt expected to be reduced by over $300MM relative to 2022. Long term we continue to maximize the net asset value of our highly economic Charlie Lake oil resource and estimated 8.7 billion barrels of Clearwater OOIP, investing in infrastructure and lowering our overall cost structure.” – Brian Schmidt, President and CEO

Tamarack’s Base Budget production of 61,000 to 63,000 boe/d⁽²⁾ is focused on delivering free funds flow⁽¹⁾ and supporting long term value creation. Year over year, sustaining capital has been reduced from $370MM in 2023 to approximately $330MM in 2024. This reflects Tamarack’s success in balancing the pace of development in Charlie Lake, advancing Clearwater primary and secondary recovery programs and investment in key infrastructure.

The 2024 Base Budget builds on the success of the 2023 program which added strategic owned and operated Charlie Lake infrastructure and is backed by strong well results that enabled long term commitments to additional firm service capacity. The Charlie Lake drilling program is designed to balance new well activity with area processing and egress capacity. Approximately $65 – $70MM and $220 – $240MM will be allocated to primary DCET activity in the Charlie Lake and Clearwater respectively. In the North Clearwater Tamarack will expand its core area through the development of East Nipisi and West Marten Hills in both the “B” and “C” sands. In the South Clearwater, we will continue to leverage the “Fan” well design to advance development. Within the budget $40 to $45MM is allocated for secondary recovery spending focused on expansion of Clearwater waterflood projects at Nipisi and Marten Hills.

Tamarack proactively secured firm processing capacity at the new CSV Albright sour gas plant to support near term growth and long-term development in the Charlie Lake. Firm capacity through CSV Albright could see Tamarack potentially add 700 to 900 boe/d⁽⁶⁾ in Q4 2024, and over 2,000 boe/d⁽⁷⁾ in Q1 2025.

In support of this opportunity, the Tamarack Board has approved an incremental CSV Albright Growth Budget which includes an additional $40 to $50MM capital over Q3 and Q4 2024. This incremental capital would ensure production is available to fill Tamarack’s capacity at the CSV Albright gas plant which is currently under construction and estimated to be onstream in Q4 2024. Timing on capital deployment will be informed by the plant start up schedule.

Secondary Oil Recovery – Waterflood Expenditures

Tamarack’s 2023 waterflood investment resulted in a reduction of our corporate decline by approximately 2%. For each 1% improvement, or reduction, in decline rate Tamarack realizes an estimated annual sustaining capital savings of approximately $12MM to $15MM.

With an estimated 8.7 billion barrels of OOIP across our Clearwater portfolio Tamarack is well positioned to deliver sustainable long-term value for investors through investment in waterflood initiatives which have potential to double primary recovery rates. Currently, 6% of Tamarack’s Clearwater production is supported by waterflood and this will increase substantially moving through the Company’s five-year plan.

Tamarack has increased water injection in the Clearwater from 1,500 bbl/d at January 2023 to an estimated 4,000 bbl/d in December 2023 and is expected to further increase to 15,000 bbl/d by year end 2024. Results from increased injection in 2023 demonstrated material reservoir response that will lead to significant increases in ultimate recovery factors. In 2024, the Company plans to direct $35 to $40MM of capital towards our Clearwater waterflood projects, following on the excellent results demonstrated to date.

Infrastructure Initiatives Driving Higher Margins

Tamarack realized material benefits from investment in key strategic infrastructure through 2023. This included projects in the Charlie Lake, highlighted by the Wembley gas plant, and Clearwater, including the Nipisi pipeline and terminal projects. Combined, these 2023 projects served to drive material year over year operating and transportation cost reductions while also providing for top line price margin improvements.

The 2024 Base Budget includes capital to expand the Wembley 16-35-073-08W6 battery. At a cost of ~$5MM the expansion will result in an incremental 1,600 boe/d of liquids and gas handling capacity for Tamarack operated and controlled volumes. Some associated downtime is expected during the first quarter as we shut in volumes to accommodate the expansion work.

Exploration/Delineation Capital

The 2023 exploration program successfully tested three Clearwater equivalent sands at Seal establishing the potential for up to 1.0 billion bbls of OOIP. In addition, Tamarack was successful with our West Nipisi joint venture where the first wells drilled have delivered average IP30 rates of ~240 bopd per well.

At West Marten Hills, in 2023 Tamarack further tested the Clearwater “C” sand with initial rates averaging ~220 bopd per well. These results expand Tamarack’s Upper Clearwater inventory, with 380 MMbbls of potential OOIP across 27 net sections of land where the Clearwater “B” sand is already being developed, enabling Clearwater “C” sand locations to truly benefit from half-cycle economics given that required surface locations and infrastructure are already in place.

Looking ahead, Tamarack plans to direct ~$20MM of the 2024 capital program to exploration projects. This includes testing additional zones and targets across our Clearwater and Charlie Lake land base.

Environmental, Social and Governance & Corporate

Given the success and expansion of our Clearwater development, in 2024 Tamarack plans to invest $27MM in a large natural gas and emulsion gathering system which will serve to reduce corporate emissions and trucking as volumes are tied directly into pipelines. Opex and transportation savings associated with the project are estimated to reduce 2024 corporate costs by $0.05–$0.10/boe. Over the next five years this investment is also expected to reduce annual CO2 emissions by approximately 276,000 tonnes and our potential carbon tax exposure by ~$32MM⁽⁴⁾.

To support the commitments and goals outlined in Tamarack’s Sustainability Report and the performance targets specified as part of Tamarack’s sustainability linked lending, the Company has allocated $13MM to ARO in 2024. Actions undertaken in 2023 and 2024, including the divestment of certain non-core assets along with extensive abandonments across remaining non-core holdings will materially reduce Tamarack’s ARO. It is expected that these projects will result in a significant reduction in required 2025 spending.

Debt Reduction and Enhanced Return Delivery

The Company remains committed to balancing long-term sustainable free funds flow growth with returning capital to shareholders. Key strategic initiatives executed through 2023, including the divestment of the non-core Cardium assets, coupled with growing production from our high netback core assets reduced Tamarack’s expected exit debt at year-end 2023 by over $300MM relative to year-end 2022. The Company now expects to exit the year below $1.1 billion of net debt, representing a 27% improvement on a year over year basis. The 2024 budget will see a further reduction while continuing to support returns within our return of capital (“ROC”) framework. In 2023, Tamarack expects to pay out over $83MM in base dividends to our shareholders. As Tamarack looks to confirm achievement of the first threshold of the ROC framework, share buybacks remain the preferred mechanism to enhance shareholder returns at this time.

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 2024, approximately ~50% of net after royalty oil production is hedged against WTI with an average floor price of ~US$70/bbl with structures that allow for upside price participation into the mid US$90/bbl range. 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. Tamarack materially advanced our multi-year transformation and would not have been able to achieve this 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.

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 Lake and Clearwater plays in Alberta while also pursuing EOR upside in these core areas. 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

Notes to Press Release

1. See “Specified Financial Measures”
2. Comprised of 12,800-13,200 bbl/d light and medium oil, 36,600-37,800 bbl/d heavy oil, 2,400-2,500 bbl/d NGL and 54,900-56,700 mcf/d natural gas
3. Comprised of 12,800-13,400 bbl/d light and medium oil, 36,600-38,400 bbl/d heavy oil, 2,400-2,600 bbl/d NGL and 54,900-57,600 mcf/d natural gas
4. $32MM of savings represents tax that would otherwise be payable in the absence of these projects and reflects Alberta TIER compliance which follows the Federal Carbon pricing model of $80/tonne in 2024 and increasing by $15/tonne annually until 2030. This pricing is applied to annual emissions reduction forecasts, assuming that corporate emissions intensity levels are in excess of the compliance baseline.
5. The Company’s acquisitions in 2022 and a more stringent emissions regulatory framework increased taxable emissions in 2023 and 2024. Carbon tax of $1.00–$1.50/boe is anticipated in 2024, a significant increase from 2023 as the price of carbon escalates 23% to $80/tonne and the emissions intensity benchmark tightens. Carbon tax was previously included in net production costs but will be reported separately going forward. Tamarack’s gas conservation initiatives that continue into 2024 are expected to substantively decrease the carbon tax burden in 2025 and subsequent years.
6. Comprised of 490-630 bbl/d light and medium oil, 60-70 bbl/d NGL and 900-1,200 mcf/d natural gas
7. Comprised of 1,200-1,300 bbl/d light and medium oil, 150-200 bbl/d NGL and 3,100-3,400 mcf/d natural gas
8. Annual guidance numbers are based on 2024 average pricing assumptions of:

   2024 Budget Pricing
   Crude Oil – WTI ($US/bbl)	$75.00
   Crude Oil – MSW Differential ($US/bbl)	($4.00)
   Crude Oil – WCS Differential ($US/bbl)	($17.00)
   Natural Gas – AECO ($CAD/GJ)	$2.50
   Foreign Exchange – CAD/USD	1.3450

9. Capital budget includes exploration and development capital, ARO, ESG initiatives, facilities land and seismic but excludes asset acquisitions and dispositions.
10. G&A noted excludes the effect of cash settled stock-based compensation.
11. Tamarack estimates a tax rate on funds flow of 9%-11%