Tamarack Valley Energy Ltd. (stock ticker: TVE) has released its 2019 capital budget, guidance and a 2018 operational update that includes record production of approximately 24,780 BOEPD in Q4/18 with an oil and natural gas liquids (“NGL”) weighting of approximately 66%.
Tamarack said it spent about $7.0 million less than the budgeted capital for the quarter due to the volatility of commodity prices in Western Canada.
2019 guidance
- Annual average production between 23,500 – 24,500 BOEPD (64-66% oil and NGL)
- 2019 exit production estimated between 25,500 – 26,500 BOEPD (64-66% oil and NGL);
- Capital expenditures between $170 to $180 million to maintain the Alberta government’s mandatory production curtailments during Q1 of 2019;
- Estimated year end 2019 net debt to Q4 annualized adjusted operating field netback ratio of approximately 1.0 times with an estimated $100 million of liquidity on existing credit facilities;
- Average 2019 commodity price assumptions of WTI US$50.00/bbl, Edmonton Par C$52.33/bbl, WTI / Edmonton Par differential of US$10.75/bbl, AECO $1.31/GJ and a Canadian/US dollar exchange rate of $0.75.
2019 capital program
Tamarack said it expects to be self-funding again in 2019 and estimates it will achieve 3-5% debt-adjusted production per share growth in Q4/19 over Q4/18. Approximately 25% of its 2019 production is protected with hedges that include a US$60.00/bbl WTI put option and another approximately 3% is protected with fixed price contracts at US$64.60/bbl.
Tamarack’s 2019 capital expenditure plans are to invest between $170 and $180 million, funded entirely through adjusted operating field netback, the company reported.
This capital program is expected to result in production of 23,500 – 24,500 BOEPD (64-66% oil and NGL), despite spending approximately 23% less than in 2018 while maintaining flat year over year average production.
The 2019 budget
- Drilling 125 net wells, including 110 Viking light oil wells (94 at Veteran), 13 Cardium light oil wells and two wells at Penny.
- Budget includes $19.8 million of waterflood investments, including 15 well conversions in H1/19 and the drilling and conversion of six additional injection wells in East Veteran.
- Committed to investing in longer-term projects, including the Veteran waterflood, which the company expects will reduce the overall corporate decline rate in 2020.
Alberta’s mandatory oil curtailments
Effective as of January 1, 2019, the Alberta government imposed mandatory oil curtailments designed to mitigate the wide price differential related to a lack of pipeline capacity, which is ultimately expected to lead to stronger oil prices.
Tamarack Valley said that its 2019 capital guidance assumes activity levels will be weighted evenly between H1 and H2 of 2019, and that the program timing for H1 has been designed to comply with the required production cuts.
Tamarack anticipates realizing a meaningful ramp-up in production volumes during the second half of 2019, assuming no additional government intervention.
Q4/2918 operational update
Based on field estimates for December 2018, Tamarack achieved record Q4/18 production of 24,780 BOEPD, exceeding the upper end of its annual average 2018 guidance range of 24,000 to 24,500 BOEPD (66% oil and NGL).
Full year 2018 capital spending will be below its $230 to $235 million guidance range. With the combination of lower Q4/18 capital spending and strong production performance, Tamarack anticipates that approximately $10-12 million of free cash flow was generated in Q4/18. Tamarack used approximately $4.1 million of this free cash flow to purchase common shares to either: (i) cancel under its normal course issuer bid (“NCIB”) (926,800 shares totaling $2.3 million); or (ii) hold in treasury to offset future dilution from potential restricted share unit settlements (834,009 shares totaling $1.8 million). The balance of the free cash flow was allocated to year-end debt reduction.
The company said that if realized commodity prices strengthen through 2019, it anticipates generating additional adjusted operating field netback which could be directed to increased capital spending and / or further share purchases through its NCIB program.
