Tamarack makes $74M of acquisitions at Clearwater Mr. Brian Schmidt reports
TAMARACK VALLEY ENERGY ANNOUNCES STRATEGIC CLEARWATER OIL ACQUISITIONS, $47 MILLION EQUITY FINANCING AND PRELIMINARY 2021 GUIDANCE
Tamarack Valley Energy Ltd. has noted two strategic acquisitions, which will establish a significant consolidated and operated position in the Clearwater oil play in the Greater Nipisi area along with interests in the Jarvie area of Alberta for a total net purchase price of $74.0-million, after deducting the proceeds from the sale of a 2-per-cent newly created gross overriding royalty (the GORR disposition) on a select portion of the acquired properties. Pursuant to the acquisitions, Tamarack will acquire approximately 2,000 barrels per day of crude oil production and 107,000 net acres of Clearwater rights (the "Assets"). On closing, Tamarack will control and operate 100 per cent of the Greater Nipisi acquired assets. Concurrent with the completion of the acquisitions, Tamarack will complete a $47 million equity financing (the "financing").
The acquisitions and the financing will provide Tamarack with a significant position in one of the most economic oil plays in Western Canada and further the Company's strategy of maintaining a resilient balance sheet while pursuing opportunities to enhance free adjusted funds flow and sustainability.
"The Assets are complementary to Tamarack's strengths in execution and recovery improvement. The Assets also complement our expanding waterflood production in Veteran and boost the Company's free adjusted funds flow over the next several years," stated Brian Schmidt , President and CEO of Tamarack.
Tamarack Highlights
- Tamarack has established a significant position in the Clearwater oil play
- ~107,000 net acres in one of the most economic oil plays in Western Canada
- ~2,000 bbl/d of current production
- The Assets are highly economic and poised for larger scale development
- Over 400 net future drilling locations identified by management including over 300 locations in the Greater Nipisi area and over 100 locations in the Jarvie area
- Planned development to increase production from the Assets to ~4,500 to 5,500 bbl/d in Q4 2021 through ~$55 million investment from Tamarack's 2021 capital budget
- Enhanced free adjusted funds flow generation and resiliency underpinned by economic inventory and active enhanced oil recovery
- Pro forma 2021 free adjusted funds flow of ~$38 million, including a 12 per cent oil production growth rate (Q4 2021 over Q4 2020 exit)
- Free adjusted funds flow break-even of ~$40/bbl WTI
- Industry-leading balance sheet strength and financial liquidity to execute
- Pro forma estimated year-end net debt to trailing adjusted funds flow of approximately 1.2x by Q4 2021
- Industry-leading Environment, Social and Governance (ESG) practices including a decade-long Indigenous partnership
- The Assets have minimal asset retirement obligation (ARO) ($2.9 million undiscounted) and development that does not require any use of fresh water volumes for completions and limited land use through multi-well pad drilling
- Tamarack released its inaugural sustainability report in October 2020 outlining the Company's commitment to ESG and associated initiatives
Overview of the acquisitions
Tamarack has entered into a definitive agreement with Woodcote Oil Corp. ("Woodcote"), a Clearwater focussed private company, pursuant to which the Company will acquire all of the issued and outstanding shares of Woodcote, (the "Corporate acquisition"). The Corporate acquisition will secure Tamarack a 50 per cent operated working interest in the Greater Nipisi area, an established Clearwater development area with top decile economics in the Western Canadian Basin. Concurrent with the execution of the definitive agreement, the shareholders of Woodcote have executed letters of transmittal irrevocably accepting Tamarack's offer and tendering their shares in connection with the Corporate acquisition. The definitive agreement provides for, among other things, a non-solicitation covenant on the part of Woodcote.
Tamarack has entered into an asset purchase agreement with Highwood Oil Company Ltd. ("Highwood") pursuant to which the Company will acquire a 50 per cent working interest in the "Greater Nipisi" assets and a ~50 to 100 per cent working interest in the Jarvie assets with an effective date of November 1, 2020 (the "Asset acquisition").
The acquisitions are expected to close on or about Dec. 21, 2020 subject to certain regulatory and other approvals and the satisfaction or waiver of customary closing conditions.
In conjunction with the acquisitions, Tamarack has entered into an agreement with Topaz Energy Corp. whereby it will sell a 2.0 per cent gross overriding royalty (GORR) on a select portion of the Assets. Tamarack has committed to spending $80.0 million of capital on the assets associated with the GORR lands prior to Dec. 31, 2022.
Transaction Metrics Net Purchase Price (Inclusive of GORR Disposition) $74.0 million Current Production ~2,000 bbl/d Operating Field Netback (1) ~$19.5 million Estimated 2021 Operating Field Netback ($/boe) $27/boe 2021 Clearwater Capital Program ~$55.0 million Q4/2021 Production Forecast 4,500 to 5,500 bbl/d Q4/2021 Forecast Annualized Operating Field Netback $44.0 million to $54.0 million Total Proved Plus Probable Reserves (2) 6.5 mmboe Total Clearwater Acreage ~107,000 net acres ARO (Undiscounted) ~$2.9 million Notes: (1) Annualized operating field netback is based on current production and estimated operating field netback of ~$27/boe. (2) Total proved plus probable reserves are internally estimated by the Company's internal qualified reserve evaluators ("QRE") and prepared in accordance with National Instrument 51-101 ("NI 51-101") and the Canadian Oil and Gas Evaluations Handbook ("COGEH"). "Internally estimated" means an estimate that is derived by the Company's internal QRE and prepared in accordance with NI 51-101. All internal estimates contained in this new release have been prepared effective as of Dec. 31, 2019. Preliminary 2021 Pro Forma Guidance
Tamarack's 2021 preliminary guidance reflects material year-over-year growth in free adjusted funds flow based on the highly economic growth from the Assets and observed strong performance from the Company's waterflood project.
Capital Budget (Including ARO Spend) $102 million Annual Average Production 23,000 boe/d Annual Average Oil & Natural Gas Liquids Weighting 64 per cent Annual Adjusted Funds Flow $140 million Annual Free Adjusted Funds Flow $38 million Q4 2021 Average Production Q4 2021 Oil & Natural Gas Liquids Weighting 23,500 boe/d 68 per cent 2021 Estimated Corporate Decline Rate 22 per cent to 24 per cent
This guidance and the transaction metrics are based on average 2021 commodity price assumptions of WTI US$46.71/bbl, MSW/WTI differential of US$5.88/bbl, WCS/WTI differential of US$12.94/bbl and AECO at $2.53/GJ as well as a Canadian/US dollar exchange rate of $1.300.
The Company will release its formal 2021 guidance in January of 2021.
Non-Brokered Private Placement
Pursuant to the terms of the financing, Tamarack will issue, on a non-brokered private placement basis, up to 40,925,000 common shares ("Common Shares") at a price of $1.15 per Common Share for aggregate gross proceeds of up to approximately $47 million, of which $2.1 million is anticipated to be subscribed for by directors and officers of Tamarack. The proceeds from the financing will be initially used to reduce indebtedness and thereafter to partially fund the Company's 2021 capital expenditures. The financing is expected to close concurrent with the acquisitions.
The financing is subject to certain conditions including normal regulatory approvals and, specifically, the approval of the Toronto Stock Exchange. The Common Shares issued in connection with the financing will be subject to a statutory hold period of four months plus one day from the applicable dates(s) of completion of the financing, in accordance with applicable securities legislation.
Advisors
Peters & Co. Limited is acting as financial advisor to Tamarack with respect to the acquisitions, the GORR Disposition and the financing.
National Bank Financial Inc. is acting as financial advisor to Tamarack with respect to the Corporate acquisition, the GORR Disposition and the financing.
CIBC Capital Markets and Stifel FirstEnergy are acting as strategic advisors to Tamarack.
Stikeman Elliott LLP is acting as counsel to Tamarack with respect to the acquisitions, the GORR Disposition and the financing.