Tamarack Valley Energy Ltd T.TVE

TD

[retiredcf]

Maintain their Buy rating and $2.00 target. GLTA

Tamarack Valley Energy Ltd.

(TVE-T) C$1.38

Formal 2021 Budget Focused on Oil Growth, FCF

Event

Tamarack Valley announces formal 2021 guidance and corporate update.

Impact: NEUTRAL

• 2021 expected production in line with previous preliminary outlook on slightly higher total capex. The company expects to spend $105mm-$110mm this year (slightly above its previous outlook of $102mm). This is expected to result in average 2021 production of 23.0 mBOE/d (64% liquids), unchanged from the previous guidance. The capital program is anticipated to result in oil production growth of ~30% from Q4/20-Q4/21, which is driven by material growth in the Clearwater play. The company also announced that FY2020 average production is expected to be higher than previous guidance of 21.5 mBOE/d.

• Tamarack Valley is forecasting 2021 cash flow of $135mm-$140mm (assuming WTI of US$48.40/bbl and AECO of C$2.40/GJ). CF expectations are largely unchanged from the company's previous forecasts and we estimate that this would result in a 2021 FCF yield of ~8%; however, it includes meaningful production growth.

• Recently acquired Clearwater assets expected to attract capex of $53mm- $55mm or ~50% of total spending. As the company highlighted in conjunction with the acquisition in the play on December 14 (see our note here), Tamarack Valley is targeting Q4/21 oil volumes of between 4,500-5,500 bbl/d in Clearwater. This is up from ~2,000 bbl/d at the time of the transaction. As part of the concurrent GORR sale to Topaz Energy Corp., the company remains committed to spending a minimum of $80mm in the play by the end of 2022.

• Remaining 2021 E&D capital will be focused largely in the Viking. This includes $29mm-30mm in Viking waterflood areas, $7mm on Viking conventional production, and $5mm in West Central AB. Remaining capex will be spent on land and seismic ($4mm-$5mm) and ARO/ESG initiatives ($7mm-$8mm).

• The company is planning to commence EOR studies in Clearwater in Q3/21. Successful implementation here could help mitigate future production decline rates on the assets, in our view.

• Given that the formal budget is largely in line with previous preliminary guidance (and our forecasts), we will update our estimates at the next appropriate opportunity.