CIBCAlso have a $7.50 target. GLTA
EQUITY RESEARCH
May 4, 2022 Earnings Update
TAMARACK VALLEY ENERGY LTD.
Q1/22 Results Slightly Ahead; Guidance Revisions Directionally
As Expected And Enhanced Return Allocations On Deck
Our Conclusion
Tamarack’s quarterly results were slightly better than estimates, with
production and cash flows that topped our expectations. Updated guidance
for capital spending and production was as expected, while unit cost and
cash tax guidance for 2022 were slightly higher than we estimated. We have
incorporated updated spending and cost guidance which results in minimal
impact to our 2022 estimates, however, we would not be surprised to see
Street cash flow estimates moderate on the back of updated guidance. We
expect TVE will announce an enhanced return through special dividends or
stock repurchases with its Q2/22 results, and expect H2/22 to carry
meaningful free cash flow potential. TVE is trading at 2.8x 2022E EV/DACF
on strip, which is in line with peers at 2.7x. We maintain our Outperformer
rating and $7.50 price target.
Key Points
Q1/22 results were fairly in line, however, some noise in cash flow with
taxability anticipated in 2022. Funds flow of $0.39/share was better than
both our estimate and consensus of $0.37/share. We have been including
cash taxes in our estimates for 2022, and inclusive of accrued cash taxes
expected for 2022 (~$18MM), and adjusting for one-time G&A charges, we
compute normalized after-tax cash flow at ~$0.35/share. Production of 41.3
MBoe/d was in line with our estimate of 41.1 MBoe/d and consensus at 41.4
MBoe/d. Capital spending of $125MM was above our estimate of $110MM,
and above median consensus at $105MM. The higher-than-expected capex
was predominantly due to $18.6MM of undeveloped land acquisitions.
Guidance updates for 2022 directionally in line with expectations.
Tamarack guided towards $280MM - $300MM of capital spending in 2022
(CIBC: $285MM) after incorporating the previously announced Rolling Hills
acquisition and additional capital anticipated for Clearwater appraisal.
Production guidance was also adjusted upward to the range of 46.2 MBoe/d
– 47.2 MBoe/d (CIBC: 46.8 MBoe/d; consensus: 46.7 MBoe/d) to incorporate
the ~2,100 Bbl/d of heavy oil volumes from the Rolling Hills acquisition.
Operating and transportation costs were guided higher by ~10%, and
expected cash taxes were also guided upwards for 2022.
Enhanced return of capital expected in conjunction with Q2/22 results.
The company’s long-term debt target of between $350MM-$400MM is based
on 1.0x D/CF at US$45/Bbl, and we expect TVE will achieve this target in
Q2/22. We expect the enhanced return for Q2/22 will likely be modest given
much of Q2/22 free cash flow is to be allocated to M&A through the Rolling
Hills acquisition. That said, we model TVE generating ~$350MM of FCF
through H2/22, which should provide for meaningful returns over the next six
to nine months as the company aims to distribute 50% of previous quarter
free funds flow to shareholders through either special dividends or buybacks