RBC - Outperform and $4.50 PTSo let's see... National PT $6.00, BMO $3.75, RBC $4.50. Average PT = $4.75 with a monthly dividend of over 5% looks pretty good at today's close!
December 14, 2023 Tamarack Valley Energy Ltd. Announces Clearwater Infrastructure Limited Partnership TSX: TVE | CAD 3.08 | Outperform | Speculative Risk | Price Target CAD 4.50
Sentiment: Positive
Tamarack announced yesterday that it has entered into an agreement with 12 Indigenous communities to sell an 85% non-operated working interest in the newly formed Clearwater Infrastructure Limited Partnerships (CIP); Tamarack will transfer $172 million in Clearwater midstream assets to the CIP and will receive $146.2 million in cash alongside retaining a 15% operated working interest in the CIP. Overall, we view the transaction favourably given the strategic nature of the partnership combined with accelerated debt reduction and return of capital initiatives.
Details:
Transaction details and commitments. Tamarack will retain a 16-year take-or-pay on an average of 29,000 boe/d (gross commitment to CIP), while retaining priority access to incremental capacity above this on a fee-for-service basis; Tamarack will remain the operator for these assets and retain full access to 100% of Tamarack's existing capacity. Transaction metrics suggest a ~8.3x average annual take-or-pay fee (implying ~$21 million based on the gross value of the transaction). The deal includes strategic oil batteries, gas processing facilities and key in-field pipelines located at Nipisi, West Marten Hills, Marten Hills and Perryvale. Tamarack's gas conservation projects, worth roughly $30 million, were included in the transaction and are expected to be funded by a portion of the proceeds. Tamarack expects to allocate $25 million in 2023 and $5 million in Q1/24 related to these projects.
Accelerating debt reduction.
Including proceeds from the transaction, Tamarack now expects to exit 2023 with less than $1B in net debt, below the company's initial net debt threshold of $1.1B, which triggers a 25% return of excess funds flow to shareholders. Management reiterated its preference for share buybacks as highlighted with its 2024 budget release (note here).