Have a $5.25 target. GLTA
TAMARACK VALLEY ENERGY LTD. nvestor Day 2024: First Look And Key Takeaways
Our Conclusion:
Tamarack’s Investor Day presentation in Calgary this afternoon provided a
deeper look at the inventory depth and strong free cash flow potential from
the company’s Clearwater and Charlie Lake assets. Management reiterated
that its asset transformation is complete, with the underlying assets capable
of generating increasing cash returns to shareholders over time as the
business advances towards a $500MM net debt floor. While we will take
some time to further review the disclosures from the day, our initial takeaway
is net favourable and supportive to our thesis based on the appealing asset
potential underlying the shares at the current valuation.
Key Points
Portfolio transformation complete. Management emphasized its retooled
asset base carries meaningful inventory depth from high rate of return well
targets, and decline mitigation potential through secondary recovery
schemes. Tamarack also reiterated its 3% to 5% production growth target,
with a central focus on maximizing free cash flow from the assets.
Five-year outlook remains focused on modest production growth and
free cash flow. While the five-year outlook was largely aligned with prior
messaging, it will only consume ~25% the company’s primary drilling
locations over this time frame. Tamarack’s five-year outlook contemplates
annual capital spending of ~$450MM, with a meaningful reduction in
sustaining and waterflood capital expenditures expected for 2026 onwards.
We believe this could provide an opportunity for additional production growth
or accelerated debt reduction. Management highlighted its production decline
rate should also moderate by 3% to 5% over this period (from the current
decline rate of ~30%). The company expects to generate ~$1.8 billion in free
cash flow from 2025 to 2029 using US$75/Bbl WTI pricing, which is attractive
relative to the current market capitalization of TVE at ~$1.95 Billion.
Clearwater inventory depth remains intriguing and there is upside for
additional reserve booking in the future. Management highlighted greater
than 2,100 future drilling locations from its Clearwater lands, demonstrating
more than two decades of future drilling inventory remaining (~100 wells
expected to be drilled in 2024). Management also spent considerable time
demonstrating the positive response from its waterflood projects in the play,
which should drive further reductions in sustaining capital.
Stacked Charlie Lake position provides high rate of return light oil and
low sustaining capital requirements. Management highlighted greater than
10 years of drilling inventory remaining in this asset with attractive
reinvestment requirements. The company’s operating metrics from 2023
demonstrated $218MM of net operating income compared to $96MM in
capital expenditures in the play. Per well metres drilled per day improved by
18% in Q1/24 versus Q1/23 levels, which has helped counter inflationary
pressures.