RE:RE:RE:Nuttall Is Not Alone
TAMARACK VALLEY ENERGY LTD. Making A Splash In The Clearwater Our Conclusion Following a flurry of M&A transactions in the Canadian oil & gas sector, we have been waiting to see how Tamarack Valley fits in the picture going forward. Its now clear that strong financial and operational footing have positioned Tamarack to be a consolidator through the current downturn. We believe the transactions announced on Monday are accretive both to Tamarack Valleys asset quality and valuation, and continue to see the stock as a top small cap idea in the Canadian oil & gas sector. With this report, we are increasing our price target to $2.25, which is based on a 2022 EV/DACF multiple of 4.8x on recent strip pricing. Key Points On Monday December 14, Tamarack Valley announced that it has agreed to acquire assets in northern Albertas Clearwater oil play from two private producers. In a series of transactions that are expected to close on December 21, Tamarack Valley will acquire the Clearwater assets of Highwood Oil & Gas, along with the private company Woodcote Oil Corp. Tamarack Valley will finance the acquisitions with a $47MM equity financing (at $1.15/sh), while simultaneously selling a gross overriding royalty on a portion of the assets to Topaz Energy for $16MM. New Growth Platform For Tamarack: The total net consideration for the assets is $74MM, from which Tamarack Valley will gain 2,000 Bbl/d of current production. Tamarack Valley plans to spend aggressively on the new assets, committing $55MM of capex in 2021, and a total of $80MM by the end of 2022. Production from the assets is expected to reach 4,500-5,500 Bbl/d by Q4/21, and Topaz indicated it expects the assets to produce 10,000 Bbl/d within the next three years. The assets reportedly have an operating netback of $27.00/Bbl at current oil prices, driving $44MM-$54MM of annualized operating income by YE21. Estimate Changes: In conjunction with the transactions, Tamarack Valley has provided preliminary 2021 guidance, and our estimates change accordingly. Corporate production is expected to average 23,000 Boe/d next year (vs. our previous estimate of 21,561 Boe/d), of which 64% is liquids (59% previously). Our 2021 CFPS estimates increase by 6% to $0.66 on our house price deck, while our 2022 estimates increase by 8%. Its worth noting that Tamarack Valley maintains a top quartile balance sheet pro forma the transactions. We see the company exiting 2021 with a trailing D/CF ratio of 0.9x, falling to 0.2x in 2022.