Our view: Tamarack's Q4 results were underscored by the coming shift to return of capital and continued progress in the Clearwater and Charlie Lake plays. We reiterate our favourable view of the stock and have increased our target price to $7/share. Tamarack remains on RBC's Canadian Small Cap Conviction List and the Global Energy Best Ideas List.
Key points:
Q4/21 largely pre-released. Q4/21 production volumes of 40,384 boe/d (71% liquids) were pre-released (note here), and drove CFPS of $0.30 (RBC/ Street at $0.31/$0.27). Capital spending was also pre-released at $41.7 million, focused on D&C and including approximately $9 million that was shifted forward from Q1/22 in order to maintain consistent service access and avoid potential cost pressure.
2022 guidance reiterated. Management's 2022 guidance remains consistent with their release in January (note here), with capital spend of $250-$270 million accommodating the drilling of 126 (116.3 net) wells resulting in 45,000-46,000 boe/d of average production.
Clearwater results look solid; Adding a tract of land at Peavine.
Management provided several new Clearwater data points including: (1) the West Marten Hills exploration well exhibited a 15-day production rate of 175 bbl/d (19 degree API), derisking its Eastern most land block in the region; (2) two wells at Nipisi were brought on as part of the waterflood program and produced 320 bbl/d each (19 degree API); and, (3) the company inked an agreement with the Peavine Metis covering 29.5 sections of Clearwater prospective land.
Return of capital in focus. Tamarack recently initiated its dividend at $0.0996/sh annually (paid monthly) and reiterated its net debt target of $325-$375 million, which we expect will be reached by mid-2022. From this point forward, Tamarack plans to return 50% of free funds flow to shareholders (trailing quarterly basis) through buybacks and/or special dividends. Tamarack's current NCIB allows for the repurchase of 20.4 million shares or 5% of shares out through November 2022 (note here). Balance sheet in good shape. Based on our updated estimates, we forecast Tamarack to carry $140/($77) million net debt (cash) at year- end 2022E/23E, representing a 2022E D/CF ratio of 0.2x, compared to peers at 0.5x with most peers reaching net cash by 2023E. In 2023, we model full NCIB utilization, a 25% dividend increase, and $30 million in special dividends per quarter. We do not currently model incremental M&A, though we view this as likely over time concentrated to core areas including the Clearwater and Charlie Lake.
Recommendation unchanged. We reiterate our Outperform recommendation and have increased our target price to $7/share (previously $6.50/share) on updated estimates. We believe Tamarack will continue to gain momentum alongside increased scale, a strong financial leverage profile, and plenty of high-quality development locations in the Clearwater and Charlie Lake oil plays.
Management will host a webcast at 9am MT tomorrow, link here