This morning's G & M With $93-million acquisition of Rolling Hills Energy Ltd., National Bank Financial analyst Dan Payne emphasized Tamarack Valley Energy Ltd.
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taking a “proactive approach” to consolidation of the Clearwater heavy oil play in Alberta, see it “positioning it as the absolute standout value player in the project and serving to augment visibility to corporate return of capital initiatives.”
Before the bell on Thursday, the Calgary-based company announced the deal for the privately held pure play oil producer. It also announced an increase to its monthly dividend by 20 per cent to 1 cent per share.
“The acquired assets serve to complete the consolidation of the southern Clearwater fairway (working interest and operatorship now 100 per cent) where it is the dominant operator and expects to realize material opportunities for synergies and optimization of development to maximize returns,” he said in a note. “Notably, these assets should serve to drive material FCF ($41-million) per annum to complement its return of capital strategy.
“In addition, the company announced a further 41 sections of land additions in the Greater Peavine area of the Clearwater (15 section agreement on the Peavine Metis Settlement and 26 sections through land acquisition) where it now holds 71 sections, which will see exploration commence in H2/22.”
Mr. Payne said Tamarack’s value proposition is set on the foundation of the Clearwater, “where it has an expansive land position (almost 600 sections) with exposure to all core development areas.”
“TVE has one of the most significant positions in the highest return project in the entire Basin, which should underpin massive scalability, free cash capability and value potential,” he said.
Maintaining an “outperform” rating for its shares, Mr. Payne increased his target to $8.50 from $8. The average is $7.81.
“TVE is poised for a 51-per-cent return profile (vs. peers 42 per cent) on leverage of 0.2 times (vs. peers 0.5 times), while trading at 2.3 times 2023 estimated EV/DACF [enterprise value to debt-adjusted cash flow] (vs. peers 2.1 times,” he said.
Others making target changes include:
* ATB Capital Markets’ Patrick O’Rourke to $6.75 from $6.50 with an “outperform” rating.
“The deal continues to position TVE as the dominant operator at the Jarvie Clearwater play,” he said. “Given the strong results being achieved in many parts of the Clearwater, we believe investors continue to view the play in a highly positive light, and positioning itself as a pragmatic consolidator and strong operator is likely to be a strategy that gains traction for TVE over the next few years, alongside a return of capital framework that will begin to distribute FCF to shareholders through special dividends and buybacks in Q3/22.”
* Raymond James’ Jeremy McCrea to $7.50 from $7 with a “strong buy” rating.
“With yet another purchase in the Clearwater, TVE continues to build scale in what we believe to be the most exciting play in the basin,” he said. “With Rolling Hills, TVE is picking up current production at 1.5 times FFO and 54 net locations booked across just 1/3rd of the land base. This provides significant exploration optionality as the Company looks to ramp up activity in the region. The attractive purchase price paid allows the Company to simultaneously announce an acceleration of its share return framework highlighted by a 20-per-cent increase to the base dividend. The industrial logic of today’s transaction in combination with the accelerating return of capital at TVE underscore the reasons why we grant the shares a Strong Buy rating.”
* CIBC’s Jamie Kubik to $7.50 from $7 with an “outperformer” rating.
* RBC’s Luke Davis to $7.50 from $7 with an “outperform” rating.