Banque Nationale - Dated May 4thTamarack Valley Energy Ltd. Bearing Fruit Across its Orchard TVE (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$5.20 Outperform (Unchanged) C$8.50 (Unchanged) 65.6% Q1/22 Financial & Operating Results Q1/22 Financial & Operating Results Slightly Ahead
TVE reported Q1/22 operating & financial results slightly ahead of expectations, including average production of 41.3 mboe/d (71% liquids) and associated CFPS of $0.39 (vs. consensus $0.37). During the quarter, the company saw production generally maintained (+2% Q/Q) on a 75% payout ratio (~45% of annual spend), which as a result of the strength of its netback commensurately translated to cash flow (+33% Q/Q; costs trending higher, primarily as a result of royalties), and yielded a ~8% FCF yield.
Assets Continue to Bear Fruit Asset performance continues to reflect high-graded orientations, notably driven through; a) Clearwater, where rates continue to trend positively (150-200 bbl/d) across the expanse of its assets, with asset delineation and land acquisition complementing inventory, and upside to be noted through on-going waterflood deployment, and b) Charlie Lake, where strong rates (+600 bbl/d) and capital efficiencies should backstop significant excess cash flow (i.e. +$300 mln at a project level on strip; on a 15% free cash yield this implies $2 bln or $5 per share) from which to backstop value and fund its operations (circular reference to high-return Clearwater growth) and dividend initiatives.
Again, and as depicted in our recently published Clearwater consolidation report (LINK), a sum of the parts equation for value well in excess of $10 per share can be derived from this portfolio. Outlook Updated With that, and to reflect the revised landscape, the company has upwardly revised its 2022 capital program to $290 mln (+12%), which is set to deliver +5-10% PPS growth to 46.7 mboe/d (75% liquids) within the context of a ~40% payout ratio and support a ~20% FCF yield.
Expect asset outperformance to continue to backstop this program and insulate indicated inflation (~15% embedded to capital & costs), with enhanced return of capital to come in H2/22.
Maintain Outperform Rating & $8.50/sh Target Price A solid quarter from the company, while the outlook for value and expanding returns remains intact through the revised outlook. TVE is poised for a 47% return (vs. peers 44%) on 2023e leverage of -0.2x (vs. peers -0.3x) while trading at 2.9x 2023e EV/DACF (vs. peers 2.0x).