Tamarack Valley Energy Ltd T.TVE

RBC

[retiredcf]

June 7, 2022

Outperform

TSX: TVE; CAD 5.94

Price Target CAD 7.50

Tamarack Valley Energy Ltd.

Highlights from the RBC Capital Markets Global Energy, Power & Infrastructure Conference

Our view: Today we hosted Tamarack Valley at the 2022 RBC Energy, Power & Infrastructure Conference with Brian Schmidt (President and CEO) and Steve Buytels (VP and CFO) presenting. Management keyed in on its enhanced return of capital strategy supporting debt reductions and the long-term potential for its Clearwater and Charlie Lake assets; we reiterate our Outperform rating. See below for key highlights from management's presentation.

• Shifting to return of capital. After consolidating in key regions, management is focused on reaching its long-term debt target of $350-400 million (RBCe: Q3/22), which maps to a 1.0x D/CF ratio at US$45/bbl. After this point the company will return 50% of free funds flow to shareholders on a trailing quarterly basis (buybacks/specials). The company's current NCIB allows for 20.4 million shares to be bought back through November 2022 (note here).

• Guidance reiterated. Management reiterated 2022 guidance with $280- $300 million in capital spending on volumes of 46,200-47,200 boe/d. Tamarack's latest capital increase included 10% cost inflation, which management expects to realize through the balance of the year.

• Clearwater continues to lead the way. Tamarack is currently the largest producer in the South Clearwater and among the top acreage holders across the broader play (note here). Management anticipates 2022 volumes will reach 13,000 boe/d, with volumes exiting the year at 16,500 boe/d. Management noted the longer-term potential for this region to reach 30,000-40,000 boe/d. The company continues to implement waterflood projects at Nipisi and also filed an application at Jarvie. Additionally, Tamarack holds 70.5 sections at Peavine, near Baytex's land, which boasts the top wells in the region.

• Charlie Lake remains a key focus. Management reiterated the vast opportunity at Charlie Lake following Tamarack's Anegada acquisition in 2021, with 326.5 net sections and 150/96 net un/booked locations. The company continues to see strong IP30 rates across its Pipestone wells, ranging from 460-1,400 boe/d with management planning for 13,000-14,000 boe/d in the long run on 11-15 wells drilled per year. Management continues to evaluate infrastructure opportunities to further support long-term growth.

• ESG - an ongoing focus. Tamarack is committed to a 25% reduction in scope 1 & 2 emissions by 2025 and a 60% reduction in methane emissions intensity using a 2017 baseline. Tamarack invested $10 million in 2021 to build out the Nipisi gas conservation project, which currently conserves 0.5 mmcf/d of gas and is expected to increase to 1 mmcf/d by year-end with continued drilling. Additionally, Tamarack also utilizes a sustainability-linked lending facility (SLL) and currently holds $200 million in 7.25% senior unsecured sustainability-linked notes, with key sustainability targets underpinning overall borrowing rates.