Production for the quarter of 43,777 boe/d (74% liquids) was above our estimate of 43,500 boe/d (73% liquids).
Adjusted funds flow of $203.6MM, or $0.46/sh., compared to our estimate of $184.4MM, or $0.42/sh., which was in-line
with the street.
Net debt of $470.6MM, or 0.6x Q2/22 Funds Flow, came in below our estimate of $511.5MM and the street $506.2MM
based on stronger funds flow and the disposition of non-core Viking assets for ~$70MM after quarter end.
Non-Core Viking Asset Sale.
In a continued effort to high grade their portfolio and fund expansion into the Clearwater and Charlie Lake areas, TVE announced the sale of ~2,000 boe/d (44% liquids) of Viking production for ~$70MM before closing adjustments.
Note that these are not TVE’s waterflood assets in Saskatchewan.
Metrics on the deal came in at ~35K/boe/d.
Proceedsfromthesalearegoingtowardthepurchaseanddevelopmentofadditionalacreageinthecompany’score
areas, where they are currently adding production for $10-$15K/boe/d.
Operational Update.
In the quarter, TVE delivered on a $80.3MM capital program that resulted in the drilling of 19 net Clearwater wells and 2.8 net Charlie Lake oil wells.
Additionally, the company spent $29MM on undeveloped land in the Clearwater and Charlie Lake areas during the quarter. The land purchases are being partially funded through the disposition of a GORR on the acreage for net proceeds of $14.9MM.
Peavine/Seal. In the quarter, TVE accumulated 15 net sections in the greater Peavine/Seal area bringing their land holdings in the area to 77.5 net sections. The acreage is in proximity to competitor wells, which have shown strong results to date. A 4-5 well appraisal program is planned for later this year that will test the three Clearwater sands in the new area. Additional capital will be going to road construction along with infrastructure.
West Marten Hills. Based on initial success in the area (IP30 – 150 bbls/d), TVE is moving ahead with further drilling in the area with seven wells planned in 2022.
West Nipisi. TVE has rig released nine of 17 wells planned in the area YTD. Seven wells are reportedly on-stream to date and are producing on average 200 bbls/d per well. Initial results from a three well waterflood pilot have been strong, and management plans to drill an additional five injectors in the back half of the year.
Southern Clearwater. Development at Jarvie, Perryvale and Meanook continues with two rigs currently active in the area. 32 wells have been rig released from the area YTD with 25 of which currently onstream. The plans it to drill a total of 46 net wells in the area this year.
Charlie Lake. TVE has brought on nine of 17 planned wells at Charlie Lake YTD. Results from the area continue to track ahead of expectations. Of note, TVE has experienced third party infrastructure downtime issues which resulted in ~2,500 boe/d being off-stream during Q2/22. There are additional plant turnarounds expected in the area during the back half of 2022 which are reflected in updated guidance. Current production from the area is ~13,500 boe/d.
Of note, TBE is advancing plans to construct a new owned and operated gas plant in the Grande Prairie area. Phase 1 will add ~15-20 mmcf/d of capacity and is expected to be onstream H1/23.
Veteran/Eyehill Waterfloods. TVE drilled 13 wells in H1/2022 targeting the Viking (6 net) and Sparky (7 net).
Return of Capital Framework.
TVE Remains committed to a balance of growth, debt repayment, and the return of shareholder capital moving forward.
The established base dividend has been stress tested at US$55/bbl WTI and $2.50/GJ AECO and is sustainable down to US$40/bbl WTI.
During the quarter, TVE bought back 1.2MM shares under the NCIB as part of the enhanced return of capital framework.
Moving forward, if debt is over $200MM but below $400MM the company will continue to target a return of 50% of discretionary free funds flow inclusive of the base dividend.
Once debt is below $200MM, the company will target a return of 75% of discretionary free funds flow from the prior quarter through buybacks and/or enhanced dividends.
Guidance Update.
TVEupdated2022guidance,asoutlinedinFigure2,toaccountforthedispositionofnon-coreVikingassets,changes in the commodity price environment, and inflationary pressures.
Capital program increased to account for inflationary pressures, supply chain restraints, the West Nipisi waterflood program, and increased spending on the Clearwater appraisal (outlined in Figure 3).
Production guidance decreased to reflect the sale of the non-core Viking assets and the forecasted Q3 turnaround activity in Charlie Lake.
Enhanced return of capital in the form of a special dividend and/or share buybacks are expected in the back half of 2022 once the targeted debt level of ~$375MM is achieved.
Dividend. As a reminder, TVE increased its monthly dividend from $0.0083/sh. to $0.01/sh (20% increase) following the Rolling Hills acquisition last month.