Tamarack Valley Energy Ltd T.TVE

From Desjardins

[Nadia6519]

Tamarack Valley Energy Ltd. Chris MacCulloch, CFA • [phone] • [e-mail] Tyler Axani, CFA, Associate • [phone] • [e-mail] Taylor Kent, Associate • [phone] • [e-mail]

Rating: Buy, Risk: Above-average, Target: C$7.25 TVE C$4.48, TSX 4Q22 first glance—take the bad with the good

The Desjardins Takeaway: Slightly positive (They have Slightly negative for Crescent Point; Nadia's comment)

Yesterday afternoon, Tamarack Valley reported 4Q22 financial results and year-end reserves. Exploration and development work is now the primary focus following an extensive period of M&A activity which saw the company significantly high-grade its asset base. A webcast is scheduled for March 2 at 11am EST, accessible via the corporate website.

1. Posts strong quarterly production beat. CFPS landed at C$0.36, closely aligning with the Street (C$0.37), while production of 64,344 boe/d (82% oil and liquids) materially outpaced consensus (~63,000 boe/d) and our forecast (~62,000 boe/d). Notably, E&D capex of C$125m came in at the lower end of the quarterly guidance range (C$125–135m).

2. Reserves update. TVE reported PDP and 2P reserves growth of 35% and 33%, respectively. Reserves growth was primarily driven by additions from the Deltastream Energy acquisition, which outperformed internal estimates by 27% and 12%, respectively, on a PDP and 2P basis relative to when the transaction was announced in September. Following acquisitions and a significant escalation in FDC reflecting inflationary pressures, 2P FD&A costs (including FDC) increased significantly to C$35.55/boe (from C$15.10/boe), although this still translated into a respectable 2P recycle ratio of 1.5x, all things considered.

3. Clearwater update: take the bad with the good—it’s called exploration for a reason. In the southern Clearwater, a newly drilled well at Jarvie which was the first to use ERH technology exceeded internal expectations, posting average production of 220 bbl/d over its first nine days onstream. Meanwhile, exploration work at Peavine/Seal is ongoing, with the company recently bringing its first multi-lateral well onstream at Peavine, which disappointed vs expectations at ~40 bbl/d. Three additional wells targeting separate zones in the Seal area have been rig released, with testing expected to commence by the end of 1Q23. At West Marten Hills, TVE’s recently drilled Clearwater ‘C’ step-out well (102/13-13-076-05W5) achieved IP rates of >200 bbl/d, which has delineated >20 sections of the Clearwater ‘C’ potential, in conjunction with competitor activity. Finally, at West Nipisi, a Clearwater ‘B’ zone well (04-35-076-9W5) exceeded internal expectations, with February production of >200 bbl/d which expanded Clearwater potential westward.

4. Charlie Lake update. Three wells were brought onstream in 4Q22, one of which (1-24-072-09W6) has exceeded internal expectations, boasting production of 1,900 boe/d (70% liquids) in February, representing one of the top performing wells drilled in the Charlie Lake play to date. From an infrastructure perspective, TVE has advanced its Wembley Gas Plant to the construction phase; the plant is expected to come onstream by the end of 2Q23.