CIBCHave a $5.50 target. GLTA
EQUITY RESEARCH
May 10, 2023 Flash Research
TAMARACK VALLEY ENERGY LTD.
Q1/23 First Look: In-line Quarter & Encouraging Test Rates At
Seal
Our Conclusion:
Tamarack released an in-line Q1/23 update with production, capital
spending, and cash flow all meeting expectations. The company maintained
spending and cost guidance for 2023, although did moderate production
guidance for the year due to third-party outages during the quarter and a
non-core disposition in Q2/23. We expect this could drive lower production
estimates for consensus, which may weigh on the stock. Following weaker-
than-expected exploratory results at Peavine, initial well tests at Seal were
encouraging. On recent strip, the stock trades at 4.0x 2023E EV/DACF and a
12% FCF yield versus the mid-cap oil peers at 3.7x and a 13% FCF yield.
Key Points:
Production, capital spending, and cash flow as expected for Q1/23.
Production of 67.9 MBoe/d was in line with our estimate of 68.1 MBoe/d and
Street at 68 MBoe/d. Capital spending of $148MM was below our estimate of
$155MM and Street at $154MM. Cash flow of $157MM or $0.28/sh was
above our estimate of $147MM ($0.26/sh) and in line with Street at $0.28/sh.
Management indicated January and February production averaged greater
than 68.8 MBoe/d, with quarterly volumes impacted by 1,000 Boe/d due to
third-party pipeline outages in March.
Capital spending guidance for 2023 unchanged while production
guidance moderated due to outages during Q1/23 and disposition in
Q2/23. The company’s capital spending guidance of $425MM to $475MM
was maintained with this update (our estimate: $463MM; consensus:
$457MM). Production guidance was adjusted lower to 67 MBoe/d to 71
MBoe/d, down from 68 MBoe/d to 72 MBoe/d prior (our estimate: 70 MBoe/d;
consensus: 69.7 MBoe/d). Tamarack disposed of 400 Boe/d of natural gas
assets in Southern Alberta subsequent to Q1 for $2.3MM.
Encouraging test results announced at Seal. Management indicated the
IP30 rate on the three well pad was 380 Bbl/d, with the B and C sands being
drilled with six legs and the D sand drilled with only three legs. Management
indicated the C sand demonstrated an IP30 of 206 Bbl/d (six legs), B sand at
130 Bbl/d (six legs) and D sand at 43 Bbl/d (three legs). All three wells
demonstrated production in March on public data (albeit at lower rates), so
we expect the updated test rates are seen as encouraging, and slightly better
than those from neighboring operators.
Credit facility increase a positive. Tamarack increased the capacity of its
sustainability-linked lending facility to $875MM from $700MM prior and was
$557MM drawn against the facility at the end of Q1/23