Currently have a $5.50 target. GLTA
TAMARACK VALLEY ENERGY LTD
Q2/23 First Look: In-line Quarter And Minor Disposition Accretive
Our Conclusion
Tamarack’s Q2 results were as expected, and we believe production
momentum should provide for strong results in H2/23. Management disposed
of a 49.9% working interest in its newly commissioned Wembley processing
facility along with a gross overriding royalty (GORR) for $39.5MM, which will
help accelerate debt reduction, and we would be unsurprised to see further
asset sales in H2/23 in order to further reduce debt. We see the update as
being a slight positive, and on strip the stock trades in line with the peer
average at 3.2x 2024E EV/DACF and a 17% free cash flow yield versus
peers at 16%.
Key Points
Headline metrics in line for Q2/23. Production of 66.7 MBoe/d was in line
with our estimate of 66.3 MBoe/d and the Street at 66.9 MBoe/d. Production
was impacted by 1.5 MBoe/d of outages due to wildfire impacts as previously
disclosed. Capital spending of $118MM was slightly below our estimate of
$122.5MM and ahead of Street at $106.7MM. Cash flow of $0.28/sh
compared as being slightly below our estimate of $0.29/sh and consensus at
$0.29/sh. We see the overall variance to estimates as largely immaterial, and
take the quarterly print as in line.
Infrastructure sale announced at accretive metrics, with more
dispositions likely in H2/23. Tamarack divested a 49.9% interest in its
Wembley gas plant along with a GORR on 17,000 undeveloped acres of
Clearwater and Charlie Lake rights for consideration of $39.5MM to Topaz
(TPZ.CN). The infrastructure disposition metric computes to 6.6x, which is
accretive to TVE’s trading metric at 3.2x on strip in 2024.
Guidance unchanged but tighter WCS differentials and improving price
realizations should drive a tailwind for H2/23 funds flow. Tamarack
indicated annual guidance unchanged for production expectations for 67
Mboe/d to 71 MBoe/d. Capital spending was reiterated at $425MM to
$475MM, which is aligned with our estimate ($456MM) and consensus
($454MM).
West Marten Hills drilling results continue to impress. Tamarack noted
certain wells demonstrating initial production rates in excess of 400 Bbl/d in
the region, with total Clearwater production of 37.8 MBoe/d. Management
noted gas conservation could drive 6 MMcf/d of added recovery in H1/24.
Wembley gas processing plant onstream ahead of schedule and within
budget. The facility was placed on stream at the beginning of June.
Tamarack also indicated it is working with third parties to establish a new
Clearwater Heavy Oil benchmark, which could provide improved pricing.