Key points:
Q2/23 results generally in-line. Production volumes of 66,738 boe/d were in-line with RBC/consensus estimates at 67,006/66,890 boe/d. This drove CFPS of $0.28, in-line with RBC/consensus estimates of $0.28/$0.28; see Exhibit 1 for key variances and estimate changes. In Q2/23, Tamarack drilled 19/5 Clearwater/Charlie Lake wells with total capital spend of $118 million, in-line with RBC/ahead of consensus at $115/$99 million.
Clearwater, Charlie Lake updates. Management provided infrastructure updates in the Clearwater related to natural gas infrastructure (conserving 6 mmcf/d beginning in Q1/23) and the Nipisi terminal project (on track for Q4/23). The company also flagged strong well results in West Marten Hills (~3,750 bbl/d on 13 wells) and increasing injection rates at Nipisi and Marten Hills waterflood projects. In Charlie Lake, volumes have ramped since the Wembley plant was brought on stream to ~17,000 boe/d with management expecting to maintain volumes in the 16,000-17,000 boe/d range through the balance of the year.
Minority interest in Wembley sold; updates on Cardium package.
Tamarack announced the sale of a minority interest in its Wembley gas plant to Topaz, along with GORRs in the Charlie Lake (new land) and Clearwater (renegotiated agreements). Management noted that bids are due on its Cardium package (~8,000 boe/d) in mid- to late-August, with a potential sale likely to accelerate debt reduction and move the company closer to the initial threshold triggering incremental shareholder returns.
Debt reduction remains in focus. Tamarack exited the quarter at $1.37B in net debt, slightly ahead of RBC/consensus at $1.35/$1.32B. Management remains committed to its debt reduction strategy with the key milestones of $1.1B/$900 million in net debt, associated with increases in return of capital (Exhibit 3). We model in a 25% dividend increase in Q3/24 and return to NCIB utilization in the subsequent quarter; our estimates point to $1.17B/$942 million in net debt in 2023E/24E, excluding potential dispositions.
Recommendation unchanged. We reiterate our Outperform recommendation and $5.00/share price target. We believe Tamarack shares should trade at a premium to peers (Exhibit 4) given high-quality development inventory in the Clearwater and Charlie Lake and well- defined RoC strategy, though we view near-term operational execution and continued debt reduction as key focal points for investors.