CIBCCurrently have a $5.50 target. GLTA
EQUITY RESEARCH
September 17, 2024 Earnings Update
TAMARACK VALLEY ENERGY LTD.
Infrastructure Disposition And Operational Update A Slight
Positive
Our Conclusion
While we typically like to see companies retain ownership of infrastructure assets, the disposition multiple of 8.2x the average annual take-or-pay fee over the term is more than double Tamarack’s trading metric and serves to further compress bank debt. Tamarack’s guidance update for 2024 carries little impact to our prior estimates, and we expect consensus estimates are likely to show little change aside from the reduction in bank debt. The incremental drilling capital in the Charlie Lake should also put Tamarack on good footing to carry its production momentum into 2025. We see the update as being a slight positive for Tamarack; however, given we carry the CIP disposition as a finance lease, the impact to our net debt calculation is minimal. We maintain our rating and price target as a result.
Key Points
2024 guidance indicated towards the high end of prior ranges.
Tamarack indicated it will expand its 2024 capital program to include
additional CSV capital; however, it maintained its capital spending guidance range of $390MM – $440MM, which we see as positive. Management also indicated production through 2024 is trending toward the high end of its guidance range (61 to 63 MBoe/d), which is a favourable update. The guidance update does not appear to be meaningful versus our previous estimates as we were assuming Tamarack would produce and spend toward the upper end of its guidance range.
Clearwater infrastructure disposition carries accretive metrics to TVE’s
trading multiple. Management also announced the disposition of Clearwater Infrastructure assets to the Clearwater Infrastructure Limited Partnership for net proceeds of $43.2MM. The aggregate disposition metrics on the infrastructure assets computes to 8.2x the average annual take or pay fee over the term, which is accretive to where TVE was trading on 2025E prior to the disposition (at 3.8x EV/DACF on strip pricing). The disposition does not appear to degrade the cost structure in a meaningful way, and the company retains the operatorship of the assets.