CIBCHave a $5.75 target. GLTA
EQUITY RESEARCH
December 4, 2024 Earnings Update
TAMARACK VALLEY ENERGY LTD.
Budget 2025 Includes Better-than-expected Free Cash Flow
Our Conclusion
Tamarack released its 2025 budget, which we see as a favorable update.
The mid-point of production guidance was slightly ahead of our estimates
and consensus while capital spending also came in better than expected. We
believe this should drive positive revisions to consensus free cash flow
estimates, which should be favorable for the shares. The impact is favorable
to our model, which drives an increase to our 2025E cash flow estimate. The
majority of Tamarack’s growth capital will be allocated towards waterflood
initiatives as the company plans to increase injections across Nipisi, Marten
Hills and West Marten. Volumes at Charlie Lake are expected to increase in
H2/25 with the CSV Albright gas plant commissioning in Q1/25. On our
revised metrics, Tamarack trades at a 2025E free cash flow yield of 17% vs
oil-weighted peers at 13%.
Key Points
Higher-than-expected production guidance on lower-than-expected
capital spending. Tamarack guided to production of 65 MBoe/d to 67
MBoe/d in 2025 which is slightly ahead of our estimate of 64.5 MBoe/d (85%
liquids) and consensus of 64.9 (78% liquids). Capital spending was indicated
at a range of $430MM to $450MM, which comes in better than our estimate
of $465MM and consensus of $457MM. The capital program includes of
$315MM of sustaining capital and $125MM in growth capital.
Waterflood injection expected to further increase in 2025. Tamarack will
look to develop all B and C sands across Nipisi, Marten Hills, and West
Marten for future waterflood activity. The company plans to increase water
injection by ~60% to more than 20 MBbl/d by the end of 2025. We expect
continued waterflood success is likely to favorably mitigate declines and
could improve free cash flow generation from the business.