Tamarack Valley Energy Ltd T.TVE

RBC Upgrade

[retiredcf]

Their upside scenario target is also increased to $3.50. GLTA

March 1, 2021

Tamarack Valley Energy Ltd. 
Q4/20 - Ramping Clearwater

Our view: Tamarack's Q4 volumes exited the year slightly ahead of expectations, setting the stage for 2021. Clearwater has been a key focus with initial rates ahead of type curve and volumes expected to ramp materially through the second half. Backstopped by a strong balance sheet, we expect 2021 to be a fairly catalyst rich year.

Key points:

• Q4/20 generally in-line. Q4/20 production volumes of 22,049 boe/d (59% liquids) compared to our 21,758 boe/d estimate (Street: 20,744 boe/d). CFPS of $0.13 was a penny above our $0.12 estimate (Street $0.11); key variances are noted in Exhibit 2. Capital spending of $13 million compared to our estimate of $14 million (Street: $17 million) and was focused on drilling and completions.

• 2021 outlook unchanged, focused on Clearwater/Veteran. Tamarack's 2021 capital program of $105-110 million (inclusive of ARO/ESG of $7.5 million) is expected to be weighted to Clearwater and continued waterflood investment at Veteran. Management expects this to drive production volumes of 23,000 boe/d, with the corporate liquids weighting expected to increase to approximately 65% in Q4/21 (59% Q4/20). We have assumed capital is increased to $150 million for the year, driving average volumes of 23,900 boe/d (H2 capital additions).

• Strong reserve adds primarily driven by waterflood, acquisitions. PDP/1P/2P reserves grew 18%/10%/9% as displayed in Exhibit 3. Notably, Tamarack’s waterflood PDP/1P/2P reserves increased 294%/27%/27% with management expecting the waterflood to underpin a corporate decline rate of 22-24% in 2021 (mid-high 30% range in 2020). PDP FD&A costs of $14.02/boe decreased 16% y/y, driving a recycle ratio of 1.3x. 2P FDC of $637 million decreased 9% on improved efficiencies. Negative technical revisions of 3.4 mmboe were primarily related to adjustments at South Veteran.

• Estimate changes - minimal. We have incorporated Q4 actuals and have made tweaks to our mix and margin assumptions. Production estimates increase 3% in 2021E/22E given adjustments to the capital outlay for the year (higher Q1 weighting). CFPS falls 7% in 2021E fueled by hedge losses/royalties and is unchanged in 2022E. Full details are in Exhibit 2.

• Balance sheet remains in good shape. Based on our updated estimates, we forecast Tamarack to carry approximately $192/$117 million in net debt at year-end 2021E/22E, representing a D/CF ratio of 1.0x/0.5x, below peers at 1.6x/0.8x. This translates to roughly a 70% draw on the company's $275 million bank line at year end 2021, leaving plenty of room to accommodate incremental spending or opportunistic M&A.

• Recommendation unchanged. Our Outperform, Speculative Risk recommendation is unchanged with our price target increased to $3.00/ share (previously $2.75/share) on the back of strong reserve additions. We view management's continued focus on sustainability improvement constructively with the move into the Clearwater providing near-term catalysts and ample development inventory.

[Bennys65]

Just noticed that RBC has built in a capex increase to 150 mil from 110 in second half.With companys generally restraining their spending investors will be looking at those with srong balance sheets who can increase spending.TVE will look good.