CDN NEWS | 
US NEWS 
Message to Shareholders
The past few months have been an extremely challenging period for the oil and gas sector given the demand destruction caused by the COVID-19 pandemic. Despite these challenges, our team has managed our business effectively, taking decisive action to protect our financial strength and enhance the sustainability of the Company. We elected to reduce our 2020 capital investment program, shut-in uneconomic production and through disciplined efforts to streamline the business, realized both operating and general and administrative (“G&A”) cost reductions.
As WTI prices strengthened during the quarter, our focus turned to capturing value-creating opportunities given the Company’s strong position, which features:
- a healthy balance sheet, expected to be at less than 1.5 times estimated net debt to trailing annual adjusted funds flow ratio (see “Non-IFRS Measures”) exiting 2020;
- forecasted free adjusted funds flow (see “Non-IFRS Measures”) in 2020;
- high operating netbacks;
- strong hedge book with both WTI and oil differential hedges in place to protect a large portion of our oil production for the remainder of 2020; and
- enhanced sustainability due to lower production declines, associated with lower capital spending and the ongoing success of our Veteran Waterflood program; all of which help to reduce our estimated corporate breakeven sustaining capital WTI price (see “Non-IFRS Measures”) to approximately US$37/bbl in 2021.
Tamarack’s commitment to our core environmental, social and governance (“ESG”) principles is ongoing and is reflected in our response to the COVID-19 crisis. This includes the phased reopening of our corporate headquarters along with the constant assessment of risk management policies that are dedicated to upholding the health and safety of our skilled and valued employees, as well as the public in the communities in which we operate. Strategically, we are advancing our broader initiatives with a dedicated team of senior members leading the development of Tamarack’s ESG targets and inaugural report to integrate and enhance our accountability and sustainability moving forward.
On behalf of the management team and our Board of Directors, we would like to thank our shareholders, stakeholders and employees for their ongoing support during these unprecedented times.
((signed))
Brian Schmidt
President and CEO
Second Quarter 2020 Highlights
Tamarack generated free adjusted funds flow of approximately $14.8 million for the second quarter, representing a total payout ratio (see “Non-IFRS Measures”) of approximately 30%, which will be directed to further enhancing our financial position. Average production was 20,997 boe/d in Q2/20, inclusive of shut-ins, representing a decrease of approximately 11% over Q1/20. The Company invested approximately $6.2 million in capital expenditures which included the completion of one (1.0 net) Banff oil well, along with the finalization of the remaining carryover projects from Q1/20, as all other spending was put on hold due to the effects of COVID-19 on commodity prices. Tamarack’s focus on cutting costs resulted in lower quarter-over-quarter production, transportation and G&A expenses.
The Company’s second quarter operating netback (see “Non-IFRS Measures”) of $13.75/boe generated adjusted funds flow (see “Non-IFRS Measures”) of $21.0 million ($0.09 per share basic and diluted). The Company recorded a net loss in the quarter of $36.1 million ($0.16 per share basic and diluted), inclusive of realized hedging gains of $16.2 million. Tamarack remains well hedged through the second half of 2020.
During Q2/20, the Company completed its bank syndicated credit facility redetermination, which was established at $275 million, and at June 30, 2020, the Company had $206.5 million drawn against this facility. Tamarack is committed to maintaining financial flexibility and is well positioned from a liquidity standpoint to continue executing on its business strategy. The Company exited the quarter with net debt totaling $213.1 million, including working capital deficiency but excluding the fair value of financial instruments and lease liabilities, compared to $227.2 million at the end of Q1/20. Tamarack has sufficient liquidity for the remainder of 2020 and expects to generate free adjusted funds flow with a forecasted year-end net debt to trailing annual adjusted funds flow ratio of less than 1.5 times.
Financial & Operating Results
|
Three months ended June 30, |
Six months ended June 30, |
|||||
|
2020 |
2019 |
% |
2020 |
2019 |
% |
|
|
($ thousands, except per share) |
||||||
|
Total oil, natural gas and processing revenue |
33,127 |
98,526 |
(66) |
99,410 |
194,144 |
(49) |
|
Cash flow from operating activities |
28,107 |
60,320 |
(53) |
74,466 |
108,409 |
(31) |
|
Per share – basic |
$ 0.13 |
$ 0.27 |
(52) |
$ 0.34 |
$ 0.48 |
(30) |
|
Per share – diluted |
$ 0.13 |
$ 0.26 |
(51) |
$ 0.34 |
$ 0.47 |
(28) |
|
Adjusted funds flow 1 |
20,972 |
57,906 |
(64) |
63,017 |
115,409 |
(45) |
|
Per share – basic 1 |
$ 0.09 |
$ 0.26 |
(65) |
$ 0.28 |
$ 0.51 |
(45) |
|
Per share – diluted 1 |
$ 0.09 |
$ 0.25 |
(64) |
$ 0.28 |
$ 0.50 |
(44) |
|
Net income (loss) |
(36,067) |
16,472 |
(319) |
(287,388) |
11,646 |
(2,568) |
|
Per share – basic |
$ (0.16) |
$ 0.07 |
(329) |
$ (1.30) |
$ 0.05 |
(2,700) |
|
Per share – diluted |
$ (0.16) |
$ 0.07 |
(329) |
$ (1.30) |
$ 0.05 |
(2,700) |
|
Net debt 1 |
(213,066) |
(195,892) |
9 |
(213,066) |
(195,892) |
9 |
|
Capital expenditures 2 |
6,218 |
25,902 |
(76) |
80,091 |
97,145 |
(18) |
|
Weighted average shares outstanding (thousands) |
||||||
|
Basic |
221,142 |
225,989 |
(2) |
221,612 |
226,166 |
(2) |
|
Diluted |
221,142 |
231,152 |
(4) |
221,612 |
231,287 |
(4) |
|
Share Trading (thousands, except share price) |
||||||
|
High |
$ 1.09 |
$ 3.09 |
(65) |
$ 2.27 |
$ 3.09 |
(27) |
|
Low |
$ 0.43 |
$ 1.85 |
(77) |
$ 0.39 |
$ 1.85 |
(79) |
|
Trading volume (thousands) |
66,702 |
52,198 |
28 |
125,647 |
117,062 |
7 |
|
Average daily production |
||||||
|
Light oil (bbls/d) |
11,107 |
13,237 |
(16) |
11,988 |
12,965 |
(8) |
|
Heavy oil (bbls/d) |
156 |
521 |
(70) |
168 |
502 |
(67) |
|
NGL (bbls/d) |
1,466 |
1,423 |
3 |
1,565 |
1,485 |
5 |
|
Natural gas (mcf/d) |
49,610 |
53,451 |
(7) |
51,261 |
52,022 |
(1) |
|
Total (boe/d) |
20,997 |
24,090 |
(13) |
22,265 |
23,622 |
(6) |
|
Average sale prices |
||||||
|
Light oil ($/bbl) |
24.92 |
70.17 |
(64) |
36.46 |
67.88 |
(46) |
|
Heavy oil ($/bbl) |
15.47 |
65.14 |
(76) |
33.81 |
53.43 |
(37) |
|
NGL ($/bbl) |
12.73 |
21.81 |
(42) |
16.30 |
31.68 |
(49) |
|
Natural gas ($/mcf) |
1.37 |
1.71 |
(20) |
1.50 |
2.24 |
(33) |
|
Total ($/boe) |
17.42 |
45.04 |
(61) |
24.47 |
45.32 |
(46) |
|
Operating netback ($/Boe) 1 |
||||||
|
Average realized sales |
17.42 |
45.04 |
(61) |
24.47 |
45.32 |
(46) |
|
Royalty expenses |
(2.12) |
(4.20) |
(50) |
(3.00) |
(4.52) |
(34) |
|
Net production and transportation expenses |
(10.01) |
(10.12) |
(1) |
(9.99) |
(10.16) |
(2) |
|
Operating field netback ($/Boe) 1 |
5.29 |
30.72 |
(83) |
11.48 |
30.64 |
(63) |
|
Realized commodity hedging gain (loss) |
8.46 |
(1.58) |
(635) |
6.68 |
(1.03) |
(749) |
|
Operating netback |
13.75 |
29.14 |
(53) |
18.16 |
29.61 |
(39) |
|
Adjusted funds flow ($/Boe) 1 |
10.98 |
26.41 |
(58) |
15.55 |
26.99 |
(42) |
|
Notes: |
|
|
(1) |
Net debt, adjusted funds flow, operating netback and operating field netback do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. See “Non-IFRS Measures”. |
|
(2) |
Capital expenditures include exploration and development expenditures but exclude asset acquisitions and dispositions. |
Updated Guidance
On July 9, 2020, Tamarack announced a strategic asset acquisition in West Central, Alberta for total cash proceeds of $4.25 million. This included approximately 2,500 boe/d (52% oil and NGL) of low decline production, supported by a high quality, multi-zone light oil and liquids-rich gas drilling inventory and approximately 105,000 net acres of land. In conjunction with the acquisition, Tamarack provided updated 2020 pro-forma guidance inclusive of the curtailed production volumes that had been brought back on-stream and the increase to the Company’s reclamation and abandonment spending in 2020, which reflects the Company’s ongoing commitment to enhancing its ESG initiatives.
Pro-Forma 2020 Updated Guidance
|
July 9, 2020 Updated Guidance |
||
|
Full Year Capital Budget (including Acquisitions & ARO spend) ($MM) |
$101 |
|
|
Annual Average Production (boe/d) |
20,850 – 21,250 |
|
|
Annual Average Oil & Natural Gas Liquids Weighting (%) |
~60-62% |
|
|
Free Adjusted Funds Flow(1) (Inclusive of ARO Spend) ($MM) |
$15-20 |
|
|
Year-End Net Debt to Trailing Annual Adjusted Funds Flow Ratio(1) (times) |
~1.5x |
|
|
2021 Estimated Corporate Decline Rate(2) |
22-24% |
|
|
2021 Estimated Corporate Sustaining Capital Breakeven Price ($/Bbl)(1) |
~US$37.00 |
|
|
Notes: |
|
|
(1) |
See Non-IFRS Measures. |
|
(2) |
Based on December 2020 to December 2021 estimates. |
The above guidance is based on average 2020 commodity price assumptions of WTI US$39.00/bbl, MSW/WTI differential of US$6.00/bbl and AECO at $2.00/GJ as well as a Canadian/US dollar exchange rate of $1.3625.
About Tamarack Valley Energy Ltd.
Tamarack is an oil and gas exploration and production company committed to long-term growth and the identification, evaluation and operation of resource plays in the Western Canadian Sedimentary Basin. Tamarack’s strategic direction is focused on two key principles: (i) targeting repeatable and relatively predictable plays that provide long-life reserves; and (ii) using a rigorous, proven modeling process to carefully manage risk and identify opportunities. The Company has an extensive inventory of low-risk, oil development drilling locations focused primarily in the Cardium and Viking fairways in Alberta that are economic over a range of oil and natural gas prices. With this type of portfolio and an experienced and committed management team, Tamarack intends to continue delivering on its strategy to maximize shareholder returns while managing its balance sheet.
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