Tamarack Valley production exceeds guidance in Q4’2016; targets 140-150 new wells in 2017

Alberta-based Tamarack Valley (ticker: TVE) announced its fourth quarter results as well as the company’s 2017 capital program. The company said that production exceed it previous guidance for the quarter, and that it plans to drill 140 to 150 net wells in 2017, the majority of which will be Viking oil wells, according to the company’s press release.

During the quarter, Tamarack achieved record production that averaged approximately 11,453 BOEPD (55% liquids) based on December field estimates, exceeding previous exit guidance of 11,000 BOEPD. The assets acquired in the Spur Resources transaction that closed on January 11, 2017, have outperformed initial expectations producing over 6,600 BOEPD (57% liquids) based on field estimates in December, 2016, contributing to a pro-forma exit production rate of over 18,000 BOEPD, the company said.

Pro-forma debt estimated at closing on January 11, 2017 was approximately $138 million.

The company’s fourth quarter volumes are 6% higher than the previous quarter and 16% higher than the 2015 fourth quarter rate. Strong fourth quarter production is a result of continued successful drilling in the Wilson Creek/Alder Flats area of Alberta as well as positive performance from the Penny and Redwater assets that were acquired in June, 2016. Assets in Penny averaged 1,194 BOEPD (74% liquids) during the last week of December, 2016, an increase of 14% over the 1,050 BOEPD reported when the acquisition was announced.

During the fourth quarter of 2016, Tamarack drilled six net horizontal oil wells, five of which were in the Wilson Creek/Alder Flats area and one in Penny. Three of the Wilson Creek wells were originally planned for 2017, but were accelerated into 2016 to capitalize on lower service costs and idle equipment TVE said in its release. All three wells were completed during the first week of January, 2017 with equip and tie-in of the wells expected in the last half of January. Throughout 2016, the company drilled a total of 22 (20.9 net) wells of which 14 (13.6 net) were in the Wilson Creek/Alder Flats area.

Tamarack Valley plans to drilling up to 150 wells, with up to 130 targeting the Viking

Along with results from the fourth quarter, Tamarack also reaffirmed its 2017 capital guidance.

Annual average production between 19,000-20,000 BOEPD (approximately 55-60% liquids), with 2017 exit production estimated between 20,000-21,000 BOEPD (approximately 57-62% liquids);

Capital expenditure range of $165 to $175 million, with first half 2017 expenditures $65 to $75 million;

Estimated year end 2017 fourth quarter annualized debt to cash flow (including hedges) ratio below 0.9 times with an estimated $70-75 million of liquidity on the company’s existing credit facilities; and

Assumed 2017 commodity prices: WTI averaging $55 per barrel USD, Edmonton Par price averaging $64.45 per barrel, AECO averaging $2.65/GJ and a Canadian/US dollar exchange rate of $0.76.

With it, the company said it has budgeted to drill 140 to 150 net wells in 2017, of which 122 to 130 will be Viking oil wells on the newly acquired Spur Assets. Approximately 80% of the budgeted Viking oil wells are anticipated to be drilled within the Consort, Veteran and Hoosier areas where operated infrastructure contributes to greater cost control and enhanced returns.

Tamarack has also budgeted 12 to 14 net Cardium wells and two net Notikewin liquids-rich gas wells in the Wilson Creek/Alder Flats area as well as four net horizontal oil wells in the Penny area.

During the first quarter of 2017, the company anticipates drilling 30-35 net Viking oil wells, including at least 20 extended reach horizontal (ERH) wells in the Viking, five to six net Cardium oil wells plus one net Notikewin well at Alder Flats. Tamarack currently has four drilling rigs in operation and has successfully drilled one Notikewin liquids-rich gas well and one Cardium oil well in Alder Flats, two Viking oil wells in North Hoosier and one Viking oil well in Veteran in 2017.

Leading up to the closing of the acquisition, Tamarack was able to secure licenses for the first quarter Viking drilling program on the Spur assets. Results from the first quarter Viking program will be used to plan the balance of the company’s Viking program expected to commence in mid-2017. Drilling and completions design optimization is expected to capture efficiencies and improve results across a larger Viking drilling program than previously executed on the Spur asset base. Tamarack is also working on initiatives to increase longer-term drilling inventory and incremental reserves, including evaluating tighter well densities in certain areas and allocating a material percentage of the capital program to lower-risk step-out wells, the company said.

Hedges

Tamarack Valley currently has 3,000 BOPD of its first half oil production hedged at CAD$63.50 per barrel of WTI and 1,900 BOPD of its second half average oil production hedged at CAD$69.00 per barrel of WTI. Natural gas hedges of 23,000 GJ/d are in place through the end of the third quarter of 2017 at an average fixed AECO price of US$2.70/GJ, and 11,000 GJ/d is hedged in the fourth quarter of 2017 at an average fixed AECO price of US$2.85/GJ. With an increased credit facility of $220 million, a robust hedging program and continued low operating and capital cost structure, Tamarack has the financial flexibility to adjust expenditures to ensure strong returns across a fluctuating commodity price environment.

John Leach joins Tamarack’s board of directors

Tamarack also announced that John Leach will join the company’s board of directors. Leach is a Chartered Professional Accountant with over 23 years of oil and gas experience. He is currently the Senior Vice President & Chief Financial Officer of Crew Energy Inc., a position he has held since Crew’s spin-out from Baytex Energy Ltd. in 2003. Previously, Leach was a founding member of Baytex Energy Ltd. since 1993, serving in the finance department in increasing roles of responsibility culminating as its Vice President, Finance from 1998 to 2003. Leach will serve as a member of the Audit Committee of Tamarack’s Board.