Tamarack Valley Energy announces year-end 2022 reserves & financial results and provides operational update

CALGARY, AB, March 1, 2023 /CNW/ – Tamarack Valley Energy Ltd. (“Tamarack” or the “Company“) is pleased to announce its audited financial and operating results for the three months and year ended December 31, 2022 and the results of Tamarack’s year end independent oil and gas reserves evaluation as of December 31, 2022 (the “Reserve Report“), prepared by Tamarack’s independent qualified reserves evaluator, GLJ Ltd. (“GLJ“). Selected reserves, financial and operating information is outlined below. Selected financial and operating information should be read with Tamarack’s audited annual consolidated financial statements and related management’s discussion and analysis for the three and twelve months ended December 31, 2022, which are available on SEDAR at www.sedar.com and on Tamarack’s website at www.tamarackvalley.ca. The Company’s Annual Information Form (AIF) for the year ended December 31, 2022  is available on SEDAR and the Company’s website.

Message to Shareholders

2022 represented a year of continued transformation and operational execution as we drove towards the goal of repositioning our business into the most profitable oil plays in North America. Tamarack completed and integrated three material Clearwater acquisitions, positioning the Company as a major producer in the Clearwater oil play. Furthermore, the divestment of two non-core assets contributed to the strategic rationalization of our asset portfolio moving forward. Together with our ongoing base asset development, our net $1.7 billion of 2022 acquisition and disposition (A&D) transactions resulted in a year over year fourth quarter production increase of 59% while also achieving an uplift in our corporate liquids weighting from 69% (Q4 2021) to 82% (Q4 2022).

2022 was a record year for financial performance with $727.1 million of adjusted funds flow⁽¹⁾ and $268.5 million of free funds flow⁽¹⁾ (excluding acquisition expenditures), which enabled the return of capital to shareholders and established a strong financial position that provided a foundation for the accretive and transformational 2022 acquisitions.  During the year, we initiated a return of capital framework with our inaugural base dividend and subsequent 50% growth of monthly dividends through the year from $0.0083/share to $0.0125/share. This increase was enabled by the highly accretive Clearwater acquisitions which strengthened the free funds flow⁽¹⁾ outlook in the corporate five-year plan.

Operational execution was an important success factor in 2022, with fourth quarter production averaging 64,344 boe/d⁽²⁾, ahead of our guidance range of 62,000-64,000 boe/d⁽²⁾, despite unexpected downtime due to the extreme cold weather in December. Capital expenditures⁽³⁾ of $125 million during the fourth quarter came in at the low end of our $125 to $135 million guidance range.

Our 2022 Reserve Report highlights the significant growth, and a shift in profitability, of our reserves, which was driven by the development of our Clearwater and Charlie Lake assets. Overall, Tamarack saw a material increase in our reserve portfolio to 242.2 MMboe and $5.0 billion⁽⁴⁾ on a total proved plus probable (TPP) basis representing a 33% and 68% increase over 2021 respectively. The year-end 2022 reserves added through acquisition exceeded our original internal reserves estimates, with the most notable increase seen for the Deltastream Energy Corp. (“Deltastream“) acquisition assets which outperformed estimates by 27% on a proved developed producing (PDP) basis and 12% on a TPP basis.

Along with the transformation of the business operations, Tamarack also underwent a significant transition in capital structure with the move away from reserve based into covenant lending and the addition of long-term fixed priced debt. As part of this transition, Tamarack was able to further demonstrate environmental, social and governance (ESG) leadership through the addition of sustainability targets on the new bond issuances (SLB) and the amended revolving facility (SLL).

2022 Financial and Operating Highlights

• Achieved fourth quarter production volumes of 64,344 boe/d⁽²⁾ and yearly production volumes of 48,283 boe/d⁽²⁾ in 2022, representing a 59% and 40% increase respectively compared to the same periods in 2021.
• Generated adjusted funds flow⁽¹⁾ of $196.7 million for the quarter ($0.36/share basic and diluted) and $727.1 million for the year ended December 31, 2022 ($1.58/share basic and $1.57/share diluted).
• Generated free funds flow⁽¹⁾, excluding acquisition expenditures, of $268.5 million and net income of $345.2 million for the year.
• Initiated a return of capital framework with our inaugural monthly base dividend and subsequent monthly dividend growth of 50% through the year. Collectively, paid or accrued $55.3 million to shareholders through dividends on Tamarack common shares, including: $0.0083/share for the first five months of 2022; $0.01/share for all dividends declared between June 15, 2022 and October 15, 2022; and $0.0125/share for all dividends declared on November 15, 2022 and after.
• Invested $125.3 million in Q4 towards exploration and development (E&D) capital expenditures, excluding acquisition expenditures, and $458.6 million during the full year 2022, which contributed to the drilling of 84 (84.0 net) Clearwater oil wells, 18 (17.2 net) Charlie Lake oil wells, 16 (16.0 net) Deltastream Clearwater oil wells, 13 (13.0 net) Viking oil wells, and two (2.0 net) West Central oil wells.
• Exited the year with $1,357 million of net debt⁽¹⁾. Tamarack will prioritize debt repayment through 2023 to enable debt reduction and advancement in the Company’s enhanced shareholder return framework.

2022 Reserve Highlights

The ongoing positive impact of Tamarack’s drilling program combined with Clearwater acquisitions contributed significantly to the reserves in 2022, further enhancing the long-term resiliency and sustainability of free funds flow⁽¹⁾ for the Company moving forward. Key highlights of the Company’s proved developed producing (PDP), total proved (TP) and total proved plus probable (TPP) reserves from the Reserve Report are highlighted below.

• Increased PDP reserves 35% to 75.7 MMboe, TP reserves 30% to 135.1 Mmboe and TPP reserves 33% to 242.2 Mmboe in 2022, relative to year-end 2021.
• Realized before-tax net present value (NPV) of reserves, discounted at 10% (NPV10), of $1.8 billion on a PDP basis, $2.9 billion on a TP basis and $5.0 billion on a TPP basis, evaluated using three independent reserve evaluators average forecast pricing and foreign exchange rates as at January 2023.
• Recognized finding and development costs (F&D), including the change in future development capital (FDC), of $20.22/boe, $31.59/boe and $37.05/boe for PDP, TP and TPP respectively, which reflects an increase in FDC, due to an increase in the number of future drilling locations and cost inflation, of $34 million, $375 million and $622 million for the respective categories. For comparative purposes, F&D costs before increases in FDC were $18.64/boe, $21.60/boe and $22.27/boe, respectively.
• Realized a 27% increase for PDP reserves and a 12% increase for TPP reserves, on the acquired Deltastream assets over the internally estimated reserves at acquisition, driven by strong base production and new drill performance in H2 2022.
• Maintained modest booking of Clearwater waterflood reserves, with only 3% of total Clearwater reserves under waterflood. TPP Reserves in the area surrounding our successful Nipisi waterflood pilot are greater than 2x the primary recovery reserve estimates.

Financial & Operating Results

Reserves Snapshot by Category

Year-Over-Year Reserves Data (Forecast Prices and Costs)

2023 Outlook

Our 2023 production and capital guidance remains unchanged with target production of 68,000-72,000 boe/d⁽⁷⁾ through exploration and development expenditures expected to range from $425 to $475 million for the year. The 2023 budget is focused on delivering long term sustainable free funds flow⁽¹⁾ across our portfolio of highly economic assets in the Charlie Lake, Clearwater and enhanced oil recovery projects to enhance return of capital to shareholders. The following table summarizes our 2023 annual guidance⁽⁷⁾.

Operations Update

Clearwater

Nipisi: Tamarack has rig released two oil wells and one multi-lateral injector to date in 2023 and expects to run a two-rig program at West Nipisi through to break up. By the end of Q1 2023, Tamarack will have commenced injection into eight new West Nipisi wells. This injection program builds on the strong waterflood pilot results at 102/13-19-076-07W5.  The producing well in the pilot, supported by three single-leg injectors, has delivered over 140 mbbls of cumulative oil production in 14 months and is currently producing over 400 bopd with 15% water cut.

Nipisi development for 2023 will focus on continued waterflood expansion across the field. Multilateral injection wells and extended reach waterflood patterns are being implemented to enhance waterflood capital efficiencies. Production for the first three weeks of February averaged 12,500 boe/d⁽¹⁰⁾ and construction of the second phase of Tamarack’s Nipisi gas conservation project is expected to be complete by the end of the first quarter.  Upon completion Tamarack anticipates having over 90% of its Nipisi solution gas conserved. In support of ongoing development, expansion of Tamarack’s 15-22-076-07W5 oil battery will commence in Q2 2023 with completion expected in Q4 2023. Volumes from this battery will be connected to a third-party pipeline where Tamarack holds an agreement for firm service. Once the battery is operational ~70% of Tamarack’s Nipisi oil production will be shipped via pipeline.

West Marten: The Company recently brought three new extended reach wells on stream at its 15-15-076-05W5 location.  The three wells were drilled under Tamarack’s West Nipisi waterflood design. The wells continue to clean up, but recent production has been over 700 bopd from the pad.  Tamarack has one drilling rig running in West Marten at the 11-10-076-05W5 pad with three oil wells rig released to date, and another six planned wells before breakup. The first two wells from the 11-10 pad site are expected to commence production in the first half of March.  West Marten production rates have averaged 1,900 boed/d⁽¹¹⁾ for the first three weeks of February and are expected to continue to climb as existing wells are optimized and new wells are brought on stream.  Tamarack is currently evaluating gas conservation in West Marten and will provide further updates throughout the year.

Marten Hills and Canal: Production from Marten Hills and Canal averaged approximately 16,300 boe/d⁽¹²⁾  over the first three weeks of February, up from approximately 15,100 boe/d⁽¹²⁾ at the close of the acquisition.  Tamarack has two drilling rigs active in Marten Hills, which are expected to remain active until spring break-up, with eight wells rig released year-to-date in 2023. Two of the eight wells are currently recovering load fluid and three additional wells are expected to start recovering load fluid in the first week of March.  Tamarack continues to evaluate waterflood in Marten Hills with additional pilots planned for later in 2023.

Southern Clearwater: Tamarack has rig released two wells year-to-date in Southern Clearwater and anticipates further drilling to commence in the second half of 2023.  Its newly drilled 07-21-063-26W4 Jarvie well is on production and exceeding expectations, with an average production rate of 220 bopd over the first nine days.  This is the first extended reach multi-lateral Tamarack has drilled in Southern Clearwater. These promising results are expected to further extend the eastern boundaries of the Jarvie pool.  Tamarack also remains encouraged by results in Perryvale, with the 09-03-064-23W4 pad site exceeding 950 bopd from seven wells, five of which have been on production for over four months, after an expansion and debottlenecking project was completed.

Charlie Lake

In the Charlie Lake, Tamarack brought on three wells  during Q4 2022.  The 1-24-072-09W6 well continues to exceed expectations and ranks as one of the top performing oil wells drilled in the play to-date. Based on field estimates, month-to-date in February, the 1-24 well averaged over 1,900 boe/d⁽¹³⁾.

Tamarack currently has three drilling rigs  active in the area and three wells are completed, awaiting final tie-in.  Two drilling rigs are expected to remain active until late Q2 2023.  Tamarack is advancing to the construction phase of the Wembley Gas Plant and is on track to be onstream at the end of Q2 2023. Current production on this asset is approximately 16,900 boe/d⁽¹⁴⁾_.

Exploration/Delineation Update

Enhancing the underlying profitability of our inventory is key to free funds flow growth and a critical component of our strategic five-year plan,. The Company had an active 2022 program and continues to move the program forward in 2023.

Clearwater

Peavine/Seal – Tamarack drilled its first multi-lateral well in Peavine, the results of which came in below expectations at approximately 40 bopd. Further appraisal of the area is planned for the second half of 2023 and 2024. At Seal, Tamarack has rig released three wells targeting three separate Clearwater equivalent sands. Testing of this three well pad is expected to commence by the end of the first quarter.

West Marten Hills Exploration – In 2022, Tamarack drilled a Clearwater C step-out well at 102/13-13-076-05W5. With initial rates of over 200 bopd, this well, along with competitor activity, has delineated over 20 sections of Clearwater C potential. Furthermore, it has provided the opportunity to optimize pad development by drilling both Clearwater C and Clearwater B sands from single pads, utilizing shared infrastructure and improving capital efficiencies.

West Nipisi – Delineation of Clearwater C and Clearwater B potential continues with partner wells at 09-05-077-09W5 (C) and 04-35-076-9W5 (B). Initial rates from the 04-35 well exceeded expectations with February month-to-date field estimates of >200 bopd. The 09-05 well is currently cleaning up. These positive results continue to expand the Clearwater potential westward.

Board of Directors Changes

Tamarack is pleased to announce the appointment of Ms. Caralyn Bennett to the Board of Directors, effective March 1, 2023. Ms. Bennett is Executive Vice President and Chief Strategy Officer of GLJ Ltd., while also serving as President of the Canadian Heavy Oil Association and as a director of Acceleware Ltd. Caralyn brings strong advisory experience in reserves and resource governance and contributes strategic expertise to business transformation including sustainability, decarbonization and energy diversification. She has a Professional Engineer designation with an Honours B.A.Sc. in Geological Engineering from the University of Waterloo and actively volunteers her strategic and advisory expertise to a variety of energy development and educational organizations in Alberta and Ontario.

Risk Management

The Company takes a systematic approach to manage commodity price risk and volatility to ensure sustaining capital, debt servicing requirements and the base dividend are protected through a prudent hedging management program. For 2023, approximately ~50% of net after royalty oil production is hedged against WTI with an average floor price of greater than US$65/bbl. Our strategy provides downside protection while maximizing upside exposure. Additional details of the current hedges in place can be found in the corporate presentation on the Company website (www.tamarackvalley.ca).

We would like to thank our employees, shareholders and other stakeholders for all of their support over the past year. 2022 was another transformative year for Tamarack and it would not have happened without the dedication and hard work of our employees, as well as the support from our Board of Directors. We look forward to the continued development of our high-quality assets and the creation of shareholder value in a sustainable and responsible way.

2022 Independent Qualified Reserve Evaluation