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Tamarack Valley Energy Fourth Quarter, Full Year 2020 Results, Reserves

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Tamarack Valley Energy Ltd. reported its Q4 / full year 2020 results.

Brian Schmidt, President and Chief Executive Officer of Tamarack commented, “2020 brought with it many challenges for the industry as a whole. Despite the extreme volatility, economic damage, and pricing uncertainty caused by the COVID-19 pandemic, we were able to effectively manage our business with a focus on maintaining financial strength and executed two strategic acquisitions: the West Central acquisition in July and the transformational entry into the highly economic Clearwater oil play in December. The combined acquisitions supplement our highly economic drilling location runway by approximately 471 (403.9 net) wells and enhance the underlying sustainability of the Company through a 23% blended acquisition decline rate. Furthermore, 2020 represented significant growth in our Veteran Viking waterflood reserves which will serve to mitigate corporate declines and enhance our sustainability. Looking forward to 2021, we are focused on maximizing our free adjusted funds flow (see “Non-IFRS Measures”) through a $105–$110 million capital program focused on the Clearwater and the Veteran waterflood oil programs which will enable aggregate production growth of approximately 5% and increase oil weighting by approximately 30% at exit 2021 compared to 2020, as previously announced on January 11^th, 2021. In addition, we remain focused on further advancing the 2021 initiatives and targets set within our robust environmental, social and governance (“ESG”) reporting frameworks.”

Q4 2020 Highlights:

• Announced the transformational entrance into the Clearwater oil play on December 21, 2020 through two strategic acquisitions establishing a significant consolidated and operated position of approximately 107,000 net acres along with approximately 2,000 bbls/d of oil production, for total cash consideration of $94.9 million. These acquisitions were financed through a combination of debt and a $47.1 million private placement (40.9 million shares issued at $1.15 per share), along with a Gross Overriding Royalty (“GORR”) disposition on specific acquisition lands in the Clearwater for proceeds of approximately $15.5 million.
• Achieved quarterly production volumes of 22,049 boe/d in Q4/20, representing a 2% increase from the previous quarter while 2020 annual volumes averaged 22,027 boe/d.
• Generated adjusted funds flow (see “Non-IFRS Measures”) of $28.9 million in Q4/20 ($0.13 per share basic and diluted) and $122.7 million for the full year 2020 ($0.55 per share basic and diluted) in addition to free adjusted funds flow (see “Non-IFRS Measures”) of $19.2 million for the year.
• Invested $13.1 million and $103.5 million in exploration and development capital expenditures (“E&D”), excluding acquisitions, during Q4/20 and full year 2020, respectively, which contributed to drilling 72 (69.9 net) wells, comprised of 57 (55.8 net) Viking oil wells, one (0.8 net) Viking gas well, six (5.3 net) Cardium oil wells, one (1.0 net) Clearwater oil well, two (2.0 net) Penny Banff light oil wells and five (5.0 net) water source and injector wells. Significant capital continued to be directed to our Viking waterflood program, which represented approximately 34% of the total E&D capital expenditures.
• Effectively managed our financial strength in 2020, exiting the year with approximately $219.3 million in net debt.
• Successfully executed on our Viking waterflood program, with exit 2020 production of approximately 1,900 bbls/d of light oil, which represents growth of 109% over 2019 exit.
• Released an inaugural Sustainability Report highlighting Tamarack’s ongoing commitment to ESG factors with specific and measurable goals related to the Company’s key priorities.

Clearwater Update

Tamarack continues to be active in the play with 12 wells rig released out of a planned 16 well first quarter $18 million program. Of the 12 wells rig released, three wells have produced oil for more than 30 days and exhibited stabilized average IP30 rates of approximately 200 bbl/d, which is approximately 36% higher than Tamarack’s Nipisi internal type 1 curve of 147 bbl/d (see the Company’s investor presentation for additional details). The Company plans to keep one rig active through Q2, ramping back up to two rigs in Q3, directing $53–$55 million in capital for 2021; with $45–$47 million allocated to drilling activity and $8 million on gas conservation and infrastructure initiatives. This investment is forecast to grow production in the Clearwater to 4,500 to 5,500 boe/d¹ in the fourth quarter of 2021, representing 150% growth from the 2,000 boe/d acquired in December of 2020.

2020 Reserve Highlights

• Recognized significant contribution from Tamarack’s Veteran waterflood program in 2020, with the Company’s reserves for the waterflood program increasing by 294% on a PDP basis to 3.2 MMboe, 27% on TP to 6 MMboe, and 27% on TPP to 12.4 MMboe relative to 2019. These increases also illustrate the positive impact of the waterflood on our corporate decline rate, which is estimated to be in the 22 to 24% range (exit to exit) in 2021 while also serving to enhance the Company’s overall sustainability.
• Relative to year-end 2019, Tamarack increased PDP reserves 18% to 40.5 MMboe, TP reserves 10% to 64 MMboe and TPP reserves 9% to 111 MMboe in 2020. These growth rates are consistent on a weighted average per share basis.
• Replaced 176% of total 2020 production on a PDP basis, 174% on a TP basis and 219% on a TPP basis. PDP reserves represent 63% and 36% of TP and TPP reserves, respectively.
• Relative to year-end 2019, reported 16% lower PDP FD&A costs of $14.02/boe with a 1.3x recycle ratio (see “Oil and Gas Metrics”), 48% lower TP FD&A costs of $9.73/boe with a 1.8x recycle ratio, and 68% lower TPP FD&A costs of $6.90/boe with a 2.6x recycle ratio, all based on the 2020 average operating field netback of $17.86/boe, including hedges.
• Before-tax net present value (“NPV”) of reserves, discounted at 10%, was $426 million on a PDP basis, $660 million on a TP basis and $1.2 billion on a TPP basis evaluated on three independent reserve evaluators average forecast pricing and foreign exchange rates as at January 2021.
• Achieved an increase in year-over-year reserve life index (“RLI”) (see “Oil and Gas Metrics”) across all reserve categories totaling 13.8 years on TPP, 7.9 years on TP and 5 years on PDP, based on 2020 average production of 22,027 boe/d.