TSX: TVE
/NOT FOR PUBLICATION OR DISTRIBUTION IN
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CALGARY,
AB, Sept. 12, 2022 /CNW/ - Tamarack
Valley Energy Ltd. ("Tamarack" or the "Company")
(TSX: TVE) is pleased to announce that it has entered into a
definitive agreement (the "Agreement") to acquire
Deltastream Energy Corporation ("Deltastream"), a privately
held pure-play Clearwater oil
producer, for total net consideration of $1.425 billion, consisting of $825 million in cash, $300
million in the form of a deferred acquisition payment
("DAP") and $300 million of
equity comprised of approximately 80 million common shares of
Tamarack ("Tamarack Shares") at a deemed price of
$3.75 per share (the
"Acquisition").
The cash portion of the Acquisition is expected to be funded, in
part, through a structurally transformed expansion of our
sustainability-linked revolving credit facility, from a revolving
$650 million reserve-based credit
facility to a fully-underwritten $700
million, three year senior secured covenant- based,
sustainability-linked revolving credit facility ("SLL
Facility"). The remaining cash portion will be funded via a
fully-underwritten $275 million
senior secured amortizing two year term loan ("Term Loan"),
a $125 million equity
offering, and a proposed additional $75 million aggregate principal amount of
Tamarack's 7.25% senior unsecured sustainability-linked notes due
May 10, 2027 ("Notes") on a
private placement basis. The DAP will be unsecured and payable in
cash over the 18-month period subsequent to close in six
installments ($50 million quarterly)
plus 5.75% interest.
Bill Slavin, Managing Director,
ARC Financial said: "The Deltastream business is concentrated in
the heart of the Clearwater. With
this transaction, Tamarack will become the leading public
Clearwater business, with an
exceptional combined asset base. ARC Financial is excited to
be a shareholder in Tamarack and participate in value creation from
the Company's Clearwater,
Charlie Lake and enhanced oil
recovery operations. Tamarack has a demonstrated track record of
prudent balance sheet management and capital discipline and is led
by a highly respected management team with extensive operational
and capital markets experience. Tamarack's proactive approach to
the environment, Indigenous partnerships and ethical governance is
aligned with ARC's values."
Brian Schmidt, President &
CEO of Tamarack, said: "The acquisition of Deltastream solidifies
Tamarack as the largest producer in the Clearwater oil fairway. This transaction
builds on the Company's core position in the Clearwater, which is recognized as
North America's most economic
play. Deltastream brings scale and a leading economic development
drilling inventory, comprised of high quality, long life assets
with low sustaining capital requirements that enhance capital
allocation flexibility. This strategic transaction delivers
significant accretion to our existing business model and drives
increased long-term value creation for our shareholders."
Acquisition Highlights
- Enhances Clearwater Asset Quality and Scale
-
-
- Average Clearwater production
of ~23,000 boe/d(4) (94% oil and natural gas liquids)
for 2023
- Delivering an estimated ~$500
million of EBITDA(1,2) for 2023, including
the impact of the newly created 5% gross overriding royalty on
Deltastream's oil production
- Over 500 net future development locations(3), across
184 net sections of land adjacent to Tamarack's core Nipisi and
Marten Hills operations
- Positions Tamarack as the largest producer in the Clearwater with considerable scale and upside
across Nipisi, Canal, Marten Hills,
Greater Peavine, Perryvale and Jarvie
- Resilient Asset Base
-
- The Clearwater ranks as the
most economic play in North
America, with wells that payout in less than six months at
current prices
- Industry leading returns and superior payouts drive asset level
free funds flow breakeven(2) of less than US$32/bbl WTI
- Operational Synergies
-
- Increased scale affords improved netbacks through egress and
marketing efficiencies
- Optimized capital deployment: continuous operations and
improved access to rigs and field services
- Consolidates road access requirements, reducing costs and
resulting in more efficient long term play development
- Provides for economies of scale regarding gas conservation
infrastructure at Nipisi
- Top Tier Assets Acquired at Attractive Valuation with
Immediate Accretion
-
- Attractive purchase price of ~2.9x 2023E
EBITDA(1,2)
- Drives 2023 free funds flow (FFF)(2) per share
accretion of 25% and represents a pro forma FFF yield(2)
of 27%
- 16% accretive to adjusted funds flow (AFF)(1,2) per
share in 2023
- Pro forma 2023 FFF(2), prior to dividends, expected
to exceed $600 million
- Long term annual FFF(2) expected to exceed
$500 million on strip
prices
- 5 Year Plan Accretion at Tamarack's long-term base pricing
at US$55/bbl WTI
-
- 5-year average FFF(2) per share accretion of 28%,
drilling 60 – 65 wells per year
- 5-year average debt adjusted funds flow per share
(DAFFPS)(2) accretion of 35%, highlighting the increased
resiliency of the asset base at lower commodity prices
- Increases Returns to Shareholders
-
- Upon the closing of the Acquisition, Tamarack expects to
increase the annual base dividend by 25% from $0.12/share to $0.15/share
- Positions Tamarack for significant enhanced return of capital
in H2 2023
- Updated enhanced return framework provides a more resilient
free funds flow(2) profile across the commodity prices
spectrum with significant accretion to long term return of capital
for shareholders
- Maintains Balance Sheet Strength and Increases Financial
Flexibility
-
- Moves Tamarack to a three-year, covenant-based credit facility;
provides stability, flexibility and a lower cost of capital, which
is not subject to semi-annual reviews
- Prudent hedging profile protects substantial free funds
flow(2); underpins dividends and debt repayment to
rapidly de-lever the balance sheet
- Hedging portfolio structure designed to provide downside
protection while retaining significant upside pricing exposure
- Deltastream expected to be debt free at close of the
transaction
- Leveraging Experience and ESG Leadership
-
- Combined technical expertise related to enhanced recovery
across a large original oil in place and active waterflood projects
to deliver stable long-term cash flow and low decline
production
- Track record of prudent balance sheet management and capital
discipline, with a clear plan to reduce pro-forma leverage and to
manage risk, including an active commodity price hedging
program
- Focus on environment, indigenous partnerships and ethical
governance that includes sustainability-linked lending, emission
reductions, proactive asset decommissioning, stakeholder engagement
and indigenous partnership
Acquisition Metrics
Purchase Price
($MM)
|
$1,425
|
2023E Production
(boe/d)(4)
|
23,000
|
Oil and NGL
Weighting
|
~94%
|
Drilling
Locations(3)
|
>500
|
2023E
EBITDA(2) ($MM)
|
~$500
|
|
|
Reserves
(MMboe)(5)
|
|
Proved Developed Producing
(PDP)
|
13.4 (93%
liquids)
|
Total Proved Plus Probable
(TPP)(5)
|
51.0 (93%
liquids)
|
Pro Forma 2023 Guidance
Including the contribution of the Acquisition, Tamarack is
providing initial preliminary guidance for 2023.
Preliminary 2023
Guidance(1)
|
|
Tamarack
Post-Acquisition
|
Average
Production(6) (boe/d)
|
|
68,000 –
72,000
|
% Oil and
NGL
|
|
82% – 84%
|
EBITDA(2)
($MM)
|
|
$1,200 –
$1,400
|
Capital Budget
($MM)
|
|
$400 –
$450
|
2023E Year-end Net Debt
/ EBITDA(2)
|
|
~0.7x
|
Dividend Increase and Return of
Capital Framework
Base Dividend Increase
In conjunction with the Acquisition, Tamarack's Board of
Directors has approved a 25% increase to the monthly dividend to
$0.0125 per share, from $0.01 per share previously, which equates to
$0.15 per share on an annual basis,
for the November dividend, payable in December. The increase in
Tamarack's monthly cash dividend reflects the improvement in
sustainable FFF(2) per share the Company has generated
since implementation of its dividend policy in October 2021. The Company's improved
FFF(2) per share profile is a cumulative result of
enhanced sustainable FFF(2) along with the Acquisition,
delivers accretion at flat pricing of US$55/bbl WTI and $2.50/GJ AECO.
Enhanced Return of Capital Update
Following completion of the Acquisition, Tamarack's balance
sheet will remain a priority with the first net debt milestone of
$900 - $1,100
million to trigger the enhanced return of capital. Once
achieved, the Company will allocate up to 25% of excess funds
flow(2) to enhanced returns through share buybacks
and/or special dividends. As leverage is reduced, achieving a debt
level of $500 - $900 million Tamarack expects to increase the
enhanced return to up to 50% of the prior quarter excess funds
flow(2). Long term, Tamarack targets net
debt(2) of less than $500
million, representing approximately 1.0x net debt to
quarterly annualized AFF(2) at US$45/bbl WTI and $2.50/GJ AECO, which would trigger returning up
to 75% of excess funds flow to investors through either share
buybacks or enhanced dividends.
Transaction Details
Concurrent with the execution of the Agreement, shareholders of
Deltastream representing over 90% of the outstanding common shares
of Deltastream executed letters of transmittal accepting Tamarack's
offer and tendering their shares in connection with the
Acquisition. The Agreement provides for, among other things, a
non-solicitation covenant on the part of Deltastream and a
termination fee in favor of Deltastream. A copy of the Agreement
will be filed on Tamarack's SEDAR profile at www.sedar.com.
The Acquisition is expected to close prior to the end of
October, subject to certain customary conditions and regulatory and
other approvals, including the approval of the Toronto Stock
Exchange (the "TSX") and the Commissioner of Competition pursuant
to the Competition Act (Canada).
Lock-Up Period
At closing, Tamarack will enter into a hold period agreement
with ARC Financial, who owns approximately 85% of the issued and
outstanding common shares of Deltastream (on a non-diluted
basis).
Of the Tamarack shares issued to ARC Financial, 50% will be
subject to a six month escrow period and 50% of the shares will be
subject to a twelve month escrow period.
Senior Unsecured Notes
Offering
Tamarack intends to undertake, subject to market conditions, a
proposed offering of at least $75
million of aggregate principal amount of 7.25% Senior
Unsecured Sustainability-linked Notes due May 10, 2027 (the "Notes"), on an exempt
private placement basis (the "Private Placement").
The Notes will be issued under the indenture pursuant to which
Tamarack previously issued $200
million aggregate principal amount of 7.25% Senior Unsecured
Sustainability-linked Notes due 2027, as supplemented by a
supplemental indenture dated as of the Private Placement close, and
will form a single series with such previously issued notes. Upon
closing of the Notes, a total of $275
million aggregate principal amount of the 7.25% senior
unsecured notes will be outstanding.
Subject to completion of the Private Placement, Tamarack intends
to use the net proceeds to fund a portion of the purchase price for
the Acquisition.
The Notes are being issued in accordance with Tamarack's
Sustainability-Linked Bond Framework (the "SLB Framework"), which
sets out certain sustainability performance targets ("SPTs") that
are aligned with Tamarack's overall corporate sustainability
strategy, including: i) Scope 1 and 2 emissions intensity
reductions of 39% by 2025 over the 2020 baseline, and; ii)
Indigenous workforce participation of 6% or greater by 2025.
Details of the SLB Framework are available on the Company's
website. Failure to meet the SPTs will result in a step-up in the
interest rate payable of 75 basis points for the emissions
reduction SPT and 25 basis points for the Indigenous workforce
participation SPT from and including May 10,
2026.
RBC Capital Markets and National Bank Financial Markets are
acting as Joint-Bookrunners and Sustainability-Linked Bond
Structuring Advisors for the Private Placement. S&P Global
Markets has previously provided a second party opinion of the SLB
Framework, confirming alignment with the International Capital
Market Association's Sustainability-Linked Bond Principles.
The Notes will not be qualified for distribution to the public
or registered under the securities laws of any province or
territory of Canada or in
the United States and will only be
offered in the provinces of Canada
and in the United States pursuant
to applicable private placement exemptions to qualified
institutional investors.
Closing of the Private Placement is not conditional upon
completion of the Acquisition. In the event the Acquisition is not
completed, Tamarack may use the net proceeds of the Private
Placement to reduce indebtedness, fund future acquisitions and for
general corporate purposes. Prior to the closing of the
Acquisition, the net proceeds may, from time to time, be invested
in interest bearing deposits or in short-term interest bearing or
discount debt obligations or other short-term investments (in each
case, either Canadian or U.S. dollars).
Transaction Financing
The Company has entered into a binding commitment letter for the
SLL Facility and the Term Loan with the Royal Bank of Canada and National Bank of Canada, pursuant to which such lenders have
agreed to fully underwrite and commit to, with a syndicate of
lenders, availability of the SLL Facility and Term Loan in
connection with the closing of the Acquisition. The SLL Facility
and the Term Loan will each be secured by all of the assets of the
Company (including those of Deltastream), bear interest at market
rates that fluctuate plus a margin based on the senior debt to
EBTIDA ratio of the Company and include customary debt covenants
for lending arrangements of this nature. The SLL Facility will
mature on the date that is 3 years following the closing of the
Acquisition and the Term Loan will mature on the date that is 2
years following the closing of the Acquisition. A portion of the
proceeds from the SLL Facility and the full amount of the Term Loan
will be used to fund: (a) a portion of the purchase price for the
Acquisition and related transaction costs; (b) the replacement of
the Company's current credit facility; and (c) for general
corporate purposes.
Advisors
RBC Capital Markets is acting as exclusive financial advisor to
Tamarack with respect to the Acquisition.
CIBC Capital Markets and Peters & Co. Limited are acting as
strategic advisors to Tamarack with respect to the Acquisition.
Tudor Pickering Holt & Co. and National Bank Financial Inc.
are acting as co-financial advisors to Deltastream with respect to
the Acquisition.
Stikeman Elliott LLP is acting as legal counsel to Tamarack with
respect to the Acquisition, the Private Placement, the SLL Facility
and the Term Loan.
Norton Rose Fulbright Canada LLP is acting as legal counsel to
Deltastream.
RBC Capital Markets and National Bank Financial Markets are
acting as Joint Bookrunners with respect to the SLL Facility and
the Term Loan.
About Tamarack Valley
Energy Ltd.
Tamarack is an oil and gas exploration and production company
committed to creating long-term value for its shareholders through
sustainable free funds flow generation, financial stability and the
return of capital. The Company has an extensive inventory of
low-risk, oil development drilling locations focused primarily on
Charlie Lake, Clearwater and EOR plays in Alberta. Operating as a responsible corporate
citizen is a key focus to ensure we deliver on our environmental,
social and governance (ESG) commitments and goals. For more
information, please visit the Company's website at
www.tamarackvalley.ca.
Abbreviations
AECO
|
the natural gas
storage facility located at Suffield, Alberta connected to TC
Energy's Alberta System
|
bbls/d
|
barrels per
day
|
boe
|
barrels of oil
equivalent
|
boe/d
|
barrels of oil
equivalent per day
|
GJ
|
gigajoule
|
IFRS
|
International
Financial Reporting Standards as issued by the International
Accounting Standards Board
|
MMboe
|
million barrels of oil
equivalent
|
MMcf/d
|
million cubic feet per
day
|
MSW
|
Mixed sweet blend, the
benchmark for conventionally produced light sweet crude oil in
Western Canada
|
WTI
|
West Texas
Intermediate, the reference price paid in U.S. dollars at Cushing,
Oklahoma for the crude oil standard grade
|
READER ADVISORIES
This press release is not an offer of the securities for
sale in the United States. The
securities offered have not been, and will not be, registered under
the U.S. Securities Act or any U.S. state securities laws and may
not be offered or sold in the United
States absent registration or an available exemption from
the registration requirement of the U.S. Securities Act and
applicable U.S. state securities laws. No public offering of
securities is being made in the United
States. This press release shall
not constitute an offer to sell or the solicitation of an offer to
buy, nor shall there be any sale of these securities, in any
jurisdiction in which such offer, solicitation or sale would be
unlawful.
Notes to Press Release
(1)
Guidance numbers are based on pricing assumptions of: a WTI price
of US$82.56/bbl; a WCS/WTI differential of US$17.50/bbl; USD/CAD
exchange rate of $1.3100.
|
|
(2)
See "Specified Financial Measures"
|
|
(3)
See "Disclosure of Oil and Gas Information – Drilling
Locations"
|
|
(4)
Comprised of 21,473 bbl/d heavy oil, 134 bbl/d NGL and 8,360 mcf/d
natural gas
|
|
(5)
Reserves have been internally estimated by the Company's internal
Qualified Reserve Evaluators ("QRE") and prepared in accordance
with National Instrument 51-101 – Standards of Disclosure for
Oil and Gas Activities ("NI 51-101") and the most recent
publication of the Canadian Oil and Gas Evaluations Handbook
("COGEH") effective as of September 1, 2022. "Internally estimated"
means an estimate that is derived by the Company's internal QRE and
prepared in accordance with NI 51-101 and COGEH.
|
|
(6)
Comprised of 15,200 to 16,100 bbl/d light and medium oil, 38,000 to
40,300 bbl/d heavy oil, 3,300 to 3,600 bbl/d NGL and 69,000 to
72,000 mcf/d natural gas
|
Disclosure of Oil and Gas
Information
Unit Cost Calculation. For the purpose of calculating
unit costs, natural gas volumes have been converted to a boe using
six thousand cubic feet equal to one barrel unless otherwise
stated. A boe conversion ratio of 6:1 is based upon an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
This conversion conforms with NI 51-101. Boe may be misleading,
particularly if used in isolation.
Reserves Disclosure. All reserves information in this press
release relating to Assets are internally estimated by the
Company's internal qualified reserve evaluators prepared
August 15, 2022 effective
September 1, 2022 in accordance with
NI 51-101 and the COGEH. The estimates of reserves and future net
revenue for the Acquisition may not reflect the same confidence
level as estimates of reserves and future net revenue for all of
Tamarack's properties, due to the effects of aggregation.
All reserve references in this press release are "gross
reserves". Gross reserves are a company's total working interest
reserves before the deduction of any royalties payable by such
company and before the consideration of such company's royalty
interests. It should not be assumed that the present worth of
estimated future cash flow of net revenue presented herein
represents the fair market value of the reserves. There is no
assurance that the forecast prices and costs assumptions will be
attained and variances could be material. The recovery and reserve
estimates of Tamarack's crude oil, NGL and natural gas reserves,
including those of the Assets, provided herein are estimates only
and there is no guarantee that the estimated reserves will be
recovered. Actual crude oil, natural gas and NGL reserves may be
greater than or less than the estimates provided herein.
Drilling Locations. This press release discloses drilling
locations with respect to the Assets in three categories: (i)
proved locations; (ii) probable locations; and (iii) unbooked
locations. Proved locations and probable locations are derived from
the Company's internal reserves evaluation as prepared by a member
of management who is a qualified reserves evaluator in accordance
with NI 51-101 and the COGEH effective September 1, 2022 and account for drilling
locations that have associated proved and/or probable reserves, as
applicable. Unbooked locations are internal estimates based on the
Company's assumptions as to the number of wells that can be drilled
per section based on industry practice and internal review.
Unbooked locations do not have attributed reserves or resources. .
Of the total 516 (511.5 net) drilling locations identified herein,
123 (122.0 net) are proved locations, 78 (77.0 net) are probable
locations and 315 (312.5 net) are unbooked locations.
Unbooked locations have been identified by management as an
estimation of Company's multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information assuming completion of the Acquisition.
Assuming completion of the Acquisition, there is no certainty that
the Company will drill all unbooked drilling locations and if
drilled there is no certainty that such locations will result in
additional oil and gas reserves, resources or production. The
drilling locations considered for future development will
ultimately depend upon the availability of capital, regulatory
approvals, seasonal restrictions, oil and natural gas prices,
costs, actual drilling results, additional reservoir information
that is obtained and other factors. While certain of the unbooked
drilling locations have been derisked by the drilling of existing
wells by the Vendor in relative close proximity to such unbooked
drilling locations, other unbooked drilling locations are farther
away from existing wells where management has less information
about the characteristics of the reservoir and therefore there is
more uncertainty whether wells will be drilled in such locations
and if drilled there is more uncertainty that such wells will
result in additional oil and gas reserves, resources or
production.
Forward Looking
Information
This press release contains certain forward-looking information
(collectively referred to herein as "forward-looking statements")
within the meaning of applicable Canadian securities laws.
Forward-looking statements are often, but not always, identified by
the use of words such as "guidance", "outlook", "anticipate",
"target", "plan", "continue", "intend", "consider", "estimate",
"expect", "may", "will", "should", "could" or similar words
suggesting future outcomes. More particularly, this press release
contains statements concerning: Tamarack's business strategy,
objectives, strength and focus; the new SLL Facility and Term Loan;
the completion of the Private Placement on the terms
anticipated, or at all, the anticipated use of proceeds of the
Private Placement, SLL Facility and Term Loan; the Acquisition;
satisfaction or waiver of the closing conditions to the
Acquisition; receipt of required regulatory approvals for the
completion of the Acquisition (including approval of the TSX and
the Commissioner of Competition pursuant to the Competition
Act (Canada)); the purchase
price of the Acquisition net closing adjustments; the anticipated
benefits of the Acquisition, including the impact of the
Acquisition on the Company's operations, reserves, inventory and
opportunities, financial condition, access to capital and overall
strategy; expectations with respect to reserves, oil and natural
gas production levels (including the ability to support current
production for the next decade), decline rates, abandonment and
reclamation obligations, adjusted funds flow, free adjusted funds
flow and net debt to quarterly annualized adjusted funds flow
relating to the assets to be acquired pursuant to the Acquisition
(the "Assets") and Tamarack following the Acquisition; development
and drilling plans for the Assets, including the drilling locations
associated therewith and timing of results therefrom; expectations
regarding the Clearwater; the
Company's five year plan, including regular dividends, enhanced
dividends and share buybacks; future consolidation activity and
organic growth; future intentions with respect to return of
capital; oil and natural gas production levels, adjusted funds
flow, free funds flow; anticipated operational results for 2022 and
2023 including, but not limited to, estimated or anticipated
production levels, capital expenditures and drilling plans; the
Company's capital program, guidance, budget and capital program for
2022 and 2023; risk management activities, including hedging;
enhanced recovery; expectations regarding commodity prices;
resiliency of the asset base at lower commodity prices; the
performance characteristics of the Company's oil and natural gas
properties; the ability of the Company to achieve drilling success
consistent with management's expectations; Tamarack's commitment to
ESG principles and sustainability; and the source of funding for
the Company's activities including development costs. Future
dividend payments and share buybacks, if any, and the level
thereof, is uncertain, as the Company's return of capital framework
and the funds available for such activities from time to time is
dependent upon, among other things, free funds flow financial
requirements for the Company's operations and the execution of its
growth strategy, fluctuations in working capital and the timing and
amount of capital expenditures, debt service requirements and other
factors beyond the Company's control. Further, the ability of
Tamarack to pay dividends and buyback shares will be subject to
applicable laws (including the satisfaction of the solvency test
contained in applicable corporate legislation) and contractual
restrictions contained in the instruments governing its
indebtedness, including its credit facilities.
The forward-looking statements contained in this document are
based on certain key expectations and assumptions made by Tamarack,
including relating to: the business plan of Tamarack, Deltastream
and the Assets; the receipt of all approvals and satisfaction of
all conditions to the completion of the Acquisition; the
timing of and success of future drilling, development and
completion activities; the geological characteristics of Tamarack's
properties; the characteristics of the Assets; the successful
integration of the Assets into Tamarack's operations; prevailing
commodity prices, price volatility, price differentials and the
actual prices received for the Company's products; the availability
and performance of drilling rigs, facilities, pipelines and other
oilfield services; the timing of past operations and activities in
the planned areas of focus; the drilling, completion and tie-in of
wells being completed as planned; the performance of new and
existing wells; the application of existing drilling and fracturing
techniques; prevailing weather and break-up conditions; royalty
regimes and exchange rates; the impact of inflation on costs; the
application of regulatory and licensing requirements; the continued
availability of capital and skilled personnel; the ability to
maintain or grow the banking facilities; the accuracy of Tamarack's
geological interpretation of its drilling and land opportunities,
including the ability of seismic activity to enhance such
interpretation; and Tamarack's ability to execute its plans and
strategies.
Although management considers these assumptions to be reasonable
based on information currently available, undue reliance should not
be placed on the forward-looking statements because Tamarack can
give no assurances that they may prove to be correct. By their very
nature, forward-looking statements are subject to certain risks and
uncertainties (both general and specific) that could cause actual
events or outcomes to differ materially from those anticipated or
implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to: counterparty risk to
closing the Acquisition; unforeseen difficulties in integrating the
Assets into Tamarack's operations; the risk that future dividend
payments thereunder are reduced, suspended or cancelled; incorrect
assessments of the value of benefits to be obtained from
acquisitions and exploration and development programs (including
the Acquisition); risks associated with the oil and gas industry in
general (e.g. operational risks in development, exploration and
production; and delays or changes in plans with respect to
exploration or development projects or capital expenditures);
commodity prices; the uncertainty of estimates and projections
relating to production, cash generation, costs and expenses;
including increased operating and capital costs due to inflationary
pressures; health, safety, litigation and environmental risks;
access to capital; the COVID-19 pandemic; and Russia's military actions in Ukraine. Due to the nature of the oil and
natural gas industry, drilling plans and operational activities may
be delayed or modified to react to market conditions, results of
past operations, regulatory approvals or availability of services
causing results to be delayed. Please refer to the annual
information form for the year ended December
31, 2021 and management's discussion and analysis for the
period ended June 30, 2022 (the
"MD&A") for additional risk factors relating to Tamarack, which
can be accessed either on Tamarack's website at
www.tamarackvalley.ca or under the Company's profile on
www.sedar.com.The forward-looking statements contained in this
press release are made as of the date hereof and the Company does
not undertake any obligation to update publicly or to revise any of
the included forward-looking statements, except as required by
applicable law. The forward-looking statements contained herein are
expressly qualified by this cautionary statement.
This press release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about generating sustainable long-term growth in free funds
flow, prospective results of operations and production, weightings,
operating costs, 2022 and 2023 capital budget and expenditures,
balance sheet strength, adjusted funds flow, free funds flow,
netbacks, payout of wells, 2023E EBITDA, 2023E Year-end Net Debt /
EBITDA and components thereof, including pro forma the Acquisition,
all of which are subject to the same assumptions, risk factors,
limitations and qualifications as set forth in the above
paragraphs. FOFI contained in this document was approved by
management as of the date of this document and was provided for the
purpose of providing further information about Tamarack's future
business operations. Tamarack and its management believe that FOFI
has been prepared on a reasonable basis, reflecting management's
best estimates and judgments, and represent, to the best of
management's knowledge and opinion, the Company's expected course
of action. However, because this information is highly subjective,
it should not be relied on as necessarily indicative of future
results. Tamarack disclaims any intention or obligation to update
or revise any FOFI contained in this document, whether as a result
of new information, future events or otherwise, unless required
pursuant to applicable law. Readers are cautioned that the FOFI
contained in this document should not be used for purposes other
than for which it is disclosed herein. Changes in forecast
commodity prices, differences in the timing of capital
expenditures, and variances in average production estimates can
have a significant impact on the key performance measures included
in Tamarack's guidance. The Company's actual results may differ
materially from these estimates.
References in this press release to peak rates, IRR, IP30 and
other short-term production rates are useful in confirming the
presence of hydrocarbons, however such rates are not determinative
of the rates at which such wells will commence production and
decline thereafter and are not indicative of long-term performance
or of ultimate recovery. While encouraging, readers are cautioned
not to place reliance on such rates in calculating the aggregate
production of Tamarack.
Specified Financial
Measures
This press release includes various specified financial
measures, including non-IFRS financial measures, non-IFRS financial
ratios and capital management measures as further described herein.
These measures do not have a standardized meaning prescribed by
International Financial Reporting Standards ("IFRS") and,
therefore, may not be comparable with the calculation of similar
measures by other companies.
"2023E year-end net debt / EBITDA (non-IFRS financial
ratio)" is calculated as net debt at a point in time divided by
EBITDA. Management considers Net Debt to EBITDA an important
measure as it is a key metric to identify the Company's ability to
fund financing expenses, net debt reductions and other obligations.
When this measure is presented quarterly, EBITDA is annualized by
multiplying by four. When this measure is presented on a trailing
twelve month basis, EBITDA for the twelve months preceding the net
debt date is used in the calculation.
"Adjusted funds flow (capital management measure)" is
calculated by taking cash-flow from operating activities, on a
periodic basis, deducting current income taxes and adding back
changes in non-cash working capital, expenditures on
decommissioning obligations and transaction costs since Tamarack
believes the timing of collection, payment or incurrence of these
items is variable. Expenditures on decommissioning obligations may
vary from period to period depending on capital programs and the
maturity of the Company's operating areas. Expenditures on
decommissioning obligations are managed through the capital
budgeting process which considers available adjusted funds flow.
Tamarack uses adjusted funds flow as a key measure to demonstrate
the Company's ability to generate funds to repay debt and fund
future capital investment. Adjusted funds flow per share is
calculated using the same weighted average basic and diluted shares
that are used in calculating loss per share.
"Debt adjusted funds flow (capital management measure)"
is calculated as adjusted funds flow divided by adjusted shares
outstanding. Adjusted shares outstanding is calculated as actual
shares outstanding reduced by the debt repayment in the period, or
increased by the debt incurred in the period, divided by the then
current share price.
"EBITDA (non-IFRS financial measure)" is calculated as
consolidated net income (loss) before interest and financing
expenses, income taxes, depletion, depreciation and amortization,
adjusted for certain non-cash, extraordinary and non-recurring
items primarily relating to unrealized gains and losses on
financial instruments and impairment losses. The Company considers
this metric as key measures that demonstrate the ability of the
Company's continuing operations to generate the cash flow necessary
to maintain production at current levels and fund future growth
through capital investment and to service and repay debt. The most
directly comparable IFRS measure to EBITDA is cash provided by
operating activities.
"Excess funds flow (capital management measure)" is
calculated as free funds flow, less base dividend distributions,
deferred acquisition amortization and principal payments, term loan
amortization and principal payments and acquisition costs plus
disposition proceeds.
"Free funds flow (capital management measure)"
(previously referred to as "free adjusted funds flow") is
calculated by taking adjusted funds flow and subtracting capital
expenditures, excluding acquisitions and dispositions. Management
believes that free funds flow provides a useful measure to
determine Tamarack's ability to improve returns and to manage the
long-term value of the business. Free funds flow per share is
calculated using the same weighted average basic and diluted shares
that are used in calculating loss per share.
"Free funds flow yield (capital management measure
" is calculated as free funds flow, adjusted for growth (to add
back capital in excess of maintenance and ARO capital and to remove
the adjusted funds flow associated with growth volumes), plus
finance costs, the sum of which is divided by enterprise value,
which is calculated as market capitalization (shares outstanding
multiplied by the closing market price of the shares on the day
referenced) less net debt.
"Free funds flow breakeven (non-IFRS financial measure)"
is determined by calculating the minimum WTI price in US/bbl
required to generate free funds flow equal to zero sustaining
current production levels and all other variables held constant.
Management believes that free funds flow breakeven provides a
useful measure to establish corporate financial sustainability.
"Net debt (capital management measure)" is calculated as
bank debt plus working capital surplus or deficit, plus other
liability, including the fair value of cross-currency swaps and
excluding the fair value of financial instruments and lease
liabilities.
Please refer to the MD&A for additional information relating
to specified financial measures including non-IFRS financial
measures, non-IFRS financial ratios and capital management
measures. The MD&A can be accessed either on Tamarack's website
at www.tamarackvalley.ca or under the Company's profile on
www.sedar.com.
www.tamarackvalley.ca
SOURCE Tamarack Valley Energy Ltd.