Tamarack Valley expects production of 19.5 MBOEPD at its midpoint in 2017 after closing deal
Tamarack Valley Energy (ticker: TVE) announced Wednesday that the company has entered into an agreement to acquire all of the issued and outstanding common shares of privately held, Calgary-based operator Spur Resources. With the addition of Spur’s Viking formation assets, Tamarack expects pro forma production of 17.3 MBOEPD (54% light oil and NGLS) for 2016.
Consideration for the acquisition consists of Tamarack issuing an aggregate of 90.1 million common shares, valued at $324.5 million passed on the previous 10-day VWAP of TVE’s share price, $57.3 million in cash, and the assumption of Spur’s $25.7 million of debt.
TVE said it will not need any additional equity financing, and that it expects net debt-to-2017E cash flow of 0.9x, giving it financial flexibility moving forward.
The assets are currently producing 6.3 MBOEPD, putting the deal metrics at $65,200 per flowing BOEPD. Spur holds 470 net sections of land with 695 net drilling locations, 468 of which Tamarack believes will pay out in 1.5 years or less at current strip prices.
The quick return on capital from the assets comes in part because Spur owns and operates infrastructure across the acreage, an important point that Tamarack highlighted in its press release today.
The midstream assets acquired as part of the deal include 750 kilometers (466 miles) of oil and gas pipelines, multiple owned batteries, compressors and booster compressors and a 34.25 working interest in the Spur operated Consort Gas Plant.
“This transaction is consistent with Tamarack’s strategy to continue building our portfolio of high-quality, oil-focused resource assets that offer a repeatable and predictable growth profile while maintaining a healthy balance sheet,” said Tamarack President and CEO Brian Schmidt, commenting on the combination.
19.5 MBOEPD in 2017
Tamarack Valley expects production of 19.5 MBOEPD at the midpoint of guidance for 2017 following the deal. The company plans to split drilling capital approximately equally between the Spur assets and existing Tamarack acreage, TVE said in its press release.
An estimated 100-110 Viking oil wells are expected to be drilled on the Spur assets with approximately 80% in the Consort and Veteran areas where the company operates infrastructure. The company also plans to drill between 15 and 17 net wells at Wilson Creek and Alder Flats, up to four net wells at Penny, and between 10 and 15 wells at Redwater.
The senior officers and directors of Spur, which collectively hold or exercise control over approximately 34% of issued and outstanding Spur shares, have entered into agreements with Tamarack to vote their shares in favor of the combination. There is a mutual break fee of $16.3 million in the event of termination of the agreement, and a mutual third party expense reimbursement fee in the event that Tamarack or Spur shareholders do not approve the issuance of Tamarack shares of the combinations.
