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An Oil & Gas 360® exclusive interview with Tamarack Valley CEO Brian Schmidt

For Calgary-based Tamarack Valley Energy (ticker: TVE), being patient during the downturn paid off in spades.

Picking the Right Acquisition Accelerated Tamarack Valley’s 2017-18 Plans

Brian Schmidt, CEO, Tamarack Valley Energy

“We paid very close attention to the downturn itself. We knew we had to be patient to find the right property. Our criteria were really quite specific: anything we bought had to have the rates of return on half cycle basis that would compete for capital with our asset base at Wilson Creek. So that ruled out a lot of options,” Schmidt told Oil & Gas 360®.

“The second thing was that it needed to have enough running room to at least double production and carry that on for four or five years.”

Schmidt said those two criteria were the company’s top two screens for considering possible asset acquisitions, “and they eliminated a lot of assets at the start.”

“For reference, our Wilson Creek Cardium—a lot of analysts have said that the Wilson Creek Cardium is in the top ten percentile in terms of rate of return in the Western Basin. So it’s pretty tough to compete with that,” Schmidt said.

“What we liked about the Provost Viking Spur deal is that it did have lots of running room—we’ve got 700 locations there. Those locations pay back in a one-year time frame at today’s oil price. We could easily double production and hold it there for several years with that kind of inventory.”

Picking the Right Acquisition Accelerated Tamarack Valley’s 2017-18 Plans

OAG360: Tamarack Valley is producing about 18,000 BOE per day, up from 8,000 a year ago. How has this production growth changed the way you look at the company?

BRIAN SCHMIDT, CEO, TAMARACK VALLEY ENERGY: A lot of the guys on our team managed a much larger production base at Apache Canada. Apache had very good internal processes that we’ve simply adopted for our company. So, where a lot of guys might struggle beyond 10,000 barrels per day because they don’t have processes in place to handle something bigger, we’ve always had those processes in place and a lot of our people have experience in larger organizations with those systems.

Also, we have a lot of technical expertise with the specific asset at Spur. Some of those assets we had actually managed when we were at Apache, and some of them wound up at Spur.  That familiarity with the assets that a lot of the guys have has made the transition quite easy. We closed on Jan. 11, and we were able to get out in the field and start drilling very fast.

OAG360: How does the acquisition affect things like putting the cash flow to work, your future CapEx plans?

SCHMIDT: We are very ‘rate of return’ driven—full cycle rate of return. We don’t really reward or compensate the guys just on half cycle. We’re looking at total rate of return—carrying all of your costs: land, seismic, G&A. That’s not going to change—that’s the way the company has managed itself in the past.

However, having just swallowed a pretty large asset, this Spur acquisition—it basically represents 40% of the company in terms of value right now. It’s a big growth step. You know usually you do a high quality acquisition like that and you’re not just paying PDP, you’re making some promises as to what you can deliver to your shareholders in terms of production and cash flow per share growth.

So what we want to do is make sure that we’ve got our eye on the ball—we’ve shut down all the marketing except for conferences like EnerCom. We’ve made sure the guys are all focused on execution, not looking at other acquisitions, not being distracted. We know that we’ll be judged on this transaction, on delivering production per share growth, cash flow per share growth, increased liquid weighting and improved corporate netbacks. I think in the medium term we want to ensure that we can add inventory.

One of the things we’re experimenting with is to make sure the capital dollars we deploy on the asset are going to help us in the long term. We’re looking at additional downspacing. One of the key assets that we got with Spur is going to get 5% recovery, but there is a lot of oil in place and we think we’re going to try some methods in the first half that may see us move that 5% up to 8% or 9%. That’s all going to be gravy to what we ended up paying for.

OAG360: How do you see the rest of 2017 laying out; what do you think things are going to look like at the end of the year?

SCHMIDT: We’ve been pretty clear with the market on our guidance. Our pro forma coming into the year is going to be about 18,000 BOEs a day—that’s with Spur coming in—about 56% liquid weighting. Our guidance this year is probably going to be about 19,000-20,000 BOE per day. Our Q4 average is probably going to be about 20,000-21,000 BOEs a day—anywhere from 57%-62% liquids weighting.

The more capital we deploy on these assets, the higher the liquid weighting, and the higher the liquid weighting the higher the netbacks. A lot of investors like Tamarack because of that—the more money we expose and spend the higher the netbacks get on the property. It’s quite unusual to find that kind of advantage.

OAG360: If you look out a little farther, what can investors expect from Tamarack Valley in 2018?

SCHMIDT: This first half it’s all about delivering on the ‘per share’, but if you look into the second half, we think if we hit our numbers right and deliver expectations, we think our cost of capital gets better and then we can look at some other things on the larger side.

On the smaller side in terms of tuck-ins, I think there’s a lot of room to grow around the existing assets that we’ve got now with Spur. And because we own and control the infrastructure in the area, it’ll do a lot for us just like it did at Wilson Creek. To give you a quick snapshot of Wilson Creek, we entered that area with 44 sections of land acquired from Suncor, and now we have over 300 sections of land there and a very healthy drilling inventory in Wilson Creek.

Picking the Right Acquisition Accelerated Tamarack Valley’s 2017-18 Plans

We think that this Spur deal can give us the kind of torque that we saw in Wilson Creek, so 2018 would see us adding to our inventory and the years of drilling that we have.

Also, I just wanted to say that the EnerCom Dallas conference is one of the first times that we’ve really been able to get out and tell the story after we’ve had the asset for a while—we’re very excited to talk about our story during the conference; people will be able to see how well this thing is going to do for us.

Tamarack Valley Energy (ticker: TVE) is a presenting company at EnerCom Dallas Mar. 1-2, 2017, at the Tower Club Downtown Dallas. Details on how to register for the conference and hear Brian Schmidt present his company, or to see how to schedule a one-on-one meeting with Tamarack Valley (note: meetings are reserved for buyside institutions), please visit the EnerCom Dallas conference website and click the registration button.

Picking the Right Acquisition Accelerated Tamarack Valley’s 2017-18 Plans


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