Current TVE:CA Stock Info

Tamarack Velley acquires Alberta assets for $85 million

Tamarack Valley Energy (ticker: TVE) announced the acquisition of two assets in Alberta for total aggregate cash consideration of $85 million.

The first acquisition is a strategic consolidation of assets located in Tamarack’s core operating areas of Redwater and Wilson Creek in Alberta. This acquisition adds significant infrastructure, including an 82% ownership in a central oil battery at Redwater with capacity to handle 8,000 barrels per day of oil and 1.5 MMcf/d of natural gas which is expected to further improve the company’s operations in both areas.

The second acquisition is comprised of a light oil pool at Penny in Southern Alberta, which has only recovered 10% of estimated oil in place to date, has a decline rate of approximately 12-13%, and has been under waterflood for over 15 years, the company said in its press release today.

The Acquisitions are expected to add approximately 1,900 BOEPD (75% light oil and NGLs) in aggregate, and include 95 (60 net) total sections of land at Redwater and Wilson Creek, contiguous with Tamarack’s existing Viking and Cardium interests. The company has identified 57 total locations of which 20.3 net high quality, one year or less payout drilling locations on the acquired lands using current strip pricing and realized industry service costs.

To finance the deal, Tamarack has entered into an agreement with a syndicate of underwriters, led by National Bank Financial, to which the underwriters have agreed to purchase for resale to the public, on a bought deal basis: (i) 17,487,000 subscription receipts of the company at a price of $3.66 per subscription receipt for gross proceeds from the offering of subscription receipts of approximately $64 million; and (ii) 1,952,000 common shares of the company to be issued on a “CDE flow-through” basis at a price of $4.10 per CDE flow-through share, for gross proceeds from the offering of approximately $8 million. The aggregate gross proceeds from the sale will be $72 million.

Features of the acquisitions

Features and benefits of the Redwater acquisition:

  • Current production of 850 BOEPD (71% light oil and NGLs) with an approximate 20-22% decline rate and immediate synergies with existing operations;
  • Contiguous lands to existing operations comprised of 95 (60 net) sections, with 46 (36 net) sections in the greater Redwater area and 49 (24 net) sections in the greater Wilson Creek area, including 4 (3.55 net) sections with 5 (4 net) Cardium and Manville drilling locations identified;
  • A total of 14 (13 net) high-quality Viking drilling locations that payout in 1.5 years or less at current strip prices and 32 (30 net) total identified locations;
  • A total of 8 (7.3 net) one-mile equivalent high-quality Cardium oil and Mannville gas drilling locations that payout in 1.5 years or less at current strip prices;
  • Initial operating costs forecast at $21.80/BOE, which is based on the historical performance of the acquired assets in Redwater. However, the company believes that operating costs can be reduced at Redwater by $3.00-5.00/BOE; and
  • Significant new infrastructure with an estimated replacement value of over $30 million, including 82% ownership in a central oil battery at Redwater with oil capacity of 8,000 barrels of oil per day and gas handling of 1.5 MMcf/d.

Features and benefits of the Penny acquisition:

  • Current production of 1,050 BOEPD (76% light oil and NGLs) from the Barons formation which has a decline rate of approximately 12-13%;
  • 71 MMBOE OOIP light oil pool under active waterflood, with only 10% recovered to date, with expected primary recoveries of 16%;
  • Opportunity to increase the pool’s recovery from 16% to 23% through waterflood optimization;
  • Realized operating netbacks of $27.25/BOE for the second half of 2016 based on a H2/16 $59.75/bbl Edmonton Par price and $2.20/GJ AECO price; and
  • Key infrastructure consisting of four 100% owned oil batteries with combined oil capacity of over 2,000 bbls/d of capacity, two 100% owned gas plants with combined 12.5 MMcf/d capacity, multiple injectors and various field compression equipment, with an estimated aggregate replacement value of over $45 million.

Acquisition Summary

Total purchase price(1)   $85 million
Estimated production (at closing)   1,900 boe/d (75% light oil and NGLs)
Forecasted annual decline rate on base production   16-18%
Land (net acres)   167,503 (126,963 net) acres
Total identified / bookable locations   57 / 44
Forecasted H2/16 operating netback(4)   $25.63/boe
Reserves (mmboe):    
  Proved developed producing (“PDP”) reserves(2)   6.4 (81% light oil and NGLs)
  Proved reserves(2)   8.2 (85% light oil and NGLs)
  Proved plus probable (“P+P”) reserves(2)   13.0 (75% light oil and NGLs)
  P+P RLI(3)   15.2 years
Reserves Value (PV10)    
  PDP reserve value(2)   $87 million
  Proved reserve value(2)   $102 million
  P+P reserve value(2)   $152 million

Acquisitions Metrics

Estimated Production (at closing)   $44,750 per boe/d
Proved Reserves   $10.36/boe
P+P Reserves   $6.54/boe
Current cash flow multiple(5)   4.8x
P+P Recycle ratio   3.6x

Notes to the tables above:

1 The purchase price will be adjusted for activity that occurred between the effective date and the closing date of the Acquisitions.

2 Working interest reserves before the calculation for royalties and before the consideration of royalty interest reserves.

Reserves estimates are based on the Company’s internal evaluation of what it estimates could be booked at June 30, 2016. The reserves were prepared in accordance with the Canadian Oil and Gas Evaluation Handbook by a member of Tamarack’s management who is a qualified reserves evaluator in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. Reserve values are based on GLJ December 31, 2015 engineering pricing.

3 The reserve life index (“RLI”) is calculated by dividing P+P reserves estimated at June 30, 2016 with estimated production at closing.

4 Operating netback does not have any standard meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. Operating netback equals total petroleum and natural gas sales less royalties and operating costs calculated on a boe basis. Tamarack considers operating netback as an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices. The estimated operating netback was derived using the Company’s H2/2016 commodity price forecast of $59.75/bbl for Edmonton Par price and $2.20/GJ for AECO.

5 Cash flow multiple is calculated by dividing the purchase price by an estimate of funds from operations from the acquired asset on a run rate basis using the estimated production rate at closing. The estimated operating netback was derived using the Company’s H2/2016 commodity price forecast of $59.75/bbl for Edmonton Par price and $2.20/GJ for AECO.

Tamarack Valley revises guidance up

Because of the increased value of oil since the start of the year, and the added production the company expects from the acquisition today, TVE has increased its guidance for 2016. The company announced today that:

  • Capital expenditure budget increased to between $45-$53 million (excluding the cost of the Acquisitions) from $40-57 million while continuing to invest within cash flow;
  • Average estimated 2016 annual production guidance increased to between 9,700-10,000 boe/d (approximately 53-57% oil & NGLs);
  • 2016 exit production rate increased to approximately 11,000 boe/d (approximately 53-57% oil & NGLs); and
  • Assumes: 2016 WTI average $44/bbl – $47/bbl USD, 2016 Edmonton par price average $52/bbl – $56/bbl, 2016 AECO average $1.80/GJ to $2.00/GJ, Canadian/US dollar exchange rate range of $0.77 to $0.78.

Tamarack Valley Energy will be presenting at EnerCom’s The Oil & Gas Conference® 21 in Denver, Colorado, August 16, 2016. To find out more about The Oil & Gas Conference®, click here.

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