Tamarack Valley Energy Ltd. (TSX:TVE) ("Tamarack" or the "Company") is pleased to announce its financial and operating results for the three months ended March 31, 2017. Selected financial and operational information is set out below and should be read in conjunction with Tamarack's unaudited condensed consolidated interim financial statements for the three months ended March 31, 2017 and related management's discussion and analysis ("MD&A"), which are available for review on SEDAR at www.sedar.com or on Tamarack's website at www.tamarackvalley.ca.
Q1 2017 Financial and Operating Highlights
Early in the first quarter of 2017, the Company closed the Viking Acquisition and commenced the integration of assets, personnel and processes. The Viking Acquisition offers significant near and longer term growth for Tamarack, and provided support for an 80% increase in the borrowing base on the Company's credit facilities to $220 million. While new challenges emerged in commodity markets later in the first quarter, Tamarack's operational execution from both a timing and cost perspective remained on track. Production volumes for the quarter were in-line with guidance as the Company's Cardium and Viking drilling results continue to meet expectations, despite minor operational delays due to challenges in accessing pressure pumping services. For the month of April 2017, production volumes averaged over 20,000 boe/d (58% liquids) based on field estimates.
Production of 17,796 boe/d (57% liquids) increased 55% quarter-over-quarter and 86% year-over-year as a direct result of higher production volumes from the successful Q1/17 drilling program, capital efficiencies that continue to meet expectations, and the impact of the strategic Viking Acquisition that closed in January. Base production from the Viking Acquisition averaged 6,102 boe/d (57% liquids) from the closing date to the end of the first quarter, while Tamarack's Viking drilling program added 376 boe/d (68% liquids) of average production over the same period.
Tamarack's record level of investment in the first quarter of 2017 included $48 million directed to drilling and completions activities, primarily focused on Cardium and Viking programs. In Alberta, the Company drilled 17 (16.53 net) Viking oil wells in Veteran, 7 (6.26 net) Cardium oil wells and one (1.0 net) Notikewin liquids-rich gas well. In addition, three minor tuck-in acquisitions at Tamarack's Penny area were completed during the quarter for $0.8 million, which included production of approximately 35 bbls/d of oil and 60,954 (33,853 net) acres of land. In early May, the Company closed a $2.1 million acquisition, which included 14,080 (12,800 net) acres of land west of Wilson Creek along with 62 square miles of seismic. In Saskatchewan, the Company drilled 14 (11.6 net) Viking oil wells in Milton, 4 (4.0 net) Viking oil wells in Hoosier and 3 (3.0 net) Hatton heavy oil wells. While the pressure pumping suppliers are the busiest the industry has seen since 2014, the Company's reservoir stimulation delays in the first quarter were relatively minor and Tamarack does not anticipate operational inefficiencies or material cost escalation in the near-term.
The Company also invested $6.1 million in Q1/17 on facilities and infrastructure, and completed various key enhancement projects related to the Viking Acquisition assets that are expected to reduce operating costs in the second half of 2017 while also increasing productive capacity. A new 8 MMcf/d compressor station and multi-well oil battery was completed at Milton, which will reduce third party gas handling charges as well as operating costs.
At Veteran, where current oil production is approximately 1,250 bbls/d, the Company added over 20 km of a mainline oil gathering pipeline system which will allow Tamarack to utilize a Company-owned oil battery for emulsion gathering and eliminate third-party trucking and water disposal costs. Given higher than expected total production fluid volumes from Veteran wells, the Company intends to increase the pump size for Veteran wells going forward to eliminate current rate restrictions caused by pump capacity limitations. After the end of the quarter, a water disposal well was drilled at Veteran that is expected to generate a four-fold increase in the oil battery's capacity to over 10,000 bbls/d of fluid handling by the end of June, 2017.
Also during the quarter, the Company constructed a multi-well heavy oil battery at Hatton to handle the incremental production volumes stemming from Tamarack's successful first quarter drilling program and ongoing area development. All of these infrastructure initiatives support Tamarack's long-term flexibility and contribute to the Company's continued cost reduction efforts and field efficiency enhancements.
On April 28, 2017, the TransGas Coleville Gas Plant was shut-in, affecting the Company's production from the Coleville Gas Unit, Hoosier Gas Unit, Hoosier and Milton Viking oil wells. Tamarack had nearly 5,000 boe/d (47% oil and NGLs) connected to the facility which was affected at the time of the plant shut down. The Tamarack was able to redirect volumes and bring most of the affected production back on-stream. Currently, the Company has approximately 850 boe/d (3.0 MMcf/d,25 bbls/d oil and 325 bbls/d of associated natural gas liquids) that continue to be shut-in. Preliminary information from TransGas indicates that the plant could be affected for six to eight weeks. Tamarack personnel are working with TransGas on potential solutions to enable "partial operations" by the end of June, 2017. The Company estimates that second quarter production will be lower by approximately 900 boe/d due to the plant shut down.
A key component of the Company's strategy is to prudently manage its assets and balance sheet through any cycle, and as needed, adjust capital within the context of the commodity price environment. Tamarack will continue to focus on drilling wells that target a capital cost payout of 1.5 years or less, while striving to optimize capital efficiencies by further reducing capital and operating costs. Due to the recent decline in crude oil prices, Tamarack has begun to adjust capital spending to the bottom end of its 2017 guidance range of $165 to $175 million and will adjust further if oil prices fall below US$45/bbl WTI. As a result of the third party plant shut down at Coleville, the Company expects second quarter production to average between 18,000 and 18,500 boe/d, thereby reducing the first half production guidance range to 18,000 to 18,500 boe/d from 18,500 to 19,000 boe/d. Even with the planned lower capital spending coupled with the expected production impacts through the second quarter, Tamarack's 2017 annual average production guidance remains unchanged at 19,000 to 20,000 boe/d, with a forecast exit production rate of 21,000 boe/d. Through the second half of 2017, the Company plans to drill and complete eight Cardium wells and three Mannville wells at Wilson Creek, and 44 extended reach horizontal wells at Veteran and Milton. Tamarack continues to be on target to achieve 7% - 9% production per share growth (Q4/17 over Q4/16), while keeping debt to Q4/17 annualized funds flow from operations at 1.0 times. Tamarack's priority is to maintain a strong and flexible balance sheet that enables the Company to capitalize on opportunities to add high-quality drilling inventory or pursue consolidation acquisitions in core areas which may arise in a lower commodity price environment.
Despite recent commodity price volatility, the Company remains optimistic about the long-term growth potential of its oil-weighted, high netback and high-return asset base. The Viking Acquisition provides the Company with a strong and robust drilling inventory to fuel organic growth and underpin cash flow and production per share growth for many years. Tamarack also remains well hedged through 2017 and continues to layer on risk management contracts into 2018 to protect downside risk, which will underpin funds from operations and help the Company maintain its strong balance sheet and production base.
Tamarack invites all shareholders and other stakeholders to attend the Company's Annual Meeting of Shareholders to be held on June 22, 2017 at 9:00 a.m. at The Bow Valley Club located at 370, 250 - 6th Avenue SW, Calgary, Alberta.
Bank Line Renewal
Tamarack's credit facilities were increased to $265 million from $220 million on May 12, 2017 as a result of its annual review. The $265 million facility is made up of a revolving credit facility in the amount of $245 million and a $20 million operating facility with a syndicate of lenders.
About Tamarack Valley Energy Ltd.
Tamarack is an oil and gas exploration and production company committed to long-term growth and the identification, evaluation and operation of resource plays in the Western Canadian Sedimentary Basin. Tamarack's strategic direction is focused on two key principles - targeting repeatable and relatively predictable plays that provide long-life reserves, and using a rigorous, proven modeling process to carefully manage risk and identify opportunities. The Company has an extensive inventory of low-risk, oil development drilling locations focused primarily in the Cardium and Viking fairways in Alberta that are economic over a range of oil and natural gas prices. With this type of portfolio and an experienced and committed management team, Tamarack intends to continue delivering on its strategy to maximize shareholder returns while managing its balance sheet.
SOURCE: Tamarack Valley Energy Ltd.
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