Tamarack Valley Energy Ltd.

Good morning, everyone. Welcome to the Tamarack Valley Energy Limited conference call and webcast on Thursday, October 31, 2024, discussing the recent Q3 2024 results press release. I would like to introduce today's speakers, Mr. Brian Schmidt, President and CEO, and Mr. Steve Vitals, Chief Financial Officer. If you would like to ask a question, please press star, then the number one on your telephone keypad to join the queue. If you would like to withdraw your question, please press start, then the number two. Thank you. Mr. Schmidt, you may begin your conference.

Good morning and thank you, Ina. Welcome to everyone to the call to discuss our third quarter operating and financial results. My name is Brian Schmidt, President and CEO, and I'm joined here today by Steve Vitels, our CFO. The focus of the company in this phase of our strategic transition is to deliver consistent, reliable, and improving results. This quarter backstops that objective with third quarter delivering yet another outstanding quarter for CAMRAC and highlighted by the outperformance on our production volumes that averaged 65,024 BOE per day driven by exceptional Clearwater and Charley Lake drilling programs and our ongoing water flood initiatives. Starting with our Clearwater portfolio, Q3 24 Clearwater production increased to 43,300 BOE per day Reflecting a 15% or 19% per share increase year-on-year as Tamarack continues to expand its heavy oil operations. At West Martin, the company continues to see positive results from the Stacks CSAM delineation program with an IP30 rate of 200 barrels a day observed at the 213 well. from a section 14 pad. Given the strength of initial productivity in the area, the company plans to pursue water flow in both sets. Our continued refinement of drilling designs and program optimizations are driving overall efficiency enhancement and lowering overall capital costs throughout our Clearwater development program. It has so far resulted in a 55% reduction in per meter costs across the Clearwater, highlighted by a 15% or approximately $10 million reduction in capital in the Martin Hills area. The application of fan designs in Clearwater has improved efficiency through lower costs and increased recoveries in areas where secondary recovery potential has not been established. Success of the fan is demonstrated through results in the south Clearwater with a new Brook 13 to 30 pad continued to exhibit strong production in terms in both in terms of ip rate and lower decline the average daily oil rate exceeds 235 barrels per day after seven months of production this pad represents the best wells drilled by industry across the trend to date and tamarack's overall self clear water fan production has grown to 650 barrels per day results demonstrate the fan demonstrate the fan design contributes to lower shallower declines and higher per well estimated ultimate recoveries compared to the conventional design historically applied in the area. We'll water secondary recoveries for exhibiting strong results across multiple areas and sands in the play. Pilots initiated by TAMRAC continue to demonstrate strong performance from secondary recovery the well. Total water injection across the clear water started the year at 2,000 barrels per day and is currently doing 8,650 and forecast to grow to 14,000 barrels a day injection by year end, representing a 60% growth through Q4-24. Water flood activity to date has resulted in an estimated 1,500 barrels a day of incremental oil production, and the company expects to have over 9% of its clear water production supported by water funds. by year-end 24. Moving on to Charley Lake, during the quarter, Tamarac achieved production of 16,200 BLEs a day, which continued to benefit from sustained outperformance related to wells brought on in the first half of 24, primarily in the Wembley area. Tamarac resumed drilling in the Charley Lake play in July, rig-released four horizontal brought online in a pipestone area that were drilled from the 1434 pad and achieved IP30 rates of 1,320 VOEs per day per well. Also in Q324, the company has brought online two Wembley area wells from Section 11 pad that have exhibited encouraging test rates similar to the prior two Q423 drills from this location. Looking ahead, we remain focused on our core assets. Our strategy is continuing to reduce sustaining capital requirements through water flood initiative, improve pricing margins, and implement projects with multiple payouts. I'll now pass it on to Steve Vitels to run through the financial results as our outlook.

Thanks, Bryce. Tamarack delivered adjusted funds flow of approximately $220 million during the third quarter and generated free funds flow of approximately $109 million. Year-to-date, Tamarack has generated approximately $298 million of free funds flow, which on a per share basis represents a 72% increase per year. A couple of other key highlights from the quarter to mention. You know, the strong production performance exceeded the high end of our prior guidance, and we'll get to more of that a little bit later with respect to an update to guidance. Continued cost reductions and better wellhead realizations are driving stronger margins across the business. We see the majority of these cost reductions carrying forward on the back of our infrastructure investments over the past few years. The expanded Clearwater Infrastructure Limited Partnership added a 13th Indigenous community and transferred an additional 50.8 million of Clearwater assets to the partnership for 43.2 million in cash and retained 15% operating interest in the assets. During the quarter, we repurchased 12.3 million common shares. In total, during the first nine months of the year, the company has bought back approximately 22 million shares, representing 4% of the year-end 2023 shares outstanding, for a total repurchase value of approximately $83 million. Total shareholder return value for the first nine months of 24 was 144.7 million, or approximately 26 cents per share, including base dividends of $61.4 million. In addition, during this period, we further strengthened our balance sheet with third quarter exit net debt of just over 807 million. In total, net debt has been reduced by approximately $176 million year to date. While share buybacks remain our preferred method to return capital to shareholders, The company has elected to modestly raise our monthly dividend by 2% per share. This will represent the fourth increase and a 53% uplift since announcing the inaugural dividend in December of 2021. In response to the continued strong well performance and benefits from the infrastructure optimization during the year, the company has increased the full year production guidance range to 63,000 to 64,000 BUEA. The 2024 program, which is delivering higher production than originally budgeted, is forecasted to be achieved at a lower cost, benefiting from drilling and facility efficiencies. As previously released, and utilizing a portion of the Clearwater Infrastructure Partnership expansion proceeds, we will drill four Charlie Lake wells in the fourth quarter, expand regional pipeline capacity in advance of the third-party plant commissioning of the CSB project, gas plant in early 2025. In addition to this, we will expand our water flood investment program in the Clearwater. Tamarac anticipates spending for the year to be approximately $440 million, consistent with our prior guidance, which is inclusive of the incremental Charlie Lake wells I just mentioned and the water flood investment as the company continues to out-deliver against the capital deployed. NAMRAC is also updating our 24 corporate cost guidance on the back of a continued focus on reducing cost and enhancing margin with improved expenses for transport cost, carbon tax, and interest. I'm going to pass it back over to Brian here to wrap up our call.

These Q4, Q3 24 results continue to highlight the quality of the clear water and the charging of the gas that has been built over the past three years. as well as the operational excellence of the team that's driving this performance. Growth in the Clearwater at 15% relative to the same period of 23 was achieved, while at the same time, debt has been materially reduced and enhanced return to shareholders has been increasing. By demonstrating improved efficiencies, the company continues to deliver more while spending less. I'd like to thank our employees and all their hard work, the board of directors, shareholders, stakeholders, for all your continued support. I'll pass it back to the moderator for questions.

Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question over the phone, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel the request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Thank you.

And your first question comes from the line of Sherry McQuee, PMO Capital Markets. Please go ahead.

Hi, guys. Question on your water flood here. You talk about showing and putting a lot more, expanding the play much more into 2025. Is there anything you're doing differently, though, in terms of accelerating the voyage replacement here? And how much of your guidance reflects the improvement in potentially some of this water flood? Like, how easy is it that the forecast uh when you expect to see the response from water flood and how conservative have you guys been with that with that guidance i guess and then kind of the second part there is would you expect to see anything on your reserves here or some preliminary results that you may be having so far yeah good questions jeremy and listen there's a lot of questions on water flooding uh because you know uh it's been a while since we since you know the basin itself has been doing much water flood but

The way I would look at it here, Jeremy, is that we haven't issued 2025 guidance with respect to what we're going to get out of the water flood. I would look to get, you know, be able to give you some more clarity when we do that. I think that, you know, what I'm really excited about is that ramp up from 2,000 barrels a day to 14,000 barrels a day. And, you know, if you don't put the water in, you're not going to get the oil out. So that's going to be a good leading indicator. If you kind of dissect the pattern by pattern, I would tell you, Jeremy, that most of the response has been a little bit faster than what the engineers have thought. And I'm encouraged by that. So, you know, I'm hoping that, you know, this ramp up up to 14,000 barrels a day is going to significantly increase the percent hydrocarbon pore volume inject per year. And we should see some decent response coming here in 2025. The good thing on all our patterns, and I think, you know, we all compare notes between, you know, we're all watching each other's water flow between headwater cells and spur. You know, none of the operators have seen some breakthrough problems that the water breakthrough. It's really encouraging that we're injecting water, it's soaking in, it's building up pressure, and you're much more confident of a nice uniform sweep when you see water floods exhibited that way. As one of the specialists told me that I worked with for years, he said, you guys are too careful with these floods. He said, you've got to get something to break. And we just haven't seen that. It's a real exciting... It's a real exciting water flood, and I've worked on a lot of these over my years, and this is really encouraging.

Thanks, Brian. Thank you. There are no questions over the phone. Please proceed. Thank you.

We will now go to the online Q&A. Our first question is for Mr. Steve Vitale. How should we think about Tamarac potentially being interested in M&A at current levels? Respecting that 2025 guidance has not been an issue, how should we think about the company's strategic priorities slash general outlook for 2025 based on current oil pricing?

Yeah, thanks, Jamie. Let's start with 25. You're right, we haven't issued 25 yet, but I think when we look back to June at our investor day, we laid out a plan, the five-year plan for investors, which contemplated roughly you know, $450 million of capital annually that we're going to spend and generate, you know, around a 3% to 5% CAGR over those five years. So that's kind of how we'd look at it right now and what we'd say about it. I think we're pretty excited when you see this momentum around the cost reductions we're seeing in the business as well as the wellhead realizations And the increasing, you know, realized pricing we're seeing as well, that's going to help drive margin enhancement. But for now, you know, I think that's what we can give. And I think it'll be pretty consistent when we look at 25 in December here with respect to the budget. In terms of M&A, the way, you know, Brian and I really look at it is, you know, we're always going to look at the small little good strategic synergistic pieces that could bolt onto our core areas. But I think you all would have seen that, you know, we've really done nothing major. In fact, it's all been taking pieces out of the portfolio that don't compete for capital. We have such a significant amount of resource in the clearwater here on the lands that we have. we really have to focus on bringing that value forward. And Brian just talked about the water flood opportunity. It is just significant. We've got 8.7 billion barrels of OIP here we have to go after. So for us, the best M&A right now is buying back our stock and bringing forward value through the water flood as we look at things right now.

Thank you, Steve. Our next question is for Mr. Brian Schmidt. Are you seeing the potential for further consolidation across either of your place?

Yeah, like Steve said, most of this consolidation we're going to do is kind of where you get a one plus one equal three. And I think the way investors would have to look at Tamarack is that, you know, we have so much inventory, drilling inventory and water flood inventory that the priority for us is, you know, as Steve said, buying back shares. and executing, you know, doing your business such that you can accelerate that inventory and make great value for shareholders.

Thank you. Our next question is for Mr. Steve Vitale. With the significant reductions in transportation and operating costs, how should investors look to this going forward?

Yeah, no, thanks.

You know, when we look at the costs going forward, we You know, we provided updated guidance here on the OpEx side. Obviously, we're seeing some nice reduction with the infrastructure we've put in getting, you know, seeing savings around not having as much water disposal and taking something that really was, you know, a cost to us and projecting that in the reservoir and turning that into something that actually is going to help drive a ton of value. So you're picking up margin on both sides of that equation. When we look at transportation, You know, the one caution I will have, we did have a one-time item in the quarter with respect to some toll credits. That being said, you know, we have taken a lot of trucks off the road as we've tied in more to pipe throughout the Clearwater. So, you know, we have seen a very nice increase with respect to that efficiency and lowering the overall transportation costs. And I think when we come out with our You know, 25 budget, you know, that's something that we will see is, you know, an aggregate, something that's, you know, more reflective of the back half operating and transportation costs. The other one I had mentioned too is carbon tax. You would have seen, you know, that come down quite a bit here in the quarter. And that's really a function of us bringing on and tying in and conserving a good chunk of gas here throughout the Clearwater. You know, and I think that's going to be something that obviously moving forward here is important, but it's going to be a lot less from an expense standpoint for us as we look into 2025 and beyond.

Thank you. Our next question is for Mr. Brian Schmidt. With continued strong well results from the Charley Lake, will Tamarac look to grow that more aggressively with further infrastructure expansion beyond the new capacity planned for early 2025?

Yeah, so in Charley Lake, you know, on the sweet side, we've been, we've constructed our own gas plant there. On the sour side, there's some limited processing capacity, some of which will come on with the CSV plant next year. But the best economics that you could hope for, you know, are arrived by not burdening those wells with much infrastructure. So I think what we're going to be doing is, if you're planning for that asset, it's kind of a drill to fill strategy. And then trying to be opportunistic where you can pick up or move some gas through low cost infrastructure. But I would not, just because of these well results, I think we're happy still to drill to fill and generate free cash flow for the rest of the company.

Thank you. Our next question is for Mr. Steve Vitale. With the startup of TMX, how is it affecting the pricing of your barrels?

Yeah, that's a great question, and it's timely. You know, we're really excited to see the pull on barrels in the province here as a result of the startup of the TMX. So, you know, I think it took some time to really start to figure out and see the benefit coming through. But, you know, one of the things we're noticing for sure is, is you're pulling on some of the other heavy grades throughout the province. So you're seeing, you know, CHV, CWH, things like that, you know, not only tightening the differential that they normally trade at relative to WCS, but you're actually going to see, you know, potentially the opportunity to realize a premium to WCS here. And, you know, that's something we won't forecast, but our marketing group has done a really great job maximizing the value of our barrels here. And, you know, I think you see that through this quarter, some of the fruits of their labor and also obviously the effects of TMX coming through. And that's going to be something, you know, to watch moving forward. But overall, it's an extremely positive event for our barrels here in terms of pricing and the competitiveness of those barrels moving forward.

Thank you. Our next question is for Mr. Brian Schmidt. How pervasive is sour in the Tarly Lake, and how would you break down your forward inventory between the play, sorry, between in the play between sweet and sour targets?

Yeah, so roughly speaking, you know, when you go to the west side of the field, that's where you start to get a little bit of sour. When I say a little bit, we're probably talking in the PPMs kind of range, so nothing too drastic. There are a couple of cases in industry where you can get much higher than that, but we're not in that part of the play. I would say roughly about a third of our inventory is in that PPM SAR range, and the rest is sweet. Managed properly. I think you can do well on both the sweet and the sour side, just given the availability of processing and the cost structure. Thank you.

We have no more questions from the Q&A, so we'll pass it back to the moderator.

Thank you. Once again, should you have a question over the phone, please press star and 1 on your telephone keypad.

No further question at this time. Please proceed.

Well, thank you, everybody, for attending today. Good questions. If there's follow-up questions, please reach out to Tamarack, and we'd be happy to answer. Thank you.

Thank you, and this concludes today's call. Thank you for participating. You may all disconnect.