Tamarack Valley Energy Ltd.

Good morning. Welcome everyone to the Tamarack Valley Energy Limited conference call and webcast on Thursday, July 31, 2025, discussing the recent Q2 2025 results press release. I would like to introduce today's speakers, Mr. Brian Schmidt, Founder and CAO, and Mr. Steve Pytals, President and CFO. 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 star, fall by the two. Thank you. Mr. Schmidt, you may begin your conference.

Thank you, and good morning. Welcome, everyone, to our call to discuss the second quarter operating and financial results. My name is Brian Schmidt, and I'm the founder and CEO of Tamarack Valley, and today I'm joined by Steve Bightells, who has just been appointed president in addition to being our CFO. This morning, Tamarac announced its Q2 results, positive updates to 2025 guidance, and a strategic clearwater tuck-in. Some key highlights of the quarter include. First, a new corporate production record. In our second quarter, we averaged 70,260 BOEs per day, surpassing all other prior quarters. Tamarac achieved its highest monthly result in April, where we averaged just over 74,300 BOE per day. Secondly, the compounding impact of our buybacks and organic growth. This has resulted in the Q2 debt-adjusted production per share being up 24% on a year-on-year basis. Point three, demonstrated water flood success. We continue to see strong production response from patterns which are well ahead of their primary baseline volumes. Fourthly, operational and efficiency gains and cost improvements. These are driving improved outlook for 2025 as we revised our production guidance up by 3% and our capital spending down by 7%, which is fostering continued free funds flow strength. Fifth, our debt reduction. Tamarac is advancing its objective to ladder the structure. Our recent bond offering supports this and was well received in the market. Overall, our net debt of $711 million is 19% lower year-on-year. Sixth, the strategic Clearwater consolidation. Consistent with our prior messaging, we have continued to monitor the basin for strategic opportunities. And yesterday, we closed a small accretive $51.5 million tuck-in of one of our partners in North Clearwater. Operationally, the water flood is driving growth while Charlie Lake continues to offer solid production performances. The clear water grew again in Q25 and was up 16% year over year. This continues to underscore the success of our primary development and strong response for the ongoing expansion of Tamarack's water flood program. Our water injection rates in the clear water have increased, and we are currently at 20,000 barrels per day injection of water and on track to achieve our exit target rate of over 30,000 barrels per day of water injection. Tamarack is demonstrating long-term value creation and resource capture capability of deploying water flood as part of our multilateral development strategy in conventional heavy oil reservoirs. To illustrate this, we can look at two water flood patterns, 50-2 and 60-2 in Martin Hills. After six and a half years on stream, these two wells ranked as the top two clearwater multilateral producers for the month of June. On a combined basis, these wells have produced over 1 million barrels of oil and are currently producing at 725 and 750 barrels per day, respectively, more than their primary production rate. Success is driving our forward outlook with the drilling of an additional 45 primary wells and nine injectors, as well as 10 injector conversions in the second half of 25. While we continue to advance our development, we are benefiting from regional peer activity, including stepping out and testing new formations, which is continuing to de-risk our assets at no cost to Tamarac. Recent results from a peer well operated at Martin Hills Grand Rapids Expiration Well, adjacent to our lands held by Tamarac, which also include Grand Rapids. It delivered an IP 60 of 345 barrels per day. Tamarac plans to test the Grand Rapids on our lands in 2026 adjacent to this well. Now let's move to Charley Lake. Our Charley Lake asset continues to deliver solid results with production in the first half ahead of plan, reflecting strong performance from the 11 net wells brought on stream so far in 2025. At 18,900 barrels equivalent per day, the Charley Lake surpassed its prior production record. We continue to await startup of the CSV plant and are prepared to continue to commence delivery of gas as the facility is currently in the final stages of commissioning. While the addition of this plant increases Tamarac's regional processing capacity, we have alternate arrangements in place to support ongoing development. With an additional eight wells planned to be drilled in the second half of 2025, the full year outlook for Charley Lake remains intact. I will turn it over to Steve to expand on the financial results, update the guidance and summary of the recent Clearwater tuck-in acquisition.

Thank you, Brian. First off, I wanted to thank Brian and the Board of Directors for both the opportunity here at Tamarack and the confidence they have in me taking on this new role. As we look at our Q2 2025, this will mark two years of consecutive quarterly outperformance by Tamarac based on a funds flow and production per share relative to consensus. In the second quarter, we generated adjusted funds flow of $197 million or $0.39 per share. Free funds flow of $133 million or $0.26 per share. To the first half of 2025, free funds with 44 cents per share is up 29% versus the first half of 2024. The year-over-year increase reflects the compounding effects of strong production, lower costs, and our continued share buybacks. It is important to note that this accretion was delivered against an 8% drop in WTI oil prices over the same timeframe. In the second quarter, Tamarac bought back an additional 10.1 million shares, pushing cumulative totals since initiation of the program at the start of 2024 to over 10% of our float. Year to date in 2025, shares were repurchased at an average price of approximately $4.33 per share. With our Q2 results, we are revising our guidance upwards with respect to production. This positive result is driven exclusively by the organic success of our Clearwater and Charlie Lake programs. Overall production guidance is increased by 3% at the midpoint, with a range now at 67 to 69,000 BUE a day for the year, up from 65 to 67,000 originally budgeted. This includes planned Q3 turnarounds in the Clearwater and Charlie Lake reflecting an impact of approximately 1,500 to 2,000 BUE a day in the quarter that was previously communicated. This will see production for Q3 trend towards the lower end of the guidance range. However, that is forecasted to increase to the higher end of the range back through Q4. While production is increasing, we are seeing lower costs and capital coming through the business, and that is being reflected in our updated capital and corporate cost guidance. We are reducing our capital, as Brian mentioned, at the midpoint by 7% or $30 million, with the new guidance range now at $400 to $420 million for 2025. We're reducing production expense by 5%, reflecting field infrastructure investments, water flood rejection, higher production, and the disposition of higher-cost non-core assets. Transportation is revised down by 3%. on a cost basis for the year and 6% on interest expense. The lower capital, coupled with the better margins in the business, is leading to higher free funds flow. This, in turn, results in additional funds being allocated to buybacks for 2025 over and above our budgeted amount, as well as accelerated debt repayment. Yesterday, Tamarac closed the $51.5 million tuck-in acquisition of a privately held Clearwater producer in the Nipissi area. This transaction will add approximately 1,100 barrels a day of heavy oil production to the balance of the year and increases our Clearwater land holdings by 17%. This was a strategic move to consolidate joint interest holdings, which establish 100% working interest ownership across our Nipissi lands. This transaction is accretive to Tamarac's five-year plan on a debt-adjusted per share basis and afford stacked clear water development and water flood upside where Tamarac can leverage our owned and operated infrastructure market access and capital scale. The combined effect of the previously announced penny disposition and our clear water tuck-in acquisition serve to offset each other on a production basis. However, the clear water assets offer a significantly stronger net back owing to lower operating costs providing accretion to our funds full outlook moving forward. The penny disposition proceeds combined with the reduction in corporate capital guidance has Tamarac on track to continue to meet its debt target as highlighted in our June investor day in 2027. Subsequent to the end of the quarter, Tamarac closed a $325 million six and seven eighths notes offering. This represented one of only two sub-7% coupons for single B-rated oil and gas issuers in Canada in approximately seven years. A portion of the proceeds was utilized to repay $100 million of our 2027 seven-and-a-quarter notes, and the balance was applied to our existing covenant-based facility as we continue to advance our laddering of the credit portfolio. Including the recent acquisition, Tamarac retains significant financial flexibility and balance sheet strength with approximately $600 million of undrawn credit capacity and a trailing 12-month net debt EBITDA multiple of 0.7 times. While oil prices have remained volatile, Tamarac retains a strong outlook for funds flow in 2025, which is underscored by our updated guidance. Our sub-US $40 per barrel WTI corporate breakeven strong balance sheet and operational performance are key to ensuring our business remains resilient to commodity price and market volatility. We continue to execute on a hedging program to support price risk management, having established coverage on approximately 50% of our oil through the balance of 25 and the first half of 2026. I'll now turn it back to Brian for additional commentary on our field operations and capital program before we open the call to questions.

Tamarac continues to be differentiated by the best-in-class nature of our assets in terms of superior economic return and vast inventory. Through our recent acquisitions, we continue to build on those factors, and the results are reflected through higher production outlook, demonstrated lower costs, increased free funds flow, and the generation of solid returns for our shareholders. Lastly, I'd like to close out today by congratulating Steve Bytels in his transition to president and CFO of Tamarac. Steve joined our team in 2020, and he's been an integral part in achieving the company's successful transition to a focused Clearwater and Charlie Lake conventional producer. I will continue my role as CEO and as founder. I could not be more proud of what Tamarac has achieved. I'm even more excited for what lies ahead for us. Thank you, and I'll now turn it back to the moderator for questions.

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

One moment, please, for your first question. Your first question comes from the line of Patrick O'Rourke from ATB Capital Markets.

Please go ahead.

Good morning, guys. First of all, congratulations, Steve, on the new role. First question here, sort of what really stuck out to me in the quarter was the reduction in CapEx and what that means to capital efficiencies for the business. If you guys were to sort of pin down what was you know, driving your ability to do that? Is that, you know, type curve outperformance on the primary side, cost control, water flood results? Like, what's the real driver here? And, you know, is this a sort of permanent capital efficiency improvement that we should be carrying forward into 2026?

Yeah, so there's probably three major things. I'll start with one that, you know, is a little bit smaller nature on a per well basis, but overall our PDP on primary, we're seeing less declines than what we had on there. The second thing, probably more significant, is the water flood response that we're getting on almost all of our patterns has been better than what we had forecast. The two wells, Patrick, that I talked about there, They don't show up on anyone's radar because these things are six years old, but they would have made the top 10 list in June on the clear water production in the basin. It's pretty interesting how you can take these older wells and get them up over their initial peak production rate with water flood. That was something that we hadn't contemplated that you would actually exceed that. That's just a couple of examples in Martin Hills, but almost all the water flood patterns are outperforming. We know the most important thing is to get water injection in, and that's why we've emphasized that in this call. Now, the other aspect is cost reduction, and we've had some really good success in planning and coordinating these wells on paths. and doing them in a very cost-efficient manner. The number of wells per pad that we're drilling is going up, which drives costs down. But the layout and planning, we have a KPI on our dollars per meter. And I think we reported last year we saved $10 million on capital just through increased drilling speeds and dollars per meter. So that's, again, a KPI that we're tracking this year. And we're continuing to improve that as well. And so that's dropping the cost as well. Now, when you get a little bit more, I'd say the capital cost improvement has actually been even better than what we've reflected in the numbers here. But we've just redirected some of that capital over to water injection. And that's going to help us in future years in terms of decreased decline. So we're expecting some big things in the future by redirecting that capital and going from 20,000 barrels a day up to over 30,000 barrels a day injection. And I would advise any of the people on this line, that's the thing to watch for is how much water is being injected and because that's going to be coming at you in future years in terms of longer term oil production.

Okay, thanks. And then you spoke to testing the Grand Rapids in 2026. Obviously, we can see the land that's adjacent to the headwater success that they've had there that you have. But, you know, throughout the play, where the Grand Rapids exists, you've been drilling through it. Do you have oil shows in other areas where it might be prospective?

Yeah, we've got some, you know, there's the anomaly that we're talking about drilling. But there's other anomalies on there, too. And you're right. We've been picking that up through some of the wells that we've got. And, you know, you've got to stay from water and you've got to stay away from the gas. And it looks like there's a good runway of opportunity there to pursue.

And I think if I could add something, Patrick, the way we look at all of this is when you're sitting on these big pads that Brian was alluding to, which is resulting in the better efficiencies, drilling the multiple stack clearwater sands, and then you have the water flood development that coincides with the stack sand development in the clearwater, this Grand Rapids is going to represent quarter cycle type economics because it's just another thing you're going to add from those pads as we go in and drill all of that. So I think when you think of efficiencies and margins in the business, this whole stacked potential just continues to provide some positive operational momentum, capital efficiency momentum moving forward. And obviously, when you think of things, the more you can add there on a half cycle basis or better, it's just going to help there. So we're pretty excited about it and see, to Brian's point, some of those similar prospectivity across our land base. And we'll look to start drilling some of that next year.

Okay.

Thank you very much.

Thank you. Once again, should you have a question, please press star four by the one on your telephone keypad. And your next question comes from the line of Jeremy McCree from BMO Capital Markets. Please go ahead.

Yeah, hi, guys. My question is actually on inventory here and a second follow-up question to that. So just with the acquisition that you guys picked up, how much additional land does this come with and how does that compare to the existing stuff? But when you look at the existing assets, and this is the second question, what do you guys need to see to accelerate spending on this? Because the economics look incredible here, and is there the ability to go faster to develop a lot of the locations that you have here to bring forward some of this?

Yeah, thanks, Jeremy. It's Steve here. So, yeah, on the acquisitions, We're bringing in 114 and a half net sections of land. And the majority of that is all Clearwater lands with some Manville rights as well. So we don't really comment on the specific inventory numbers because a well design, we still are walking through that, whether some of that's going to get developed through these fan type primary designs or how much of that's going to be on our sort of standard pitchfork design with the water flood development congruent. So what I'd say is we're adding 17% incremental clearwater land through this acquisition. The core majority of that is in West Nipissi where we had a bunch of joint interests that we're consolidating here. And the key around all of that is for us to have control of that development We can leverage our infrastructure that is in our Nipissi core and bring that over to this West Nipissi area. And it's just going to help with synergies and full cycle development efficiencies around water flood and costs, capital programs, et cetera. So I think that's a big thing. I think the other thing with this acquisition that we like from a synergistic perspective is we control the pace of development. We control the well design. And there's definitely a cost if you're not doing that in a certain manner and within a certain design right from the start. So you've got to be careful there. You don't want to overcapitalize things or develop things in a way that you would have rather changed later. So the element of control was important for us here. I think what you're seeing in the Clearwater in general is there are these multiple stack targets that we continue to see across all our lands. Brian talked to the redirection of through the reduction in capital. We've also redirected and changed the scope of the program with a lower decline coming through and better efficiencies. We've been afforded the opportunity to actually redirect more capital into the water flood. There's more conversions, more injectors than we would have had previously planned. And as Brian alluded to, we're going to be over 30,000 barrels a day of water injection by year end. And the correlation to water injection and the uplift to water flood obviously correlates very tightly to that response. So we're excited with what's going on. There's no doubt that the more money you can put in sooner, the better when it comes to these floods and the development of this play. And we're learning a lot as we go. So We're excited. We see an ARB, essentially, in how we get reserves booked to these lands relative to what's going on in the positive revisions coming through the water flood and even just on the primary type curve basis. So again, we continue to drive as much as we can in, and the focus is on right now putting as much and more capital into the water flood within that guidance that we're outlining today.

Okay, and then just on that guidance, as we look into 2026, 2027, what would be, like, I can appreciate that, you know, just trying to, you know, show, you know, stronger cash flow, but what are some factors that would make you want to accelerate the growth rates that you're seeing from some of these areas here, such as higher oil prices or more confidence in what you're seeing from the water flood? What would be some of the factors that would make you want to go faster?

Yeah. There's a lot of economic incentive, even at these prices, to want the Clearwater. You could grow the Clearwater a lot quicker. But for us, it comes back to that disciplined and consistent approach to capital allocation around the growth that we offer from a total return basis, the debt reduction, and the buybacks. We see a lot of, obviously, upside still in our stock here with what's going on with this asset. So We're trying to balance all of that. And, you know, again, we review our capital allocation and cash flow allocation weekly to make sure that we're maximizing that total return to shareholders. And as we continue to pay down debt, we will continue to have that optionality to ramp more growth and more water flood dollars in terms of investment. So I think we're just trying to balance and maintain consistency and discipline around that approach on capital allocation.

Okay. Perfect. Thanks, Steve. Yeah. Thank you. And there are no further questions over the phone.

The AMRAC team will now read pre-submitted questions. Please go ahead.

Thank you. Our first question on the online Q&A chat is for Mr. Steve Baitel. Could we please get some additional clarification on why the Clearwater tuck-in was more accretive to per share value than additional share repurchases?

Yeah, you bet. So again, we've talked a little bit about it on the call here and we see very similar upside in the stack nature of the reservoir on both the primary and water flood perspective that we just don't see being properly valued in the clear water today. And we see an ARB and we want to act on that. But at the same time, you know, we look at both buybacks and A&D on a very similar footing in terms of overall return a full cycle basis for our shareholders and and felt that this acquisition uh competed in terms of the upside that it brings in the portfolio but also the synergies of leveraging our own infrastructure and operations uh that can drive additional accretion on a corporate basis i think the thing i talked to too a little bit was on the the element of control uh that of the program and of the design of the program to make sure that we are maximizing the dollars that we're investing into that property moving forward. And then again, leveraging our scale there. So all of those factors drove accretion in our five-year plan on both the debt adjusted production per share, but also a debt adjusted free funds per share basis with respect to that acquisition. So it is a fine balance for sure. And the other thing I would reiterate is when you take into account the reduction in capital guidance, coupled with the penny disposition proceeds that closed in the quarter, it's effectively neutral on our debt forecast in terms of achieving our debt target of $500 million. It's unchanged into 2027 that we would have talked about at our investor day. So we felt this offered additional accretion to the plan while maintaining that debt target horizon. and also offering further upside in terms of inventory and resource capture at very reasonable levels. Brian, I don't know, did you want to add anything to that? No, I think that captured it.

Thank you. Our next question is for Mr. Seatbytells again. Can you quantify the impact of higher volumes and dispositions on your lower cost guidance versus efficiency gains?

Yeah, and I think Brian did a really good job walking through all of that in terms of the efficiency gains and the costs and what the water flood's doing to decline from that standpoint. There's no doubt the penny disposition was a higher cost asset for us on the OPEC side. And I think if we look at it on a On an annualized basis, what that would have done for guidance was probably to the tune of 10 to 15 cents of BOE. But what I really want to reiterate here is organically what the team has done around efficiencies on the cost side, the transportation, the marketing side of the business to enhance margins. These are things that are a key focus here day in and day out. And we set some pretty tough targets internally to meet and the team, both in the Charlie Lake area, our east assets and the Clearwater have all done a great job in executing, and that's been the result of their hard work and labor, and that's why we've been able to drive that down. The disposition was a smaller piece of that overall guidance reduction.

Thank you.

Let me add a point there just on when I talked about the pad, because nature has given us a real advantage here as well. The fact that we have three stacked clearwater sands. All of them are going to take producers. All those sands are going to be water flooded. And then actually some of the Grand Rapids is actually in there too. You could have four, maybe even up to five different zones. Now, when you think about building out infrastructure, roads, batteries, that sort of thing, to go to five different fields, that's a whole different cost structure than having these things stacked. The one well already, I think we've got 46 wells planned on one pad. So you can imagine the cost efficiencies that you get by that, consolidating all your operations, no big gathering lines, everything kind of right on the lease there. So it is a real advantage to have these things stacked.

Thank you. Our next question is for Mr. Steve Baitels. Capital investment in assets was low this quarter at $63 million. How should we think of capital phasing going forward?

Yeah, so it did come in lower than forecast, and part of that is reflected in the revised guidance on the capital side in terms of that 7% reduction. The team's done a great job, as Brian talked about, in generating better efficiencies and lower costs there with the big pad development. So as we look forward... here we would see capital, a range for capital in Q3 of somewhere around a midpoint of around $110 to $115 million, and then right around $100 to $105 million for Q4. That's going to get you to the midpoint of that revised $400 to $420 million capital guidance for the year.

Thank you. We have no more questions online for the online Q&A, so I'll pass it back to Mr. Brian Schmidt for final comments.

Well, thanks everybody that dialed in today. We're obviously very proud of what's going on. This is by far the best asset that I've managed in my career, and I think we're just starting to see, just touching what this can deliver here in the long term. It just seems like every quarter we go through, we get pieces of good news here that just make this place so attractive. So I just want to leave that with you. And Steve and I remain here for questions if you want to come in through the system or give either one of us a call. Thank you.

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