Tamarack Valley Energy Ltd. (TVE) Earnings Call Transcript & Summary

Good morning. Welcome, everyone, to the Tamarack Valley Energy Ltd. Conference Call and Webcast on Wednesday, October 29, 2025, discussing the recent third quarter 2025 results press release. I would like to introduce today's speakers, Mr. Steve Buytels, President and Chief Financial Officer; Mr. Kevin Johnston, VP Finance; and Mr. Ben Stoodley, VP Engineering. [Operator Instructions] Thank you. Mr. Buytels, you may begin your conference.

Good morning, and thank you. Welcome, everyone, to the call to discuss our third quarter operating and financial results. My name is Steve Buytels, President of Tamarack Valley. And today, I'm joined by Kevin Johnston, VP Finance; and Ben Stoodley, VP Engineering. This morning, Tamarack announced its Q3 results, another positive update to our 2025 guidance and a dividend increase. Highlights of the quarter. Corporate production averaged 66,126 BOE a day, reflecting the previously announced 2,000 BOE a day impact of planned service interruptions at a third-party gas processing facility in the Charlie Lake and maintenance turnarounds in the Clearwater. Our production guidance of 67,000 to 69,000 BOE per day remains on track for the full year. In terms of portfolio optimization, we continued with that strategy during the quarter. As we previously announced, Tamarack completed a $51.5 million synergistic tuck-in acquisition of a private company in the Clearwater, adding approximately 1,100 barrels a day of production and over 114 net stacked sections of Clearwater land, primarily in the West Nipisi area. We see significant operating infrastructure and waterflood synergies on the newly acquired assets. In October, we closed the sale of our remaining non-core producing assets in Eastern Alberta for $112 million and disposed of approximately $63 million of undiscounted asset retirement obligations. This transaction is expected to reduce net production expense corporately by approximately 10% per BOE on a full year run rate basis. Tamarack has now completed its transition to a pure-play Clearwater and Charlie Lake producer. Our strong base volumes and lower decline rates from expanded waterflood activities in the Clearwater, combined with the Clearwater tuck-in acquisition are expected to replace most of the production from the East asset divestiture in the fourth quarter of 2025 and has allowed us to maintain our full year guidance range. In terms of shareholder returns, Tamarack repurchased 6.7 million shares during the quarter, which represents 1.3% of the 2024 year-end share count. During the quarter, we returned $57 million to shareholders through a combination of the base dividend and share buybacks. Consistent with our strategy of growing shareholder returns, we also increased our annual base dividend by 5% to $0.16 per share per year. Tamarack plans to move the timing of dividends from monthly to quarterly payments beginning in 2026. In the first 9 months of the year, we have returned $194 million to shareholders through base dividends and share buybacks, representing a 6% return yield through the combination of both the dividend and the buybacks. In terms of the waterflood, we increased Clearwater waterflood injection volumes during the third quarter to exit at more than 30,000 barrels a day in September. This represents the updated 2025 exit target rate being achieved 3 months ahead of schedule. We expect 2025 exit injection rates to exceed 35,000 barrels a day, which would represent approximately 22% of our Clearwater production being under waterflood support. This equates to a 250% increase over 2024 exit water injection rates. This significant response in oil rates from waterflood have driven approximately 3,600 barrels a day of full year production growth this year, which has been a key driver in the positive guidance revisions. In terms of our capital structure and net debt reduction, during the quarter, we completed a $325 million note offering of 5-year 2030 senior unsecured notes. The proceeds of the offering were used to redeem $100 million of our existing 2027 senior unsecured notes with the remaining proceeds used to reduce the drawn portion of the credit facility. Tamarack ended the third quarter with net debt of $631 million, which represents a reduction of $144 million or 19% since the beginning of the year. With this note offering, Tamarack has laddered its debt maturity structure across several years and currently has undrawn credit capacity of over $700 million. In October, S&P raised our corporate credit rating from B to B+ as a reflection of Tamarack's ongoing debt reduction and strong operational performance. Ben is now going to walk through the latest developments in the Clearwater and Charlie Lake.

Thanks, Steve. Operationally, waterflood and the Clearwater is driving our growth, while the Charlie Lake continues to deliver strong repeatable performance. Clearwater production has grown by 11% year-over-year. This continues to demonstrate the success of our primary development and strong response for the ongoing expansion of Tamarack's waterflood program. Response from waterflooding continues to grow with a total production uplift from waterflood now estimated to be 4,500 barrels per day of oil. Year-to-date, Tamarack has drilled 20 injection wells, a source water well and have converted 13 producing wells to injectors. Tamarack is demonstrating the long-term value creation and resource capture capability of deploying waterflood as part of a multilateral development strategy in conventional heavy oil reservoirs. To demonstrate this, we can look at the highest producing well rates in the Clearwater during the month of September. 4 of Tamarack's wells under waterflood, the 16-02, 15-02 and 01-11 wells at Marten Hills and the 11-24 well at Nipisi were 4 of the 10 highest producing wells in the Clearwater in the month of September despite all of these wells being brought on production 3 or more years ago. In the month of September, these 4 wells produced at a daily rate of approximately 940, 930, 430 and 490 barrels a day, respectively. These 4 wells under waterflood have collectively produced nearly 2 million barrels of oil to date as of September. Tamarack plans to rig release 22 net producing wells and 2 injectors in the Clearwater in the fourth quarter of 2025. Our Charlie Lake asset continues to deliver strong results. The Charlie Lake produced approximately 14,000 barrels of oil equivalent during the quarter, reflecting planned service interruptions at a third-party gas processing facility in the Pipestone area. We continue to await start-up of the CSV Albright plant and are prepared to commence delivery of gas as the facility is currently in the final stages of commissioning. Delays to the start-up of the CSV Albright gas processing facility are not expected to have a significant impact on Tamarack's production for 2025 or 2026 with several mitigation plans already in place. Tamarack resumed drilling and completion activities with 4 net horizontal wells drilled and 3 net horizontal wells completed during the third quarter, and Tamarack plans to continue running a one-rig program for the remainder of 2025 and to rig release a total of 4 net wells in the Pipestone and Saddle Hills areas of the Charlie Lake in the fourth quarter of 2025. I'll turn it over to Kevin to expand on the financial results and our updated corporate guidance.

Thank you, Ben. Q3 2025 marks the completion of our multiyear transition to a pure-play Clearwater and Charlie Lake producer. In the quarter, we generated adjusted funds flow of $201 million or $0.40 per share, which was in line with 2024. Tamarack earned $96 million of free funds flow or $0.19 a share in Q3. In the first 9 months of 2025, Tamarack has generated free funds flow of $320 million or $0.63 per share, which is 17% higher than the first 9 months of 2024, even with WTI pricing 14% lower. This year-over-year increase reflects the compounding effects of production outperformance, lower cash costs and continued share buybacks. Since beginning our share buybacks in January 2024, Tamarack has repurchased 63 million shares, which represents over 11% of our 2023 year-end common share float. We believe that long-term share buybacks allow Tamarack to both accelerate and compound per share value. Since the fourth quarter of 2022, Tamarack has delivered debt-adjusted production per share and debt adjusted funds flow per share growth of 40%. The ongoing reduction in our share count allows us to increase our dividend while keeping the absolute dollar payout relatively unchanged. Tamarack's base dividend will increase by 5% to $0.16 per share annually, beginning with the November 2025 payment. As Steve mentioned, during the quarter, Tamarack completed the tuck-in acquisition of a private Clearwater producer, the disposition of non-core producing assets in Eastern Alberta and the bond refinancing. With all of this, Tamarack ended the quarter with net debt of $631 million, which represents approximately 0.6x net debt to the trailing 12 months EBITDA. Since the fourth quarter of 2022, we have reduced our net debt by $750 million and our net debt to the last 12-month EBITDA by an entire turn. Tamarack's balance sheet is in a very strong position with low leverage, a laddered maturity schedule and currently 75% undrawn on its credit facility. We announced 2 positive revisions to annual guidance with the quarter. First, given the continued margin enhancement and expected cost savings from the East asset disposition, we further reduced guidance for net production expense by 5% on the full year. Second, we reduced guidance for royalty expenses by 1 and 2 percentage points on both the low and high end of our guidance, given lower commodity prices and greater gas cost allowance credits. Year-to-date, net production expenses have declined by 19% compared to the same period last year. The East disposition is expected to further reduce our net production expenses by 10% per BOE go forward. Tamarack will be announcing its 2026 corporate guidance and capital program in early December. I will now turn it back to Steve for closing commentary before we open the call to questions.

Thanks, Kevin. We announced 2 executive updates this morning as well. First off, Kevin Screen, Tamarack's Chief Operating Officer, has decided to retire in January. Kevin joined Tamarack in 2011 as the Vice President, Production and Operations, and has served as the Chief Operating Officer since 2021. Kevin's 15 years of experience and integrity have been instrumental to the success of Tamarack are an important part of the company's foundation. We all wish Kevin and his family a happy, lengthy and healthy retirement. To ensure we keep one Kevin in the C-suite, Kevin Johnston, our Vice President of Finance, has been promoted to our Chief Financial Officer, effective January 1. Kevin joined Tamarack in 2023 and has been expanding his role since then to ensure a smooth transition. We'd like to congratulate both Kevins on these upcoming changes. Tamarack continues to be differentiated by the scale and quality of our assets. Through our recent acquisition and divestiture activity, we continue to build on both of those factors with the overarching goal of becoming one of the most profitable exploration and production companies in North America. There are 3 important themes I'd like to emphasize about Tamarack, which have been further demonstrated this quarter. First, the margin of profit on our barrels is consistently improving as we streamline into the best-in-class assets and drive down unit costs. Second, the Clearwater, aided by waterflood continues to deliver best-in-class economics with growing production and lower declines, driving enhanced free cash flow margin. And third, we continue to increase returns to shareholders through meaningful buybacks and growing dividends. These themes contribute to a sustainable business, where we see compounding free funds flow per share growth and sector-leading margins. This positions Tamarack uniquely across all commodity price cycles. Our focus maintains on maximizing the value of our barrels for investors, and we will continue to allocate capital and free funds flow in a manner that maximizes shareholder returns. We see the buyback and waterflood investments as our most attractive investments at modest commodity prices. On behalf of the executive team, we would like to thank our staff and Board of Directors in supporting the continued success of the company. Thank you. I will now turn it back to the moderator for questions.

[Operator Instructions] There are no questions at this time. I will now hand the call back to the management team.

Thank you. We will now read through some questions from the online Q&A. Our first question is for Mr. Ben Stoodley. Today, you announced Clearwater waterflood uplift of 4,500 barrels from waterfloods implemented prior to 2025. How many wells are responsible for these 4,500 barrels? Is the maximum expected from these wells? Or is the number expected to increase?

Yes. I think for that 4,500 barrels a day of uplift, we would attribute that to approximately 40 wells currently seeing response. They're in various portion or parts of the cycle of response. So some are inclining and some are quite stable. So I don't believe all of the patterns have reached their peak yet, and that will continue to evolve, but it's about 40 there.

Thank you, Ben. Our next question is for Mr. Kevin Johnston. Given Q3 end net debt and given the disposition closed in October, it seems that net debt is in the low to mid $500 million range presently. Can you give us an update as to whether the expectation is to hit the net debt target sooner than previously communicated?

Thank you. So it's important to note that the $630 million net debt we have as at Q3 includes the East disposition. So they're on our balance sheet as assets held for sale. So those proceeds are already reflected in that $630 million number. That being said, at our Investor Day in June, we were pointing to 2027 as when we saw ourselves kind of achieving our net debt target, and we do see that being accelerated with the recent success we've seen on lowering declines, waterflood performance and margin enhancement.

Thank you, Kevin. Our next question is for Mr. Ben Stoodley. The 1602 and 1502 wells are remarkable. In September, they produced more than double their primary production high. Are these unusual performances? Or do you expect to be able to rejuvenate other old wells to exceed their primary production highs?

Yes, we do expect this trend to continue, particularly in the Marten Hills area where we do have some older patterns. That's where 15-02 and 16-02 are. The other pattern we discuss often is our longest on injection W-pattern, which is the lateral flood. And it's now showing combined from the offsetting producers showing response uplift of almost 700 barrels a day. So it's also trending towards exceeding the initial peaks. We do have a large inventory of those wells, probably about 55 currently in the ground, and we continue to drill under these various waterflood patterns to build that inventory further. So we do expect these trends to continue across that area of the play.

Thank you. Our next question is for Mr. Steve Buytels. How much does the new barrel of Clearwater oil from waterflood compared to a new barrel from new drilling?

Yes. I think just sort of easy math, it would be probably about half depending on the style of the waterflood injection. If we're drilling new injectors, I'd say you're probably going to be in that $5 to $6 a barrel range. And if you are converting wells, which are old producers into injectors, the cost of that is probably about 1/3 of drilling a new injector. So you're going to see those costs on an F&D basis trend even lower. So again, I think we highlighted it last year in our really strong reserve report and our really strong F&D metrics. I think you'll continue to see as we put more waterflood that come through the business. And as Ben just talked about, specifically at Marten Hills, with the response we're seeing, the incremental recoveries we're seeing there, we hope to continue to see that trend of that overall cost per barrel moving lower from a finding and development perspective.

Our next question is for Mr. Steve Buytels again. With debt levels moderating, how is the company looking at M&A opportunities versus share repurchases and further dividend increases?

Yes. I think at the end of the day, as Kevin mentioned, we're ahead of where we would thought we'd be and forecasted at Investor Day with respect to debt levels. Obviously, the East asset sale has accelerated that. But at the same time, we continue to look at maximizing shareholder value. And as we've walked through, there's a combination of different things we can do with that. It's allocating capital appropriately. And here, we see waterflood investment being the most attractive at a lower commodity price. We put limited capital in the ground today, and we get a significant amount of production response in what we see is hopefully a better commodity environment. In terms of M&A, you can see that we added the Clearwater tuck-in acquisition during the quarter in conjunction with the disposition of the non-core pieces. So you still see us shuffling the deck, if you will, in terms of coring up the Clearwater. And I think our focus going forward will be continuing to do these smaller tuck-ins that offer synergies both on the infrastructure side, the operating side and potentially the marketing side with our barrels, and we've been successful in being able to do that. I think the other element, too, is the more we can get cored up and take advantage of our infrastructure with waterflood moving forward, you're going to see just enhanced full cycle profitability in the business. So those -- all those elements are going to play a part. And lastly, on shareholder returns, the buyback continues to be top of mind here. We want to be front-footed at these levels, even at these commodity levels, we see a growing return profile through our business at depressed pricing, and we want to get ahead of that. And Ben just walked through what we're seeing on the waterflood and the results and what they should indicate just moving forward from a reserve growth perspective and lower declines, lower sustaining capital, more margins. So again, shareholder returns are top of mind, and we continue to want to be front-footed there and be opportunistic there at this time.

Our next question is for Mr. Ben Stoodley. At a high level, what are some of the reasons why the waterflood in the Clearwater has worked as well as it has so far?

Okay. Our modeling and testing lands on really 2 primary reasons why that waterflood has been so exceptional. One is the characteristics of the reservoir. This includes the relative permeability to oil and water. This creates a very efficient flood where the water naturally displaces oil rather than fingering through the water phase. And then the other thing is just the large surface area we create by drilling horizontal and multilateral wells is such a large step change from a vertical waterflood. The rate at which your water is being injected is more like sweating into the reservoir or soaker hose rather than high rate injection, even though we are injecting at high rates. This caused the flood front to move very slowly through the reservoir. But despite that, the pressure front is moving quite quickly, and that's why we're seeing these disproportionate responses at the producing wells.

Our next question is for Mr. Steve Buytels. You touched on it in the financial statements, but can you speak to the strength in this quarter's production expense on a per BOE basis? How should we be thinking about the production expenses into 2026 compared to 2025 guidance?

Yes. I think when you look at that, we've guided to with the East asset disposition there, what that means for OpEx moving forward on a run rate basis. So we do see OpEx trending down into '26, and we'll update that here in December when we come out with the budget. But again, I think really when you look at it, as we core up into the Clearwater and in the Charlie Lake, you're seeing that more efficient, higher netback barrel come through, which is a function of, in a lot of cases, that lower OpEx that comes with the Clearwater. And again, the growth in the Clearwater and the growth just in production ahead of where we would have budgeted, obviously, is driving on a per BOE basis lower costs there as well. But I think ultimately, at the end of the day, our goal here is to core up into the 2 plays that we're in, the Charlie Lake and the Clearwater. We see best-in-class economics. And as we look at the budget here in December, that margin in that barrel should come through, and we'll provide more detail then.

Our next question is for Mr. Steve Buytels again. Tamarack mentioned it is able to mitigate the delays in onstream timing of the CSV Albright facility. But can you provide any timing updates on when the facility could be on stream?

Yes. And I want to be careful here because it feels like there's a lot of false starts with this one through the year, and there's been some different messaging. As we've highlighted in the press release on the quarter, and we've talked about previously, we've been able to do things to mitigate that. And we -- even if there is delays, we see that mitigation being handled through some other processing alternatives that we have. Again, we drill to fill those volumes corporately here to in the Charlie Lake to manage that. However, the latest update we did receive is that the plant was in the warm-up phase and that we could be seeing gas volumes moving through that plant here this week. I have not heard any change. So I think for now, we'd leave it at that. But again, as we look at it, and I want to make sure we drive the point home is even if there are further delays, we don't see any impact to our production guidance for '25, and we have different mitigating alternatives for 2026 as well should there be further delays.

Our next question is for Mr. Steve Buytels again. What is Tamarack's general view on A&D activity now that you finished disposing of the non-core assets in your portfolio?

Yes. We screen all A&D the same way. And for that matter, we actually look at capital investment or all the business decisions very similarly. And if it is accretive to the business on a debt-adjusted free funds flow per share basis, does it make our internal 8-year plan better by competing for capital with existing assets or inventory. Those are all things that we look at and how do we sit currently versus where that opportunity set could lead us? And what threshold in terms of does that rank higher than what we currently have in the portfolio exists. So we look at a lot of different things. But again, as I mentioned earlier, tuck-ins in the Clearwater where we can leverage our infrastructure, our operating experience, the waterflood footprint, they're going to make a lot of sense for us. However, again, we'll be very disciplined with it. And again, the other thing I would say there, too, is it also has got to compete with our ability to buy back our own stock in many different ways. So I think we've shown the Street that we've been very disciplined. We've had a plan in terms of what we want to bring in, and we'll continue to look at all of that from an opportunity perspective. But it's got to be accretive to the underlying earnings potential of Tamarack.

Our next question is for Mr. Kevin Johnston. Are you considering adopting a DRIP program?

So we've been discussing we see great value in buying back our shares and reducing our share count. A DRIP program, you're issuing additional shares for your dividend, so kind of going the wrong way. So we're not looking at a program at this time. But any investors who want to use their dividends to buy additional Tamarack stock options available.

We have no more Q&A questions online. So I will pass it back to Steve to finish off the call.

Yes. Again, we just want to thank all our shareholders, our staff for the support here in the success of the company and the patience that you've had as we've transformed the company, but we're really excited now with where we're at in terms of being a pure-play Charlie Lake and Clearwater producer. And hopefully, here, we'll talk to you guys again in December with what could be a good update on the future of the company with those core assets in place. Thank you.

Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.